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Taxes

AICPA Requests Additional Guidance to Assist Taxpayers in Calculating Losses on Digital Assets

The AICPA is asking that the IRS provide guidance that will clarify how digital asset losses are handled in various scenarios.

Isaac M. O'Bannon

Apr. 21, 2023

In a recent letter, the American Institute of CPAs (AICPA) provided comments on the need for guidance from the Department of the Treasury and the Internal Revenue Service (IRS) that can be used to assist taxpayers in properly calculating their losses on digital assets.

The AICPA is asking that the IRS provide guidance that will clarify how digital asset losses are handled in various scenarios. This guidance will provide greater certainty to taxpayers and their preparers in confidently and properly complying with their overall reporting requirements for digital assets and better ensure consistent application of the tax law among taxpayers.

The AICPA’s recommendations address the following questions:

  • What facts indicate worthlessness of a digital asset?
  • What facts indicate abandonment of a digital asset?
  • When, if ever, might digital assets be securities for tax purposes?
  • Theft of a digital asset held for investment. Does the Ponzi loss guidance of Rev. Rul. 2009-9 and Rev. Proc. 2009-20 apply beyond Ponzi-losses to other fraudulent arrangements, including digital asset losses from certain digital asset exchange activities?
  • What is the tax effect of lending digital assets? (Some people may find themselves in this position with some bankrupt exchanges.)
  • When would section 1234A apply to termination of a digital asset?
  • How should a taxpayer report digital asset activity if they are unable to access their records due to bankruptcy of an exchange?
  • Is a digital asset considered disposed of by transferring the investor’s interest in a bankruptcy proceeding? Must there be proof of transfer of the underlying digital asset?

“With the complexities and recent bankruptcies involved with digital asset exchanges, taxpayers and practitioners are facing many issues with the tax treatment of losses of digital assets and need guidance,” said Eileen Sherr, Director for Tax Policy & Advocacy with the American Institute of CPAs. “Taxpayers and their advisors need clear guidance to accurately calculate their losses and properly meet their tax obligations and we urge the IRS to adopt our recommendations and provide this guidance.”