Under U.S. tax law, cryptocurrencies are treated like property. As a result, each time someone buys, sells or exchanges a digital asset, it is considered a taxable event and the capital gains tax applies. The Internal Revenue Service is of the view that many reportable transactions go unreported. One method it is adopting to try capture such taxes is that, starting in 2020, the very first question on the standard 1040 Form is whether “at…
On October 9, 2019, the U.S. tax authority (the Internal Revenue Service or “IRS”) released Revenue Ruling 2019-24 providing guidance on the U.S. income tax treatment of hard forks and airdrops of cryptocurrency (see our prior post about this guidance). On December 20, 2019, eight members of the U.S. Congress sent a letter to the Commissioner of the IRS stating that they were “concerned that this recent guidance raises many new questions related to the…
Historically, U.S. tax law has allowed a taxpayer to exchange one investment property for another and defer the income tax consequences of that exchange so long as both the relinquished property and the acquired property are sufficiently similar—along with several other requirements. This type of tax-deferred exchange is referred to as a Like-Kind or Section 1031 Exchange. Without this Like-Kind Exchange treatment, a taxpayer would owe income tax on the increase in value of the…
The UK tax authority, HM Revenue & Customs (“HMRC”), published, on November 1, 2019 guidance for companies and businesses on how tax transactions involving cryptoasset exchange tokens (such as Bitcoin) will be taxed. This covers liability to corporation tax, capital gains tax, employment taxes, VAT and stamp duties. Much will depend on whether or not the activity involving exchange tokens amounts to trading or not. Following are the key points for businesses. Cryptoassets are not…
The U.S. Internal Revenue Service (“IRS”) released Revenue Ruling 2019-24 on October 9, 2019 providing guidance on the U.S. income tax treatment of hard forks and airdrops of cryptocurrency. Revenue Rulings are an official interpretation of the U.S. tax laws by the IRS and intended to guide taxpayers in addressing their income reporting and tax obligations. This Revenue Ruling supplements the first and only cryptocurrency-related guidance issued by the IRS in 2014. The IRS described…
On Jan. 14, 2019, Danish tax agency Skattestryrelsen received authorization from the nation’s tax council to collect two years of cryptocurrency trading information from three Danish crypto exchanges to ensure that its citizens have paid correct taxes. The three exchanges must now provide the tax agency with information on all purchases and sales of cryptocurrencies – including Bitcoin – made by their customers during the period from Jan. 1, 2016 through Dec. 31, 2018. Customer…
This week HM Revenue & Customs (“HMRC”), the UK’s tax authority, set out its view on how individuals should be taxed when handling cryptoassets which can be used as a method of payment, such as Bitcoin. There are no significant surprises in HMRC’s guidance, which relies on existing principles to determine whether income tax or capital gains tax applies. However, when dealing with cryptoassets, individuals should be aware that they may be subject to additional record keeping obligations and may be required to submit a self assessment tax return in some cases.
Lithuania becomes the latest jurisdiction to release guidance in relation to ICOs. On 8 June 2018, the Lithuanian Government released new Guidelines to deal with what it referred to as an “explosion of ICOs” in the country. Lithuania heralds itself as a leader in FinTech and has published the ICO Guidelines as a step towards more “certainty and transparency in the regulatory, taxation [and] accounting” requirements of ICOs, and also, importantly, to encourage the crypto…
In Ukraine, two draft laws which aim to set out the legal basis for blockchain/cryptocurrency businesses in Ukraine have been proposed. The first draft law first submitted in October 2017 is concerned with taxation and provides for decreased corporate income tax, which is to be applied to margin earned on cryptocurrency deals (rather than turnover) and provides rules for the application of VAT. The latest draft law (reported here) seeks to define distributed ledger and smart contract…
Among the many areas of law that will have to continue to evolve around cryptocurrencies is the tax law. In the United States, as far back as 2014, the Internal Revenue Service issued Notice 2014-21 which clearly stated that virtual currency is treated as property for U.S. federal tax purposes. That meant, among other things that: Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on…