Digital Asset Tax Planning Attorneys
Federal income tax treatment of cryptocurrency and other digital assets for individuals, founders, funds, and companies, from gain and holding period to broker reporting, records, and IRS inquiries.
For federal income tax purposes, the IRS treats digital assets as property, not currency, and applies the general tax principles that govern property transactions. A sale or exchange is measured under 26 U.S.C. 1001, basis begins with cost under 26 U.S.C. 1012, character and holding period follow 26 U.S.C. 1221 and 1222, and tokens received for services or as mining or staking rewards are income under 26 U.S.C. 61. Since the Infrastructure Investment and Jobs Act amended 26 U.S.C. 6045, custodial brokers report digital asset sales to the IRS on Form 1099-DA.
Industria Business Lawyers advises individuals, founders, funds, and companies on the federal income tax treatment of digital assets and on responding to IRS inquiries. Every provision cited on this page was read from the United States Code, the Code of Federal Regulations, or irs.gov. A consultation is free.
The Rules That Govern Digital Asset Taxation
The property classification, the gain, loss, and income rules that follow from it, and the reporting and records rules.
Property, Not Currency
The IRS states that digital assets are property, not currency, for U.S. tax purposes, and that the general tax principles applicable to all property transactions apply to them. Section 6045(g)(3)(D) of the Internal Revenue Code, 26 U.S.C. 6045(g)(3)(D), defines a digital asset, except as otherwise provided by the Secretary, as any digital representation of value recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary. The IRS lists Bitcoin, stablecoins, and non-fungible tokens as examples.
Gain or Loss on Disposition
Under 26 U.S.C. 1001(a), gain is the excess of the amount realized over adjusted basis, and loss is the excess of adjusted basis over the amount realized. Section 1001(b) defines the amount realized as money received plus the fair market value of other property received, and section 1001(c) requires the entire gain or loss on a sale or exchange to be recognized except as otherwise provided in subtitle A. Under 26 U.S.C. 1012(a), basis is generally cost.
Character and Holding Period
Under 26 U.S.C. 1221(a), a capital asset is property held by the taxpayer other than listed categories such as inventory and property held primarily for sale to customers in the ordinary course of a trade or business. Under 26 U.S.C. 1222, gain or loss on a capital asset held for not more than one year is short-term, and on one held for more than one year is long-term. IRS guidance states that the holding period begins on the day after the digital assets are acquired and ends on the day they are sold or exchanged.
Income From Services, Mining, and Staking
Under 26 U.S.C. 61(a), gross income includes all income from whatever source derived, including compensation for services. IRS guidance states that digital assets received for services are ordinary income at their fair market value in U.S. dollars when received, are self-employment income for an independent contractor, and, when paid by an employer, are wages subject to withholding, FICA, and FUTA. Revenue Ruling 2023-14 holds that a cash-method taxpayer who stakes cryptocurrency native to a proof-of-stake blockchain, directly or through an exchange, includes the fair market value of the validation rewards in gross income for the year the taxpayer gains dominion and control over them. The ruling describes the same rule for mined cryptocurrency under Notice 2014-21.
Broker Reporting
Under 26 U.S.C. 6045(a), every person doing business as a broker makes a return, when required by the Secretary, showing each customer’s name and address and details of gross proceeds, with a statement to the customer under section 6045(b). Section 6045(c)(1)(D) includes as a broker any person who, for consideration, is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person. The IRS states that brokers report gross proceeds on Form 1099-DA for transactions on or after January 1, 2025, and basis for certain transactions on or after January 1, 2026, and that the final regulations do not impose reporting on non-custodial brokers that do not take possession of the assets.
Records and Unit Identification
Under 26 U.S.C. 6001, every person liable for tax must keep the records the Secretary prescribes, and the IRS states that taxpayers must keep records sufficient to establish the positions taken on their returns. For acquisitions and dispositions on or after January 1, 2025, 26 CFR 1.1012-1(j) permits specific identification of the units sold from a wallet not held by a broker if the units are identified on the taxpayer’s books and records no later than the date and time of sale and adequate records are kept. Without that identification, or an adequate identification to a custodial broker, units are generally treated as disposed of in order of time from the earliest acquired.
How a Digital Asset Tax Position Is Analyzed
Character, timing, basis, and reporting are settled before a return is filed or an inquiry answered.
Investor or business? Section 1221(a)(1) excludes from capital assets inventory and property held primarily for sale to customers in the ordinary course of a trade or business. The IRS states that digital assets held for personal or investment purposes produce capital gain or loss, while digital assets received for goods or services in a business context produce ordinary income, and that an individual’s sales to customers are reported on Schedule C.
When was income received? Revenue Ruling 2023-14 values staking rewards at the date and time the taxpayer gains dominion and control, and IRS guidance values payment for services when received. Each receipt’s date, time, and dollar value sets the income.
Founders and token grants. Where tokens or other property are transferred in connection with the performance of services, 26 U.S.C. 83 is part of the analysis. Section 83(a) includes the property’s value, less any amount paid, in income in the first year the rights are transferable or not subject to a substantial risk of forfeiture. Section 83(b) permits an election, made no later than 30 days after the transfer, to include that value in the year of transfer instead, and the election may not be revoked without the Secretary’s consent.
Funds and companies. The IRS states that a version of the digital asset question appears on Forms 1065, 1120, 1120-S, and 1041.
Reconciling Forms 1099-DA. IRS guidance states that income, gain, or loss from every taxable digital asset transaction is reported whether or not an information return is received. Broker forms are compared against wallet and exchange records before filing.
IRS inquiries. Under 26 U.S.C. 7602(a), the IRS may examine books and records and summon the taxpayer, persons with custody of the taxpayer’s books of account, and other persons. Under 26 U.S.C. 6501(a), tax is generally assessed within three years after the return is filed. Section 6501(e)(1) extends that to six years where omitted gross income exceeds 25 percent of the gross income stated, and treats an understatement caused by overstated basis as an omission. Section 6501(c) permits assessment at any time for a false or fraudulent return with intent to evade tax or where no return was filed.
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How We Handle a Digital Asset Tax Matter
Wallets, exchange accounts, and on-chain history assembled.
Investment, business, and compensation activity separated under section 1221.
Cost and unit identification documented under 26 CFR 1.1012-1(j).
Services, mining, staking, and fork receipts dated and valued in U.S. dollars.
Forms 1099-DA and other information returns reconciled against the records.
Positions documented and the digital asset question answered.
Examinations and summonses addressed with the section 6501 periods in view.
FAQ
01 • Individuals, Founders, and Funds Is moving crypto between my own wallets taxable?
IRS guidance states that a transfer between wallets, addresses, or accounts that belong to the same person is not a taxable event, except to the extent digital assets are used or withheld to pay for the transaction services that effect the transfer.
02 • Individuals, Founders, and Funds When are staking rewards included in income?
Revenue Ruling 2023-14 holds that a cash-method taxpayer who stakes cryptocurrency native to a proof-of-stake blockchain includes the fair market value of the rewards in gross income for the year the taxpayer gains dominion and control over them, valued as of that date and time, whether staking directly or through an exchange.
03 • Individuals, Founders, and Funds Is trading one token for another taxable?
IRS guidance states that exchanging digital assets held as capital assets for other digital assets differing materially in kind or extent produces capital gain or loss, measured under 26 U.S.C. 1001 as the difference between the amount realized and adjusted basis.
04 • Individuals, Founders, and Funds What if my Form 1099-DA does not show my basis?
The IRS states that brokers report gross proceeds for transactions on or after January 1, 2025, and basis only for certain transactions on or after January 1, 2026. Gain or loss is still reported, so basis comes from the taxpayer’s own records.
05 • Individuals, Founders, and Funds How far back can the IRS assess tax?
Under 26 U.S.C. 6501, generally three years after the return is filed, six years where omitted gross income exceeds 25 percent of the gross income stated, and at any time where no return was filed or a return was false or fraudulent with intent to evade tax.
Holders of digital assets. Call (202) 860-1210 or describe the holdings and transactions through the form. Free consultation. Every matter is evaluated against the Internal Revenue Code, the regulations, and IRS guidance in force.
This page provides general information about the federal income tax treatment of digital assets and does not constitute legal advice or tax advice. Reading it does not create an attorney-client relationship with Industria Business Lawyers. How a transaction is taxed depends on the facts and the law in force. Provisions cited were read on September 28, 2026 from the United States Code at uscode.house.gov, 26 CFR 1.1012-1 at ecfr.gov, and IRS guidance at irs.gov, including Revenue Ruling 2023-14 and the IRS digital asset FAQs.