1. Cryptocurrency & Tax Implications
JAG CPAs & Co
Cryptocurrency & Tax Implications
Shehan Chandrasekera, CPA
Founder at JAG CPAs & Co
Associate Director at Houston Blockchain Alliance

2. Houston Blockchain Alliance
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April 2nd , 2019, Chicago
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April 10th , 2019, Chicago
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April 25th, Online
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3. Background 1990 1998 B-money, Bit Gold 2008 2009 2010
Digicash
1998
B-money, Bit Gold
2008
Financial Crisis
2009
1 BTC = $0.0007
2010
Guy buys 2 pizzas and paid 10,000 BTC ($25), $40 million in today’s value
2011
1 BTC = 1 cent
2012
1 BTC = $100
2014
IRS Notice
2017
1 BTC = $20,000

4. Charts https://coinmarketcap.com/ https://www.cryptocompare.com/

5. Why do you have to care?
One of the most disruptive technologies since the inception of the internet
IRS has issued guidance on taxation and actively looking for non- compliance
SEC, CFTC, FINRA, FINCEN & other regulatory agencies are actively looking into rules
Major investments by big players: JPMorgan, Walmart, IBM, Overstock.com, Microsoft, Facebook & Many more
New business opportunities in the compliance field

6. Simple Definitions Blockchain
Blockchain Technology – Peer to peer database system which is immutable and virtually unhackable
Token
Unit of Value
Cryptocurrencies
A token which can only be used as a method of exchange. Ex:- bitcoin
Security Tokens
Derives its value from another asset
Utility Tokens
Gives owner the right to access future product or service
Blockchain
Security Tokens
Cryptocurrencies
Utility Tokens

7. Taxation - General
Only authoritative guidance we have is IRS notice (
Q&A Format
Per this notice, cryptocurrencies are treated as “property”

8. Investors
Investors are individuals who buy and sell crypto assets for speculative purposes
Gains and losses are capital (not ordinary) in nature
The exchanges will not issue a 1099-Bs
1099-K is issued if:
Gross proceeds are more than $20,000 AND
More than 200 transactions in the calendar year
FIFO is default, LIFO is acceptable as well
Use a coin tracking software like BitTaxer. Tracking basis manually is virtually impossible

9. Investors
Poloniex
Coinbase

10. Miners
Include in Gross income FMV of the tokens mined as of the date of receipt
Sale of mined tokens generates ordinary income (not capital gains)
Common expenses/deductions
Mining Machines
Utility
Rent
Internet Fees
Choice of entity: Schedule C, C Corp, S Corp or LLC

11. Payer | Payee
Tokens can be used as a method of payment for goods and services provided or received
Payer = deduction is the FMV of the tokens at the date of disbursement
Record disbursement on W-2 or 1099-Misc as appropriate subject to those reporting requirements
Payee = include in gross income FMV of the tokens received at the date of receipt
Challenges
Capital gain/loss at the time of transfer
Payroll tax/Self-employment tax obligation will be in USD

12. Like Kind Exchanges (LKE)
A LKE exchange under §1031 is a transaction or series of transactions that allows for the disposal of an asset and the acquisition of another replacement asset without generating a current tax liability from the sale of the first asset.
Not applicable for cryptocurrencies effective

13. Charitable Contributions
More and more charities are accepting cryptocurrencies as donations
Since the IRS defined VC as property, donations are subject to non-cash capital gain property donation rules
Capital gain property is generally subject to 20%, 30% and overall 50% AGI limitation
If the deduction is more than $5,000, donor must obtain qualified appraisal report

14. Foreign Reporting Subject to FBAR reporting Subject to FATCA reporting
Tokens held in overseas exchanges are considered to be foreign assets
$10,000 threshold
Subject to FATCA reporting
File Form 8938 (Statement of Specified Foreign Financial Asset) as applicable
Consider updating foreign reporting paragraph of engagement letters for crypto assets

15. Associate Director at Houston Blockchain Alliance
Thank you
JAG CPAs & Co
Shehan Chandrasekera, CPA
Founder at JAG CPAs & Co
Associate Director at Houston Blockchain Alliance