The IRS has updated its FAQ section regarding crypto to offer clarifications for investors who have only purchased crypto assets with fiat currency, stating that in such cases investors don’t need to report their transactions under the “virtual currency” question.
The first page of Form 1040 asks the question if the person received, sold, exchanged “any financial interest in any virtual currency” in 2020.
As it is worded, it may suggest that people who’ve bought crypto via any means would have to answer yes to the questions, no matter if the said currency was acquired with U.S. dollars or not.
But question five on the updated crypto FAQ by the IRS asks whether an individual who “purchased virtual currency with real currency and had no other virtual transactions during the year” should report those activities in Form 1040. The answer now says:
“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 updated FAQ section seems to imply that crypto investors don’t have to report the transactions as long as they’ve exclusively bought crypto for U.S. dollars, didn’t make crypto-to-crypto trades, nor did they sell digital assets for fiat. However, if they bought crypto with other crypto assets, or sold crypto during 2020, they must report the transaction.