IRS Gets Serious About Digital Asset Reporting By Individuals

Since 2019, Form 1040 has included a general question regarding the taxpayer's cryptocurrency activity. (See prior coverage here.) Over the years, the IRS has modified the scope of its cryptocurrency inquiry. On the 2021 Form 1040, this question read: "At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?" The IRS expanded the scope and specificity of this question on the 2022 Form 1040, by including the bolded language: "At any time during 2022, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)? The Form 1040's instructions indicate, as in prior years, that taxpayers answering this question in the affirmative must report their income, gain or loss from such transactions on their tax return. However, the IRS is now casting a much broader net,