IRS Notice 2014-21: Cryptocurrency Taxation | Boxelder Consulting

Basic Tax Treatment of Cryptocurrency in IRS Notice 2014-21

Cryptocurrency is Classified as Intangible Personal Property

The tax issues of cryptocurrency have been very prominent in the media lately. Slowly but surely, the IRS is catching up with the cryptocurrency world and is beginning to nail down the finer points of cryptocurrency taxation.

Bitcoin

These days, there are lots of people who have cryptocurrency holdings and aren’t sure about how to pay taxes on their gains. This is expected. Cryptocurrency is barely 10 years old. Bitcoin was first introduced back in January of 2009. Many people in the cryptocurrency space simply had no idea how to apply existing tax principles to their property. This is why the IRS has issued multiple documents on cryptocurrency taxation.

Notice 2014-21 is one of the key documents on cryptocurrency taxation. This document established the fact that the IRS classifies cryptocurrency as “intangible personal property.” Essentially, this puts cryptocurrency in the same category as stocks, bonds, and other types of intangible personal property. This is the main contribution by Notice 2014-21.

The IRS then goes on to say that the same general tax principles which apply to other personal property will also apply to cryptocurrency. This means that cryptocurrency gains can be taxed as either ordinary income, or as capital gains, depending on how the property is held.

Cryptocurrency Taxation Depends on How It is Held

The IRS has a FAQ section in Notice 2014-21. These FAQs tackle some of the basic issues which come up as a result of cryptocurrency’s classification as personal property. The key takeaway from these FAQs is that cryptocurrency can produce ordinary income or capital gains depending on the holding.

If an investor buys cryptocurrency and holds it for investment, then it will produce capital gains. If an employee receives cryptocurrency as wages, then the cryptocurrency compensation will be taxed as ordinary income according to its Fair Market Value (FMV). If a cryptocurrency commercial exchange engages in transactions, then those transactions will trigger ordinary income. Receipt of $600 or more of cryptocurrency by an independent contractor will require the filing of a Form 1099. Again, the value of the cryptocurrency is based on its FMV in USD, at the time of receipt.

Reach Out to Boxelder Consulting for Additional Information

This serves as a good general introduction to the provisions of Notice 2014-21. Cryptocurrency is classified as property, and the same tax principles which apply to other personal property apply to cryptocurrency.

Many people in the cryptocurrency space are confused when it comes to determining their cryptocurrency tax liability and bringing their account with the IRS up-to-date. This is where Boxelder Consulting comes in. The professionals at Boxelder Consulting can help you navigate the applicable tax laws, determine your liability, and even help you resolve your back crypto tax debt in an optimal fashion.

If you have old cryptocurrency gains, you may need to file an amended return, an OIC, installment agreement, or other solution. We’re here to help. Give us a call today for more information at 303-317-6111.

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About the Author

A company founder standing by Colorado's Front Range

Tom Conradt

Co-Founder, IRS Collections Defense Attorney

Tom Conradt is the co-founder of Boxelder Consulting & Tax Relief, and has been practicing IRS Collections defense law for the past ten years. Graduating from the University of North Carolina at Chapel Hill, Tom is the lead IRS Collections Defense Attorney and heads the tax resolution department. Tom’s favorite part about working at Boxelder Consulting is hearing about the relief that clients experience after they sign up and start seeing immediate results on their case. Tom enjoys all the outdoor activities Colorado has to offer, including skiing, hiking and climbing. He is also looking forward to the return of indoor pickup basketball.

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