In this episode of Coffee with Carl, attorney Carl Zoellner talks about Revenue Ruling 2019-24, which outlines specific information on cryptocurrency taxes.

On October 9, 2019, the IRS released the anticipated Revenue Ruling 2019-24. It offers more specific guidance on the tax treatment of cryptocurrency.

As a group, the IRS refers to cryptocurrency as “convertible virtual currencies.” When it comes to determining the value of cryptocurrency, Revenue Ruling 2019-24 clears some things up.

Determining Value

Selling or spending cryptocurrency is how the IRS determines its value. In my previous video, I discussed how the IRS views cryptocurrency as property. Similarly, the IRS also classifies stocks as property. To judge gain or loss on property, you first need to have a basis. To address this, Revenue Ruling 2019-24 clarifies how to figure out the basis and value of cryptocurrency.

When you acquire cryptocurrency, the basis is the amount you paid for it. When you go to sell or spend the coins (disposal), the disposal determines the fair market value (FMV). In turn, the FMV upon disposal compared to your basis determines your gain or loss.

There’s more specific information in Revenue Ruling 2019-24 about forks and airdrops, but that’s beyond the scope of this short video. The relevant portion is that cryptocurrency is not considered a gain/loss and does not have an established basis until you take full control of it. Then, when you dispose of it, that’s when it becomes a taxable event. The disposal determines the fair market value and your gain or loss.

Planning Opportunities

I work with a number of nonprofit organizations at Anderson Advisors. One interesting component of Revenue Ruling 2019-24 is the gifting of cryptocurrency to nonprofits. Specifically within the context of gifts: a recipient of virtual currency given as a gift does not have to recognize the gifted cryptocurrency as income. Furthermore, the gifter can take a tax deduction for the gift. As you can imagine, this makes for some interesting advanced tax planning opportunities.

Watch as Carl breaks down Revenue Ruling 2019-24, which provides guidance on the taxation of cryptocurrency.

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