 Internal Revenue Service IRS Tax News! IRS reminds taxpayers they must check a box on Form 1040, 1040SR or 1040NR on Virtual Currency Transactions for 2021. Uh oh, that doesn't sound good. Did you use Virtual Currency last year? Did you? You will be identified and put on a list. But don't worry, it'll be a good list. Not in any case, first an attempt at a joke, I apologize in advance. If we assume P stands for the President being honest about the causes of our inflation problem, getting prices down will be as difficult as hearing a pterodactyl urinate. Due to the silent P, luckily we do have other senses making us aware of the sticky hot wet mess we're experiencing. Wouldn't the world be a better place without dang inflation, pterodactyls overhead, and silent P? Let's face it. The President is somewhat of a mean old dinosaur these days. I think he even hates Christmas, mainly because every time he sees Santa's sleigh coming down to land on someone's roof, he trembles in fear at Santa's flying reindeer. The one named Comet? Apparently we can't spare many weapons for Ukraine because all our national defenses have either been recalibrated to shoot down Santa or left in Afghanistan. We especially need those fighters jets as an offensive weapon against Santa and his Comet. But luckily we may be able to negotiate back some of our weapons from Afghanistan because we've re-implemented the bold strategy of negotiating with terrorists and tyrants again. Basically to beg for oil of course. Because we refuse to drill oil from this resource rich country of ours or do business with our friendly neighbors in Canada. You see, having the only large country in the world that actually cares about global warming, the energy dependent on terrorists and terrorists who do not give one cold and released carbon emission about global warming is how the world will solve global warming. IR2022-61, March 18, 2022 Washington. The IRS reminds taxpayers that there is a virtual currency question at the top of Form 1040, Form 1040SR, and Form 1040NR. It asks, quote, at any time during 2001, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency? End quote. Did you? We'd like that question answered, por favor, if you would. All taxpayers filing Form 1040, Form 1040SR, and Form 1040NR must check one box answering either quote yes and quote or no to virtual currency question. The question must be answered by all taxpayers, not just taxpayers who engaged in a transaction involving virtual currency in 2021. So if you didn't involve yourself in virtual currency, we still want you to actively participate and give us the yes or the no, the yay or the nay so that we can properly categorize this important information so that just for, you know, just so we know, just so we have a list, just to have it. So when taxpayers can check no, taxpayers who merely own virtual currency at the end of time in 2021 can check the no box when they have not engaged in any transactions involving virtual currency during the year or their activities were limited to holding virtual currency in their own wallet or account, transferring virtual currency between own wallets or accounts, purchasing virtual currency using real currency, including purchases using real currency, electronic platforms such as PayPal and Venmo engaging in a combination of holding, transferring or purchasing virtual currency as described above. So obviously they're concerned with the virtual currency because it's something that they don't kind of have a strangle hold on at this point in time with regards to reporting requirements. It's kind of like cash. Obviously the government tries to kind of eliminate cash. They kind of don't really like cash based businesses. So like things like restaurants, nail salons, you know, haircut salons and stuff like that are things that traditionally the IRS doesn't really like because they're cash based businesses and the customer is not a business. So you can't really force the person paying to give a 1099, which again, I have a theory that that's kind of why they crack down on those kind of businesses during the COVID thing. It's not really about, you know, they're just like, this is our chance to crack down on those cash based business. But in any case, maybe that's, maybe that's just not, that's just a conspiracy. But I kind of have, I have my suspicions, but obviously the virtual currency is another kind of area that now they want to make sure that they could get some reporting requirements on. And so that's really what they're looking into. Now if you're looking at, you're using some of these kind of platforms like a PayPal or Venmo, just to facilitate the transactions, you would think that's not exactly the type of thing that they're really kind of trying to crack down on. They're trying to look at people who are having exchanges in virtual currency and possibly having gains and loss due to the swings in virtual currency. So once again, let's look at them again, holding virtual currency in their own wallet or account. Let's see this one, taxpayers who merely own virtual currency at any time in 2021 can check no. So when can I check no? And if you check no, that means you're not on the IRS's list or whatever, whatever this list is that they're building. When they have not engaged in any transactions involving virtual currency during the year or other activities were limited to holding virtual, virtual currency in the wallet. So if you're just holding onto it and you haven't like sold it, then you don't really have a, you don't have a gain on it. And so, so they might, that might be not something that they're concerned with transferring virtual currency between their own wallets. So if it goes from one of your own wallets to another of your own wallets, again, you're not really exchanging it and having a gain or loss or that kind of activity on it. Purchasing virtual currency and using real currency, including purchasing, using real currency, electronic platforms such as PayPal or Venmo. So on the purchasing side of things, you may not have had gains or losses and so on on the purchasing side. It's when you basically start exchanging, you would think or paying for things and virtual currency where things get a little dicey in terms of gains and losses and whatnot, engaging in a combination of holding, transfer and purchasing virtual currency as described above. So then those mixing and matching of those things above. When taxpayers must check yes, the list below covers the most common transactions in virtual currency that require checking the yes box. So the receipt of virtual currency as a payment for goods or services provided. So now if you're going to be accepting virtual currency as payment, then the IRS is going to be is looking into that more because again, those are transactions that they don't have as much of a lockdown in terms of how to regulate. And then once you actually spend the virtual currency, there could be a question in terms of did the virtual currency go up or down in value since you purchased it? Should you be recording it like a gain or loss on the value of the fluctuation in the currency? For example, the receipt of transfer of virtual currency for free without providing any consideration that does not qualify as a bonafide gift. The receipt of new virtual currency as a result of mining and staking activities. So that one, you would think that they would probably try to try to charge you income on that, right? Because you're mining for virtual currency. So you would think that they would try to say, hey, that's work. We want a share that. So the receipt of virtual currency as a result of a hard fork and exchange of virtual currencies for property goods or services. So again, if you're spending the virtual currency directly on goods or services, then you're using the currency at its current market value. And you might have a gain or loss if they're going to try it. And exchange trader virtual currency for another virtual currency. So now, again, you're exchanging virtual currencies on the market. Could be a gain or loss kind of thing in that you would think. A sale of virtual currency. So if you sell the virtual currency, then the IRS thinks of it kind of like stocks and bonds that you would have to report the gain on the currency exchange. Only other disposition of financial interest in virtual currency. Any other disposition of financial interest in virtual currency. So if a taxpayer disposed of any virtual currency that was held as a capital asset through a sale, exchange, or transfer, they must check yes and use form 8, 9, 4, 9 to figure their capital gain or loss and report it on schedule D. So the IRS basically thinks of the virtual currency kind of like the stocks and bonds. So that every time when you buy it, not really an issue, but then the value of the currency is going to fluctuate greatly. And then when you sell it, you might have kind of a gain or loss on it. And that's when the IRS wants to step in. And obviously, if you don't sell it, but you simply exchange it for goods and services, you have the same kind of thing because now you're purchasing something at the current market value of the virtual currency, you would think, and once again, the IRS is going to say, well, then you would think they would try to get the gain or loss, but basically on the purchase of that. So it gets complicated in that sense. And again, there's kind of debates in terms of how complicated is the government trying to make the use of virtual currency or not? Is the government trying to make it a virtual currency be a viable option that kind of people can use for various reasons or are they actively downplaying or making it difficult to make exchanges in virtual currencies to try to reserve other currencies, fiat currencies as the dominant currencies? So there'll be debate on that as all this stuff unfolds. So if a taxpayer received any virtual currency as compensation for services or disposed of any virtual currency that they held for sale to customers in a trade or business, they must report the income as they would report other income of the same type. For example, W2 wages or form 1040, 1040 SR, 1040 NR, line one or inventory or services from schedule C, schedule one. So if you've got paid in virtual currency, just like if you got paid in a barter or something like that of trade, then it's still income and the IRS wants their cut of it. So for more information, see page 17 of the 2021 form 1040 instructions and visit virtual currency for general information on virtual currency and other related resources. There's links to those items here and there'll be a link to this in the description.