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AICPA Recommends that IRS Make Virtual Currency Clarifications for the 2022 1040s

S.J. Steinhardt
Published Date:
Aug 30, 2022


The AICPA seeks to clarify questions concerning virtual currency on the IRS's 2021 forms 1040, 1040-SR and 1040-NR, and instructions, as well as its draft of the 2022 Form 1040, according to a statement released Tuesday. Of particular concern to the AICPA is a proposed change in the language of the 2022 form, from "virtual currency" to "digital assets." 

Near the top of the 2021 Form 1040 is the question: "At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?"

In its 2022 draft of Form 1040, the IRS proposes changing that question to: "At any time during 2022, did you: (a) receive (as a reward, award, or compensation); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)? (See instructions.)"

According to Accounting Today, the rephrased question could be viewed as asking about assets such as nonfungible tokens (NFTs).

The AICPA recommended "that the virtual currency question on page 1 of Form 1040 continue to use the term 'virtual currency' until final regulations are issued to officially define the term 'digital asset' as added to Section 6045 by the Infrastructure Investment and Jobs Act."

With regard to virtual currency, the AICPA recommended that the IRS modify its definition "as described in the first paragraph of the Form 1040 instructions to make it consistent with the definition in Rev. Rul 2019-24 and Notice 2014-21. The definition in the instructions should state that the IRS uses the term 'virtual currency' to refer only to convertible virtual currency. Additionally, examples of convertible virtual currency should be included."

Put briefly, in its comments submitted to the IRS, the AICPA recommended that the agency consider the following changes for the finalized version of the 2022 Form 1040:

 • Clarify the meaning of virtual currency;

 • Do not ask about “digital assets” until this term has been defined in final regulations under Section 6045;

 • Modify the virtual currency question for simplicity and clarity;

 • Include additional elements into the Form 1040 instructions for the virtual currency question; and

 • Explain if a taxpayer needs to answer “yes” if a dependent had a virtual currency event but does not have a filing requirement.

By seeking theses clarifications, the AICPA aims to “provide greater certainty to taxpayers and their preparers and to aid them in complying with the question and overall reporting requirements for virtual currency.” 

“Taxpayers and their advisors want to comply with IRS guidance on virtual currency, but they lack adequate instructions to do so,” said Annette Nellen, chair of the AICPA Virtual Currency Task Force. “We strongly urge the IRS to consider our recommendations, which will facilitate compliance from taxpayers on these important issues that affect a growing number of taxpayers.”

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