The AICPA and its volunteer committees and the AICPA Virtual Currency and Digital Assets Tax Task Force members are hearing questions from members about messages taxpayers have received from their software provider that tracks virtual currency and digital asset activities. Some taxpayers are receiving information from their software provider indicating that the software may migrate users to a new cost-basis tracking method. Members are asking whether changes in basis tracking constitute an accounting method change, requiring them to file Form 3115, Application for Change in Accounting Method, and to make a Sec. 481(a) adjustment.
There is no clear guidance from the IRS on this emerging technical area. Although how the IRS may approach the basis-adjustment change is unknown, it is advisable for practitioners to understand how these software systems track basis and report gains and losses for the current year and whether methodologies are consistent from one year to the next.
Practitioners should determine if the revised tracking system could result in duplication or omission of any gains or losses on sales or exchanges of the virtual currency/digital assets. If a client is using tracking software, the practitioner should consider asking the client if there have been any changes in basis reporting with the software and how the software tracks basis.
Exchanges (and perhaps other "brokers") will soon be required to report information on sales and basis of digital assets per changes made to Sec. 6045 in the Infrastructure Investment and Jobs Act, P.L. 117-58 (likely using a new Form 1099-DA). Proposed regulations are expected soon, and they might address options for tracking basis. The calculation of gains and losses and basis are discussed in Secs. 1001 through 1016 and the related regulations. The IRS provided nonbinding information on basis tracking in its virtual currency FAQs, particularly FAQs 39 through 41.
Members should also review the AICPA's Statements on Standards for Tax Services for professional responsibilities pertaining to potentially uncertain tax positions and consider filing a Form 8275, Disclosure Statement, if appropriate.
The AICPA and its volunteer committees and the Virtual Currency and Digital Assets Tax Task Force will continue to monitor the issue and provide updates to members as the IRS provides guidance. For more information and resources on the taxation of digital assets, see the AICPA Virtual Currency and Digital Assets Tax Guidance and Resources hub.
— Annette Nellen, Esq., CPA, CGMA, is the chair of the AICPA Virtual Currency and Digital Assets Tax Task Force, is a professor in the Department of Accounting and Finance at San José State University in San José, Calif., and is a past chair of the AICPA Tax Executive Committee. Susan Allen, CPA/CITP, CGMA, is a senior manager–Tax Practice & Ethics with AICPA & CIMA, together as the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Alistair Nevius at Alistair.Nevius@aicpa-cima.com.