AICPA Requests Additional Guidance to Assist Taxpayers in Calculating Losses on Digital Assets
Washington, D.C. (April 20, 2023) – In a recent letter, the American Institute of CPAs (AICPA) provided comments on the need for guidance from the Department of the Treasury and the Internal Revenue Service (IRS) that can be used to assist taxpayers in properly calculating their losses on digital assets.
The AICPA is asking that the IRS provide guidance that will clarify how digital asset losses are handled in various scenarios. This guidance will provide greater certainty to taxpayers and their preparers in confidently and properly complying with their overall reporting requirements for digital assets and better ensure consistent application of the tax law among taxpayers.
The AICPA’s recommendations address the following questions:
What facts indicate worthlessness of a digital asset?
What facts indicate abandonment of a digital asset?
When, if ever, might digital assets be securities for tax purposes?
Theft of a digital asset held for investment. Does the Ponzi loss guidance of Rev. Rul. 2009-9 and Rev. Proc. 2009-20 apply beyond Ponzi-losses to other fraudulent arrangements, including digital asset losses from certain digital asset exchange activities?
What is the tax effect of lending digital assets? (Some people may find themselves in this position with some bankrupt exchanges.)
When would section 1234A apply to termination of a digital asset?
How should a taxpayer report digital asset activity if they are unable to access their records due to bankruptcy of an exchange?
Is a digital asset considered disposed of by transferring the investor’s interest in a bankruptcy proceeding? Must there be proof of transfer of the underlying digital asset?
"With the complexities and recent bankruptcies involved with digital asset exchanges, taxpayers and practitioners are facing many issues with the tax treatment of losses of digital assets and need guidance,” said Eileen Sherr, Director for Tax Policy & Advocacy with the American Institute of CPAs. “Taxpayers and their advisors need clear guidance to accurately calculate their losses and properly meet their tax obligations and we urge the IRS to adopt our recommendations and provide this guidance."
About the American Institute of CPAs
The American Institute of CPAs® (AICPA®) is the world’s largest member association representing the CPA profession, with more than 421,000 members in the United States and worldwide, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting. AICPA sets ethical standards for its members and U.S. auditing standards for private companies, not-for-profit organizations, and federal, state and local governments. It develops and grades the Uniform CPA Examination, offers specialized credentials, builds the pipeline of future talent and drives continuing education to advance the vitality, relevance and quality of the profession.
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