AICPA recommends changing cryptoasset question

By Paul Bonner

The AICPA submitted comments and recommendations to the IRS Monday regarding further guidance on the tax treatment of cryptoassets and the question about them that individual income tax returns now carry.

The letter, signed by Jan Lewis, CPA, chair of the AICPA Tax Executive Committee, to IRS Commissioner Charles Rettig and Principal Deputy Chief Counsel William Paul, makes five recommendations regarding the question, which has appeared in Form 1040, U.S. Individual Income Tax Return, and some other forms in the 1040 series since tax year 2019, asking filers about their dealings in "virtual currency." In a draft version of Form 1040 for tax year 2022 released on July 27, 2022, the question refers instead to "digital assets."

In 2019, the question appeared on Schedule 1 of the form; since then, it has been on the front page of the main part of Form 1040. It also has differed year to year, and the AICPA's comments and suggestions focus on pinning the query to uniform, clear, and authoritative meanings.

'Virtual currency' definition

The first recommendation suggests making "virtual currency" as defined in the Form 1040 instructions consistent with that of official IRS guidance, principally in Rev. Rul. 2019-24 and Notice 2014-21.

Currently, these definitions differ in significant ways, the letter pointed out. For example, the form instructions list three attributes of virtual currency — that it functions "as a unit of account, a store of value, or a medium of exchange" — with that (here emphasized) conjunction "or" implying that if any one of the three functions applies, the transaction may have involved virtual currency. Rev. Rul. 2019-24, however, lists these functions identically (although in different order), except that there, they are all joined by "and," implying that all three functions must be present.

More to the point, none of those three phrases is defined — not in the form instructions, in frequently asked questions, or in IRS official guidance, the letter noted.

Form 1040 instructions for 2021 say any asset with "characteristics of virtual currency" will be treated as virtual currency. The phrase "characteristics of" "creates confusion and is potentially broad beyond the definition of virtual currency provided in IRS binding guidance," the letter stated.

Digital assets

The new term in the 2022 draft Form 1040 question is borrowed from Secs. 6045 and 6045A, the new requirement that brokers of digital assets file an annual information return with details of their customers' specified transactions.

Sec. 6045(g)(3)(D) defines a digital asset for this purpose as "any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary" (emphasis added). The latter phrase leaves open the possibility that the definition may yet change as regulations are issued. Thus, until such final regulations are issued, Form 1040 should continue to use the term "virtual currency" rather than "digital asset," the AICPA recommended.


The AICPA noted that, even in its brief history, the question has evolved to become ever more complex and therefore potentially confusing for taxpayers.

The draft 2022 question runs to nearly 40 words: "At any time during 2022, did you: (a) receive (as a reward, award, or compensation); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)? (See instructions.)." In its place, roughly half that number of words would do, the AICPA suggested: "At any time during 2022, did you have a taxable event involving virtual currency? See instructions." That could be followed by two checkboxes, yes or no.


While the Form 1040 instructions for 2021 include nearly a page on the virtual currency question, few examples accompany them. The AICPA suggested nine specific examples of taxable events and four instances of nontaxable ones that the instructions could include.

Transactions by nonfilers and dependents

As they stand now, the instructions do not address whether an individual who otherwise does not have a filing obligation because their income is below the filing threshold must file a return to answer the question. The instructions should clarify that no return is required just to answer the virtual currency question, the AICPA said.

Also, some taxpayers' dependents may have a virtual currency transaction, but again are not required to file a return because their income is below the filing threshold. The instructions are currently unclear as to whether the filer has to answer the question "yes" despite not being the direct owner of the virtual currency. This, too, should be clarified, the AICPA said.

— To comment on this article or to suggest an idea for another article, contact Paul Bonner at

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