- The IRS has added a question about receiving or disposing of digital assets like cryptocurrency to more tax forms in order to boost compliance with crypto tax rules.
- The question now appears on Forms 1041, 1065, 1120, and 1120-S in addition to certain 1040 forms. Taxpayers must answer “yes” if they received or disposed of crypto in various ways.
- Taxpayers must report crypto transactions like selling, exchanging, mining, staking, getting paid in crypto, etc. Just holding or transferring crypto does not require a “yes.”
On January 22nd, the IRS reminded all taxpayers to answer a question about digital assets on their 2023 tax returns. The agency also stressed that taxpayers must report any income related to cryptocurrencies and other digital assets.
The Digital Asset Question
The question asks:
“At any time during 2023, did you:
a) Receive (as a reward, award, or payment for property or services); or
b) Sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”
The IRS defines digital assets as convertible virtual currencies, stablecoins, non-fungible tokens (NFTs), and more. Taxpayers must answer yes or no.
Additional Tax Forms Now Include the Question
Originally, this question only appeared on certain 1040 income tax return forms. However, the IRS has now added it to four more tax forms:
- Form 1041 (U.S. Income Tax Return for Estates and Trusts)
- Form 1065 (U.S. Return of Partnership Income)
- Form 1120 (U.S. Corporation Income Tax Return)
- Form 1120-S (U.S. Income Tax Return for an S Corporation)
What Triggers a “Yes” Response?
Taxpayers must answer “yes” if they received or disposed of digital assets in various ways during 2023. This includes:
- Receiving digital assets as payment or rewards
- Selling, exchanging, or otherwise disposing of digital assets
- Receiving assets from mining, staking, or hard forks
Mere holdings, transfers between wallets/accounts, or purchases using fiat currency allow answering “no.”
The Takeaway
By expanding the digital asset question to more tax forms, the IRS aims to boost taxpayer compliance amid its ongoing crypto crackdown. All taxpayers must now declare any cryptocurrency income or transactions on their 2023 returns.
