Crypto Taxes: Still Confused After All These Years

You need to be nimble to be a crypto tax professional.

Crypto and Taxes 2020: Wednesday is this year's deadline for Americans to file their tax returns, and cryptocurrency users' obligations are as confusing as ever.

Many tax professionals claim the recent guidance didn't provide much clarity and created more confusion than it dispelled.

Taxpayer A arrives at a non-taxable or tax-deferred scenario while Taxpayer B concludes they have ordinary income, yet both were engaged in the same Virtual Currency Transaction X.Tax positions are a game of risk management taking account the likelihood of audit, the strength of the position and amount of the tax liability, penalty and interest due if a taxpayer "Loses the game."

Risk management gets more complex when tax advisors are involved because their asses are on the line.

There are more professional liability claims for tax services than any other service offered by CPAs.With this in mind, some tax preparers are undercharging for services and many taxpayers don't understand how tax preparer risk is properly reflected in the price.

Tax compliance and tax reporting are a collaborative dance between taxpayer and tax advisor.

A taxpayer may prefer a more aggressive tax position, but both the taxpayer and tax advisor are simultaneously on the hook, albeit in different ways.

What we've seen since the IRS's 2014 Notice makes it easy to conclude there'll be a larger cornucopia of "Virtual currency events" over the next six years for the crypto tax industry to digest.

Perhaps tax courts will chime in on whether chain-split coins are ordinary income when a taxpayer exercises dominion and control, capital gains only when sold or something else.