CCN.com received a “consumer warning” this morning from a crypto tax preparation firm. The warning outlines two aspects of crypto tax that the firm believes have been done wrong by other outfits – namely Bitcoin exchange Coinbase and Intuit, the creator of TurboTax. As regards Coinbase, the firm writes:
“The online tax guidance provided by Coinbase implies that airdrops are taxable as ordinary income—which is reported on Line 21 of Schedule 1 of Form 1040—rather than as capital gains that only become taxable when the positions are sold.”
Bitcoin Exchange Coinbase Clarifies Crypto Tax Guide
We reached out to Coinbase, and they felt this was a mischaracterization of what they actually published. In fact, the Bitcoin exchange only mentions the word “airdrop” once in their tax guidance document. It seems there may be a misunderstanding on the part of the firm. Coinbase refers to payments received in cryptocurrency and say:
“When you’re paid in crypto by an employer, your crypto is classified as compensation and will be taxed according to your income tax bracket.”
In real terms, this doesn’t speak to airdrops. A Coinbase spokesperson said of this characterization:
“Coinbase does not give tax advice, and we do not provide a service to customers whereby we ‘determine how much they owe the IRS’. Comments in the Tax Guide are only intended to be an informational starting point. We encourage customers to seek the assistance of a tax professional. We plainly and clearly state our position on the website. […] If you perform a service to earn crypto, the IRS has indicated that it will consider that service to be taxable at ordinary rates. […] Our website states that if you are ‘paid’ in crypto, including in the form of an airdrop, the payment is taxable. We do not state on the website that ‘all’ airdrops are taxable as ordinary income.
In the case of TurboTax, the report says that Intuit’s product wrongfully disallows more than 250 entries for crypto sales – although the IRS had allegedly issued clear guidance stating that every sale should be noted.
Do You Have to Report Every Crypto Transaction on Your Taxes?
CCN.com reached out to Sean Ryan and Perry Woodin of Node40, a firm which produces crypto tax preparation software for CPAs and individuals. Node40’s software compiles all sales and transactions through exchange APIs and manual entries, enabling the user to correctly generate tax forms.
They said this PR stunt references a press release from Intuit from last year, where Intuit said they would be supporting cryptocurrencies. TurboTax only supports 250 entries, but Woodin and Ryan aren’t sure if that’s a problem or not.
The bulletin from the tax preparation firm, CryptoTaxPrep.com, references guidance from the IRS that supposedly says:
“Unlike other stocks, bonds or other capital assets, which taxpayers receive a Form 1099-B for, every cryptocurrency transaction MUST be reported individually due to no 1099-B being issued.”
Ryan told us:
“Neither side is entirely wrong. […] If you’re getting paid in an airdrop, then yes, it’s income. We don’t see this as Coinbase saying that if you receive an airdrop out of the blue that you’re liable for it. […] The important thing for anyone to understand is that there is no answer yet. It’s more of an opinion. The IRS hasn’t given clear guidance on airdrops yet. […] The IRS is saying that cryptocurrency is property, and as you move property, whether moving it, trading it, or receiving it, those are all events that have to be tracked. The gains and losses on these transactions are what they’re most interested in.”
Most People Use More Than One Bitcoin Exchange
As to the issue with Inuit’s TurboTax product, Ryan says that the real problem is that Intuit is only working with one exchange.
“Form 8949 makes the most sense. Whether or not the IRS is requiring something like that, we don’t know. I don’t see where the IRS has said you have to use an 8949. […] The major problem I see with Intuit is not whether they have a limitation of 250 transactions or not, I see the limitation as them only working with Coinbase.”
“Most people do not just have Coinbase. Most people have more than one exchange and at least one wallet. When you start going down that path, and you miss things outside of what your software can do, say TurboTax. It can only work with Coinbase. Well, if you work with Coinbase and Gemini and you have a Trezor, you could import your Coinbase information, but you’re missing your Gemini information and you’re missing your Trezor information. That’s not the fault of Intuit. I can see how it might be misleading to a taxpayer. I think the real limitation of Intuit is that they’re only working with one exchange.”
Ryan also says that high-frequency Bitcoin traders and users should certainly talk to a tax preparer that specializes in cryptocurrency. Finding a tax professional with a deep understanding of the crypto-space is critical for people who want to make “defensible” decisions in their tax filings.
Last modified: March 4, 2021 2:44 PM