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Each taxpayer is required to answer a question that is not related to the controversial rule involving transactions over $10,000.

On January 22, the IRS reminded taxpayers to answer a question about digital assets and to report all related income.

During any time in 2023:

“A: Did you receive (as a reward, award, or payment for goods or services) a digital asset (or a financial interest in a digital asset)?

B: Did you sell, exchange, or otherwise dispose of a digital asset?”

Digital assets are classified by the IRS as convertible virtual currency, cryptocurrencies, stablecoins, and NFTs.

This update expands the number of tax forms featuring this question. Previously found only on three different 1040 Forms (for individuals, the elderly, and those from outside the U.S.), the question is now included in four additional forms.

The IRS announced that the question has been included in Form 1041 (U.S. Income Tax Return for Estates and Trusts), Form 1065 (U.S. Return of Partnership Income), Form 1120 (U.S. Corporation Income Tax Return), and Form 1120-S (U.S. Income Tax Return for certain types of small businesses).

Digital Assets and Tax Obligations

The IRS emphasized that all taxpayers, even those who have not conducted any digital asset transactions, must answer this question with a ‘yes’ or ‘no.’

Taxpayers who received digital asset payments, won rewards, engaged in mining or staking, acquired assets through a hard fork, or disposed of or sold digital assets in various ways during the 2023 tax year must answer ‘yes’ and report their income.

On the other hand, taxpayers who did not engage in digital asset transactions, merely held assets, transferred between wallets or accounts, or purchased digital assets with U.S. dollars can answer ‘no.’

As an important note, investors who exchanged one digital asset for another must answer ‘yes,’ but those who purchased digital assets with U.S. dollars or cash can say ‘no.’

This question is not related to the controversial rule requiring businesses to report transaction purchases over $10,000 within 15 days. The IRS clarified on January 16 that this rule currently applies only to cash transactions, not digital assets.”

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