Help Us Help You: 1099s and Virtual Currency

Abstract

The IRS must create a new Form 1099 that increases the interoperability amongst exchanges and splits the reporting requirement burden between the investor and the exchange. The proposal is a Form 1099-Hybrid. The Form 1099-Hybrid would be similar to the 1099-B in the sense that it requires the financial institution to record cost-basis and sell price. However, this 1099-Hybrid would require the cryptocurrency exchange to also report the cost-basis of cryptocurrency that was purchased on the exchange but thereafter sent to another exchange. The Form-1099 Hybrid would indicate to the exchange, the user, and the IRS, the cost basis for the purchased cryptocurrency, the time stamp of the transaction, the amount of cryptocurrency, and the destination (wallet address) of where the virtual currency was sent. The exchange readily has access to all of this information. In addition, the Form-1099 Hybrid should allow the exchange that receives the cryptocurrency to indicate the time stamp that the cryptocurrency was received, the amount of cryptocurrency that was received, and the wallet address that received the cryptocurrency. The receiving exchange will not be required to report the cost basis but will be required to report the price of the cryptocurrency that was received if it is sold or exchanged (a taxable event occurs).

Keywords: cryptocurrency taxation, virtual currency taxation, blockchain taxation, cryptocurrency tax law, virtual currency tax law