The Internal Revenue Service (IRS) has updated the crypto section in the 2022 draft instructions for tax form 1040. “For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins,” the tax agency detailed.
New IRS Instructions for Tax Form 1040
The Internal Revenue Service (IRS) released its 2022 draft instructions for tax form 1040 last week. Form 1040 is the tax form used for filing individual income tax returns in the U.S. The new instructions contain several changes relating to cryptocurrency.
The section titled “Virtual Currency” has been replaced with one titled “Digital Assets.” The IRS detailed:
Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.
In contrast, NFTs and stablecoins were not mentioned in the 2021 instructions for tax form 1040.
The instructions explain that taxpayers must check the “Yes” box next to the question on digital assets on page 1 of the tax form 1040 if at any time during 2022, they “received (as a reward, award, or payment for property or services)” or “sold, exchanged, gifted, or otherwise disposed of a digital asset (or any financial interest in any digital asset).”
The 1040 draft tax form for the year 2022 was released in August.
Matt Metras, an enrolled agent and cryptocurrency tax specialist at MDM Financial Services in Rochester, New York, was quoted by CNBC as saying Monday:
I think that’s a good change. People who trade things like NFTs would not think of that as a virtual currency.
He added that the IRS’ “broader language” may include new categories, such as taxpayers receiving digital assets from “play-to-earn games.” Metras noted: “The IRS is always going to be behind the eight ball because they just can’t keep up with how fast the crypto space is changing.”
Miles Fuller, head of government solutions at Taxbit and former senior counsel with the Office of Chief Counsel at the IRS, was quoted by Bloomberg as saying:
The IRS is ramping up by coalescing their terminology around this digital asset term.
“So it means that it’s more likely than not in the near future, we’re gonna see those regs come out and the IRS continuing to move forward with sort of implementation of a regulatory regime,” he opined. “Probably sooner rather than later.”
What do you think about the IRS’ revised crypto-related instructions? Let us know in the comments section below.