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The RFIA could ease tax compliance burdens for parties transacting in digital assets and defer or eliminate tax on some transactions.

 By Jiyeon Lee-Lim, Elena Romanova, Ted Gkoo, and Jacob Nagelberg

Latham & Watkins presents a blog series on the Responsible Financial Innovation Act, which was introduced in the US Senate on June 10, 2022, to create a framework for digital assets, cryptocurrency, and blockchain technology. This fifth post in the series covers taxation issues.

Taxation

Taxation issues are covered in Title II of the bill (Responsible Taxation of Digital Assets), which incorporates the new definitions for digital asset and virtual currency provided for in Title I of the bill (see discussion in this previous post).

The RFIA would modify the Internal Revenue Code (the Code) to provide new rules and extend certain existing rules to cover digital assets. It would also require that the Internal Revenue Service (IRS) issue guidance on several topics frequently requested by the digital asset industry.

The industry will have two years to learn the new requirements and develop systems to ensure compliance.

By Elena Romanova, Stephen P. Wink, Adam Zuckerman, and Deric Behar

On November 15, 2021, President Biden signed the US$1.2 trillion Infrastructure Investment and Jobs Act into law (the Law). Two provisions of the Law could have a wide-ranging impact on the digital asset industry: (i) the Law includes a broad definition of “digital asset,” and (ii) the Law redefines “broker” to include certain persons providing services to transfer digital assets.

The IRS has published a Revenue Ruling and FAQs clarifying some long-standing virtual currency questions.

By Brian C. McManus, Elena Romanova, Stephen P. Wink, Sam (Seung Hyun) Yang, and Deric Behar

On October 9, 2019, the US Internal Revenue Service (IRS) issued its first guidance on the tax treatment of cryptocurrencies in at least five years. The guidance includes Revenue Ruling 2019-24 (Ruling) and a set of frequently asked questions (FAQs) for taxpayers who transact in virtual currencies and hold them as investment. The guidance supplements Notice 2014-21, which explains that virtual currency is treated as property for federal income tax purposes. The Ruling addresses whether a taxpayer holding a cryptocurrency has taxable income as a result of a “hard fork” with and without an “airdrop.” The FAQs provide guidance on the calculation of value and of tax basis of virtual currencies in various situations.