IRS Revises Digital Asset Question on Tax Forms

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The Internal Revenue Service (IRS) has revised the question about digital assets included on income tax forms. Moreover, the tax authority has added the question to four additional tax forms. “The question must be answered by all taxpayers, not just by those who engaged in a transaction involving digital assets in 2023,” the IRS emphasized.

IRS Adds Digital Asset Question to 4 More Tax Forms

The Internal Revenue Service (IRS) announced Monday that the digital asset question on income tax forms “was revised this year to update wording.” Moreover, the question has been added to four additional tax forms. The IRS also reminded U.S. taxpayers that they must “answer a digital asset question and report all digital asset related income when they file their 2023 federal income tax return, as they did for their 2022 federal tax returns.”

The tax authority detailed that the digital asset question varies depending on the form, “with appropriate variations tailored for corporate, partnership or estate and trust taxpayers.” On Form 1040 for reporting U.S. Individual Income Tax Return, the question reads:

At any time during 2023, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?

The IRS defines a digital asset as “a digital representation of value that is recorded on a cryptographically secured, distributed ledger or any similar technology.” The tax authority specifically mentioned that common digital assets include convertible virtual currencies, cryptocurrencies, stablecoins, and non-fungible tokens (NFTs).

The IRS emphasized:

The question must be answered by all taxpayers, not just by those who engaged in a transaction involving digital assets in 2023.

In 2022, the digital asset question on Form 1040 was slightly different. It read: “At any time during 2022, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)?” In 2021, the digital asset question simply read: “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”

Besides Forms 1040 (Individual Income Tax Return), 1040-SR (U.S. Tax Return for Seniors), and 1040-NR (U.S. Nonresident Alien Income Tax Return), the digital asset question now appears on four other tax forms: 1041 (U.S. Income Tax Return for Estates and Trusts), 1065 (U.S. Return of Partnership Income), 1120 (U.S. Corporation Income Tax Return), and 1120-S (U.S. Income Tax Return for an S Corporation).

What do you think about the IRS updating its question about digital assets and adding the question to more tax forms? Let us know in the comments section below.