According to IRS Officials: Like-Kind Not Allowed For Crypto (Updated)
Update 11/16/2019: The IRS has walked back over their previous comments, stating that the agency doesn't have a blanket policy that would disallow use of like-kind for pre-2018 transactions. Rather, the agency will make a determination per taxpayer, depending on their facts and circumstances.
New comments from the IRS have come out at the AICPA National Tax Conference, according to Bloomberg Tax. It should be noted that these were verbal statements made earlier today. We have requested official confirmation from the agency regarding these new developments.
Like-kind exchange may not be allowed for crypto
Crypto taxpayers may retroactively be disallowed from filing their crypto taxes with like-kind treatment. This statement comes from Suzanne Sinno, an attorney in the IRS Office of the Associate Chief Counsel, during the AICPA National Tax Conference today, November 13th.
According to Sinno via Bloomberg, the IRS never considered like-kind exchange to apply to cryptocurrency. This means that like-kind being disallowed could retroactively apply to those who have filed crypto taxes with like-kind treatment.
While like-kind exchange treatment was explicitly only allowed for real estate transactions starting in 2018, before it was unclear as to whether it could be used for cryptocurrency, with some taxpayers electing to calculate their taxes with like-kind treatment.
Crypto to crypto trades are considered taxable events, but with like-kind treatment, trades of crypto for another cryptocurrency don't trigger a taxable event, deferring gains only to when one sells for fiat.
Promotional airdrops and income tax
The new crypto tax FAQ clarified that hard forks and airdrops should recognized as income tax for their value at time of receipt. This caused controversy, with many arguing that airdrops could be abused, leading to unexpected tax liability. Promotional airdrops — airdrops of tokens freely sent out to promote a new cryptocurrency or service — could also count as unexpected tax liability.
Christopher Wrobel, also an attorney with the IRS Associate Chief Counsel office said that the ruling on taxation of airdrops may not apply for such promotional airdrops, but the IRS has not ultimately decided the tax treatment of these promotional airdrops.
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