Devin Black

IRS Crypto: The Form 1040 Schedule 1 May Now Ask If You Own Crypto

The IRS has circulated a draft of the new Form 1040 Schedule 1: Additional Income and Adjustments to Income. You'll notice a prominent new addition this year: the form asks taxpayers whether they have owned or traded cryptocurrency.

The question, which is answered with either a Yes or No, asks: 

At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?

This form is only a draft, but it’s significant to see this kind of question appear on one of the most common tax forms that taxpayers include with their return.

1040 Schedule 1 IRS Tax Form Draft

In the associated publication 5084, the IRS states:

Taxpayers who file Schedule 1 to report income or adjustments to income that can’t be entered directly on Form 1040 should check the appropriate box to answer the virtual currency question. Taxpayers do not need to file Schedule 1 if their answer to this question is NO and they do not have to file Schedule 1 for any other purpose.

What do I need to do?

This development follows other recent IRS methods to enforce crypto taxation, like the new IRS guidance on crypto topics like hard forks and specific share identification, as well as deliverance of IRS letters and even CP2000 notices.

While it is currently unclear, you may need to include the Form 1040 Schedule 1 with your return, even if you have no other additional other income, so that you accurately indicate to the IRS that you have transacted with crypto.  

This form is only a draft — how likely is the question to be in the final version?

So far, this draft has only been circulated among journalists and tax software companies; only when the final form is released will we know if the question is here to stay. However, its inclusion on a Form 1040 draft alone is evidence enough that the IRS intends to enforce crypto taxation. 

While the first page of the 1040 Schedule 1 draft explicitly states that the document is a draft that should not be filed, it also states:

We generally do not release draft forms until we believe we have incorporated all changes, but sometimes unexpected issues arise, or legislation is passed.

This means that, barring any sudden changes, it’s very likely that we’ll see this question go live, making it more important than ever to properly handle your crypto taxes.

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