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VC Q?

dude7707
Level 5

Saw this from IRS email:

 

Correctly answer the virtual currency question. The 2020 Form 1040 asks whether at any time during 2020, a person received, sold,

sent, exchanged or otherwise acquired any financial interest in any virtual currency. If a taxpayer’s only transactions involving virtual currency

during 2020 were purchases of virtual currency, they are not required to answer ‘yes’ to the question.

 

I always thought, when you say acquired that means PURCHASES?  Or am I missing something here?

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11 Comments 11
dkh
Level 15

Hold on....  IRS WILL NOT EMAIL YOU!   I wouldn't respond or even open for that matter.

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Just-Lisa-Now-
Level 15
Level 15
IRS does email newsletters and alerts though.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
Just-Lisa-Now-
Level 15
Level 15

Ive seen this discussed...acquire would mean purchase to me as well, but I guess not in this definition.   At any rate, if my clients are involved in crypto at all, I mark yes....let IRS sort it out.


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
dude7707
Level 5

I'm sorry dkh, this is NOT  client related email from the IRS, this is just the weekly IRS correspondence I receive  - See below:

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Issue Number:    IR-2021-89 Inside This Issue

Steer clear of typical tax return errors; May 17 deadline nears
Some mistakes on tax returns can slow refunds

WASHINGTON — The Internal Revenue Service today reminded taxpayers to check their tax returns for common errors that could delay refunds or otherwise affect normal processing. Here are some ways to avoid tax return slipups as the May 17 due date gets closer.

Use electronic filing. Filing electronically, whether through IRS Free File or other e-file service providers, is a great way to cut the chances for many tax return mistakes and maximize deductions to reduce tax owed at the same time. The tax software automatically applies the latest tax laws, checks for available credits or deductions, does the calculations, and asks taxpayers for all required information.

Report all taxable income. Be sure to have income documents on hand before starting the tax return. Examples are Forms W-2, 1099-MISC or 1099-NEC. Underreporting income may lead to penalties and interest.

Get names and Social Security numbers right. Enter each Social Security number (SSN) and individual’s name on a tax return exactly as printed on the Social Security card. Persons generally must list on their individual income tax return the SSN of any person they claim as a dependent. If a dependent or spouse does not have and is not eligible to get a SSN, list the Individual Tax Identification Number (ITIN) instead of a SSN.

Learn about filing status. If taxpayers are unsure about their filing status, the Interactive Tax Assistant on IRS.gov can help them choose the correct status, especially if more than one filing status applies. Tax software, including IRS Free File, also helps prevent mistakes with filing status.

Correctly answer the virtual currency question. The 2020 Form 1040 asks whether at any time during 2020, a person received, sold, sent, exchanged or otherwise acquired any financial interest in any virtual currency. If a taxpayer’s only transactions involving virtual currency during 2020 were purchases of virtual currency, they are not required to answer ‘yes’ to the question.

Mail paper returns to the right address. Paper filers should check the right address for where to file on IRS.gov or on form instructions to avoid processing delays. Note that due to staffing issues related to COVID-19, processing paper tax returns could take much longer than usual. Taxpayers and tax professionals are encouraged to file electronically if possible.

Use the right routing and account numbers. Requesting direct deposit of a federal refund into one, two or even three accounts is convenient and allows the taxpayer access to his or her money faster. Make sure the financial institution routing and account numbers entered on the return are accurate. Incorrect numbers can cause a refund to be delayed or deposited into the wrong account. Taxpayers can also use their refund to purchase U.S. Savings Bonds.

Sign and date the return. If filing a joint return, both spouses must sign and date the return. E-filers can sign using a self-selected personal identification number (PIN).

Keep a copy. When ready to file, taxpayers should make a copy of their signed return and all schedules for their records.

Request an extension, if needed. Taxpayers who cannot meet the May 17 deadline can easily request an automatic filing extension to Oct. 15 and prevent late filing penalties. Use Free File or Form 4868. But keep in mind that while an extension grants additional time to file, tax payments are still due May 17.

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This message was distributed automatically from the mailing list IRS Newswire. Please Do Not Reply To This Message.

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dkh
Level 15

Whew!!!  I was having a panic attack for you.....lol     

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dude7707
Level 5

It's ok dkh, it happens, I just need  to provide ALL THE FACTS!

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qbteachmt
Level 15

It's the same as how I phrase putting money into a retirement account: "I'm going to spend money on my IRA." What I really mean is Cash Flow is affected = please plan for money to Leave cash on hand, as it will be Invested into the IRA account.

So, "purchase" stocks, bonds, or VC simply means the initial acquisition step as Purchased (not received in trade, for example) is not the reportable activity. The reportable activity is when the exchange or settlement happens that there will be something to report because of that VC. It's not treated like other currency exchange; it's treated as investment property.

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Don't yell at us; we're volunteers
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A related question:  if a taxpayer buys or sells shares in a trust - GBTC specifically, Greyscale Bitcoin Trust, an investment vehicle that owns Bitcoin - is that considered a virtual currency transaction for the purposes of that question?

GBTC and other similar holdings can be purchased through traditional brokerages like Schwab.  Schwab said they 'believe' the ownership of GBTC is treated as an ETF.  Not that GBTC is an ETF but it functions like one.

 

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qbteachmt
Level 15

I googled it for you:

https://www.reddit.com/r/tax/comments/kv92o5/how_are_grayscale_trust_like_gbtc_taxed_are_they/

 

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Don't yell at us; we're volunteers

Thank you!  That makes sense.

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That clip from Newswire left something out.  I found it on the IRS website:

 

A5.  No. If your only transactions involving virtual currency during 2020 were purchases of virtual currency with real currency, you are not required to answer yes to the Form 1040 question.

___________________________________________________________________

The missing piece was WITH REAL CURRENCY.