No, You Weren’t Allowed to Do a Like-Kind Exchange for Cryptocurrency Before 2018

A question that has come up is whether you could do a like-kind exchange for cryptocurrency prior to 2018. (The Tax Cuts and Jobs Act eliminated all like-kind exchanges for everything except real property beginning with the 2018 tax year.) Tax professionals offered varying opinions; I wrote in September 2017 that it was unlikely the IRS would allow like-kind exchanges for cryptocurrency.

Yesterday, Suzanne Sinno, an IRS attorney in the Office of the Associate Chief Counsel, spoke to the American Institute of CPAs (AICPA). According to an article in Bloomberg Tax, she stated that the IRS’s position is that like-kind exchanges were not applicable to cryptocurrency.

Note that this is just the IRS’s position. It may be that courts could rule that like-kind exchanges do apply to cryptocurrency. Additionally, this is informal (unpublished) guidance. That said, the IRS’s position on this shouldn’t be a surprise.

So let’s assume you converted one crypto to another back in 2016 or 2017, and you treated it as a like-kind exchange. What should you do? You should discuss this with your tax professional. The answer to your specific situation will depend on your facts and circumstances.

While the IRS is increasing enforcement vis-a-vis cryptocurrency, the agency today is primarily looking for individuals who haven’t reported their transactions. As I’ve told many clients, there’s likely someone in Dubuque (or Des Plaines or Denver or wherever) who made $2 million (or more) trading cryptocurrency and hasn’t reported any of his or her gains. That’s low-hanging fruit for an IRS examination, and those individuals should consult a tax professional (or potentially a tax attorney) immediately. There’s a huge difference between an individual who ignored reporting cryptocurrency and an individual who made good faith efforts to accurately report his income.

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