The IRS has issued formal guidance on cryptocurrency taxation through notices, revenue rulings, frequently asked questions, and proposed regulations. Understanding this guidance is essential for both compliance and resolution — because what the IRS has said (and has not said) creates both obligations and opportunities.

Notice 2014-21: The Foundation

The IRS's first comprehensive statement on cryptocurrency taxation established that virtual currency is treated as property for federal tax purposes. This means general property tax principles apply: gains and losses are recognized on disposition, basis is determined by purchase price, and the character of gain (ordinary vs. capital) depends on how the asset was used. This notice remains the foundational document for crypto tax treatment.

Revenue Ruling 2019-24: Hard Forks and Airdrops

This ruling addressed two specific situations: hard forks that result in new cryptocurrency and airdrops of new tokens. The IRS determined that crypto received through an airdrop following a hard fork is ordinary income at fair market value when the taxpayer gains dominion and control. This ruling created retroactive tax obligations for millions of crypto holders who received fork and airdrop tokens.

IRS FAQ Updates

The IRS has published and updated extensive FAQs on cryptocurrency taxation covering topics including: the treatment of crypto received as compensation, charitable contributions of crypto, holding period calculations, and the application of like-kind exchange rules (which the IRS has stated do not apply to crypto-to-crypto trades after 2017). These FAQs are not binding legal authority but indicate the IRS's enforcement position.

Broker Reporting Regulations

Regulations implementing the Infrastructure Investment and Jobs Act require cryptocurrency brokers to report transactions on Form 1099-DA, including cost basis information. These regulations define who qualifies as a broker, what information must be reported, and the timeline for implementation. The practical effect is that crypto tax reporting will increasingly mirror stock and securities reporting.

Gaps in Guidance

Significant areas remain without clear IRS guidance: the tax treatment of DeFi lending and borrowing, the characterization of wrapped tokens, the application of constructive sale rules to crypto, and the treatment of liquidity pool transactions. These gaps create both risk and opportunity. Attorney Darrin T. Mish helps clients navigate areas of uncertain tax treatment and positions them for the most favorable interpretation of evolving rules. Free consultation.