Blue J Folio Sample: Tax Consequences of Cryptocurrency Transactions

May 27, 2022

Blue J Folios are workspaces that serve as focused starting points for your tax law research. Our tax experts have collected and annotated the relevant statutes, regulations, cases, and guidance from the IRS. Where applicable, they have also created diagrams illustrating the ownership structure or the transaction that is subject to the statute, regulation, case, or tax guidance, all providing you with a substantial head start. Be inspired to use this workspace to pool your knowledge on this topic and build upon it using Blue J’s tools (e.g., Diagrams, Statute Analysis, Decision Search).

Our latest Blue J Folio looks at the tax consequences of cryptocurrency transactions. We have gathered the most relevant IRC sections as well as the available IRS guidance on how they apply to tax on cryptocurrency. Key definitions and a brief introduction to the relevant technology are included to provide as much clarity regarding the tax consequences of cryptocurrency transactions as is achievable on this nascent topic. You will also find links to the key tax forms and selected commentary, e.g., from the ABA and AICPA. Here is what you can expect to find in this Folio. 

The Most Relevant Sections of the IRC for Tax on Cryptocurrency

We have identified 12 sections of the IRC that will often apply in the context of cryptocurrency transactions, while they do not reference cryptocurrency themselves. These include § 61 – Gross Income Defined, §§ 1011, 1012, 1016 – Adjusted cost basis, § 1221(a) – Capital Asset Defined, § 1222 – Definitions of short-term and long-term capital gains and losses, and sections relevant to gifts, inheritances and charitable contributions. Most of the provisions do not explicitly reference cryptocurrency, but the IRS indicated that they are nevertheless applicable to the taxation of cryptocurrency. We also include proposed legislation that is specifically tailored to the taxation of cryptocurrency. 

Laws Regarding Cryptocurrency Tax Treatment

The Folio provides an overview of relevant statutes and regulations that can apply to cryptocurrency transactions. In some instances, you will find that there is no explicit IRS guidance on how a specific type of cryptocurrency transaction should be treated for tax purposes. Still, since penalties may apply despite a lack of clear guidance, it is paramount to be aware of the possible consequences of cryptocurrency transactions, so that the necessary steps can be taken to mitigate any risk of exposure to penalties and project tax liabilities and explore deferral possibilities.

The Necessary Forms to Report Tax on Cryptocurrency

There are three main forms a taxpayer who engaged in cryptocurrency transactions may need to fill out. While crypto transactions are still a novel concept to some, the IRS is keen on tracking transactions and ensuring the appropriate information is reported. 

The Blue J Folio is an easy-to-navigate resource. Along with the relevant, annotated Code provisions, we gather the available IRS guidance that pertains to the section. In this way, you have everything you need at your fingertips, providing an excellent starting point for you to dive into the research your particular file requires. Equipped with a Blue J Folio, you are able to advise clients in the best possible way, saving you hours of research time, and your client a lot of money. 

Check out our Blue J Folio Sample: Tax Consequences of Cryptocurrency Transactions and get a head start on your research.