Guidance Needed Re Using Like-Kind Exchanges for Pre-2018 Cryptocurrency Exchanges

A taxpayer is generally not required to recognize a gain or loss as a result of a like-kind exchange under Internal Revenue Code (IRC) §1031. Significantly, IRC §1031 was amended by the Tax Cuts and Jobs Act of 2017, such that nonrecognition of gain or loss is only applicable to real property exchanges completed after December 31, 2017. Although there is agreement now that, after December 31, 2017, IRC §1031 clearly does not apply to cryptocurrency exchanges, a debate remains as to whether IRC §1031 is relevant to cryptocurrency exchanges before that date.

Recently, Bloomberg Law reported that on November 15, 2019, at the American Institute of CPAs fall tax division meeting in Washington, D.C., an IRS official, Attorney Christopher Wrobel, declared that the IRS does not have a blanket policy to prevent a taxpayer from using like-kind exchanges for pre-2018 cryptocurrency exchanges. Rather, as reported, the IRS will consider each taxpayer’s facts and circumstances in order to reach a determination.

However, Bloomberg Law, noted that only a week earlier a different IRS official stated that recently published IRS “Frequently Asked Questions” guidance indicate that like-kind exchange treatment is not available for pre-2018 cryptocurrency exchanges.

Unless and until the IRS issues official guidance on this matter, taxpayers are especially encouraged to consult with an experienced tax professional before deciding to try to use like-kind exchanges for pre-2018 cryptocurrency exchanges.

If you have questions or concerns about cryptocurrency and like-kind exchanges, contact Frost Law today at 410-497-5947.

Tags: Blog, Tax Topics