US IRS Releases New Reporting Guidelines for Digital Assets

The US Internal Revenue Service (IRS) has released updated guidelines for reporting digital assets, clarifying the taxation of non-fungible tokens (NFTs) and stablecoins as well.

The IRS’ draft 2022 tax year guide has placed cryptocurrencies, stablecoins, and NFTs into the same category of ‘digital assets’ for taxing purposes.

It stated that,

“Digital assets include [NFTs] and virtual currencies, such as cryptocurrencies and stablecoins. If a particular asset has the characteristics of a digital asset, it will be treated as a digital asset for federal income tax purposes.”

The latter sentence seems to allow room for any further developments in the crypto space to potentially be included in this category.

The 2021 guide, meanwhile, used only the term “virtual currency,” and it did not have specific instructions for stablecoins and NFTs.

That said, NFTs will not be taxed the same as art under this draft, as it is not defined as such. Instead, it is seen as an asset, and not a collectible. For example, when an artwork is sold, a capital gains tax needs to be paid, which in the US is generally 28%. For crypto, this ranges between 0% and 45%, depending on a variety of factors.

All taxpayers need to reply to the question on digital assets, the draft guide stated, instructing people not to leave this field blank, and saying that,

“The question must be answered by all taxpayers, not just taxpayers who engaged in a transaction involving digital assets.”

The taxpayers are to check ‘yes’ to the question if during 2022 they:

• received digital assets as payment for property or services provided, or as a result of a reward or award, hard fork, mining, staking, and similar activities;
• disposed of digital assets in exchange for property or services, or in exchange or trade for another digital asset;
• sold a digital asset;
• transferred digital assets for free as a bona fide gift;
• otherwise disposed of any other financial interest in a digital asset.

It is generally not required to check ‘yes’ for:

• holding a digital asset in a wallet or account;
• transferring a digital asset from one wallet/account a person owns or controls to another;
• purchasing digital assets using the US or other “real currency”, including via platforms such as PayPal and Venmo.

The text has kept the phrase “real currency” when referring to fiat in comparison with digital assets. 

Meanwhile, in September, the IRS received authorization from a US district judge to hunt down individuals who attempt to sidestep taxes on their crypto transactions. The order came at a time when digital asset adoption was seeing a surge, and the number of crypto tax evaders was subsequently increasing.

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