Cryptocurrency & Digital Asset Taxation

Navigate the complex and evolving tax rules for cryptocurrency, NFTs, DeFi, and other digital assets. Covers reporting requirements, cost basis methods, wash sale considerations, and IRS enforcement priorities.

8 Units

20 minutes per unit

Curriculum Map

What You Will Learn

DeFi & NFT Taxation

Staking, lending, liquidity pools, NFT creation and royalties — the tax treatment of transactions with no analog in traditional finance.

Cost Basis Mastery

FIFO, LIFO, specific identification, and the practical challenges of tracking basis across wallets and exchanges.

IRS Enforcement

John Doe summons, Operation Hidden Treasure, and the compliance campaigns shaping the enforcement landscape.

All Units

20 minutes

How the IRS Classifies Digital Assets

The IRS treats cryptocurrency as property, not currency. This classification drives every tax consequence that follows.

•Explain the IRS classification of digital assets as property under Notice 2014-21
•Identify the key guidance documents governing crypto taxation including IIJA and Rev. Rul. 2019-24
•Describe the Form 1040 digital asset question and its implications
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25 minutes

Taxable Events and Reporting

Not every interaction with cryptocurrency creates a tax obligation. Practitioners must distinguish between taxable events and non-events to ensure accurate reporting.

•Distinguish between taxable and non-taxable cryptocurrency events
•Complete Form 8949 and Schedule D for cryptocurrency dispositions
•Calculate the amount realized in crypto-to-property transactions
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25 minutes

Cost Basis Methods

When a client holds multiple lots of the same cryptocurrency purchased at different times and prices, the method used to determine which lot is being sold can dramatically affect the tax outcome.

•Compare FIFO, LIFO, specific identification, and average cost methods for cryptocurrency
•Calculate tax outcomes under different cost basis methods for the same transaction
•Explain the wash sale opportunity available under current law for cryptocurrency
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30 minutes

DeFi Transactions

DeFi represents the most challenging area of cryptocurrency taxation because the IRS has issued almost no specific guidance. Practitioners must apply general tax principles to novel transaction types.

•Apply general tax principles to staking rewards and lending income
•Analyze the competing tax positions on liquidity pool deposits
•Evaluate the tax treatment of wrapped tokens, bridge transactions, and airdrops
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20 minutes

NFTs — Creation, Sales, and Royalties

NFTs present distinct tax issues depending on whether your client is a creator or a collector. The distinction determines the character of income, the applicable tax rate, and self-employment tax exposure.

•Distinguish between the tax treatment of NFT creators and NFT collectors
•Apply the collectibles tax rate analysis under Notice 2023-27 to NFTs
•Calculate gain on NFT sales including gas fee basis adjustments
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25 minutes

Mining and Validator Income

Cryptocurrency mining generates taxable income. The threshold question is whether the activity constitutes a trade or business, which determines self-employment tax exposure and expense deductibility.

•Determine whether mining activity constitutes a trade or business under IRC §162
•Calculate self-employment tax on mining income
•Apply depreciation rules to mining hardware under MACRS and Section 179
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25 minutes

IRS Enforcement

The IRS has made cryptocurrency compliance a top enforcement priority. Practitioners must understand enforcement mechanisms to properly advise clients, including those who may have underreported in prior years.

•Describe the IRS's enforcement tools including John Doe summonses and compliance letters
•Distinguish between Letter 6173, 6174, and 6174-A and the appropriate practitioner response
•Evaluate remediation pathways for clients with unreported cryptocurrency income
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25 minutes

International Reporting

Taxpayers who hold cryptocurrency on foreign exchanges face international reporting requirements that carry severe penalties for non-compliance. The most significant is the FBAR, filed as FinCEN Form 114.

•Determine when FBAR filing is required for cryptocurrency held on foreign exchanges
•Apply Form 8938 (FATCA) thresholds to foreign cryptocurrency holdings
•Evaluate the theoretical foreign trust characterization of DeFi protocols
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