Dear [CLIENT NAME]:

Cryptocurrencies (a.k.a. virtual currencies) and the tax issues surrounding them are still a rapidly growing field. The issue burst onto the scene when Bitcoin was created in 2009. The IRS has issued varied tax reporting guidance since then.

It’s important to recognize that there is a lot of questionable tax advice concerning cryptocurrency. There are aspects of virtual currency where the IRS’s guidance is minimal. However, there are areas where the IRS has been clear, including:

• Cryptocurrencies are treated as property, not currency;
• Spending cryptocurrency can give rise to a taxable transaction;
• Special rules apply when cryptocurrency has been received due to a hard fork, an airdrop, or through staking;
• Nonfungible tokens (NFTs) are not cryptocurrency, but because they are bought and sold almost exclusively with cryptocurrencies, many of the issues overlap;
• Wash sale rules do not apply to cryptocurrencies (at least not yet);
• Specific disclosure rules apply for cryptocurrencies; and
• Cryptocurrency transactions must be reported on Form 1099-DA starting with the 2025 tax year (tax forms that will be issued in early 2026).

First and foremost, please advise us whether you have mined, bought, sold, sent, or received any virtual currencies in the last few years, and be sure to provide Forms 1099-DA you receive when we prepare your income tax returns. From there, we can discuss your specific transactions and help you plan ahead to minimize your tax liability related to your cryptocurrency transactions.

We want to make sure these transactions are correctly tracked and reported. Please do not hesitate to contact us with any questions.

Sincerely,

Your tax professional