/>iIn November 2023, almost 11,000 cryptocurrencies and digital tokens were listed on CoinMarketCaps.com. In addition, tens of thousands of non-fungible tokens (NFTs) are sold daily on various crypto exchanges and NFT platforms. The meteoric rise in popularity of “digital assets” (cryptocurrency, digital tokens, and NFTs) over the last decade had been breathtaking, but so, too, has been their fluctuating valuations, and the failure and insolvency of crypto exchanges and trading platforms. Recent exchange and trading shutdowns have left many digital asset holders unable to access their property, with others unable to sell their assets at any price. In addition, many digital asset holders have lost their investments due to theft, fraud, and Ponzi schemes.
Economic losses pose difficult tax issues as to deductibility for tax purposes. I have written about these issues in several articles (please see “Can You Write Off Crypto Losses? IRS Says Intention Matters,” “Are Crypto Losses Tax Deductible as Worthless or Abandoned Property?” “Digital Asset Theft Loss Deductions are More Complicated Than You Think,” and “The Down and Dirty on Crypto Scams.”). In this article, I bring it all together, presenting a comprehensive analysis of when and how digital asset losses are deductible for U.S. tax purposes. In this single reference, I discuss the considerations for taxpayers and their advisers when seeking to determine if a specific loss qualifies for a tax deduction.
This article is divided into three parts.
- Controlling Law The first is a discussion of Internal Revenue Code (Code) §165, which is the operative law governing whether and when an economic loss is deductible for tax purposes.
- Broad Standards The second section provides a summary of the loss situations in which taxpayers may find themselves, along with some options on how they might proceed from a tax standpoint.
- Deductibility Scenarios The third section drills down into the details, with a discussion of the types of economic losses that taxpayers may seek to deduct for tax purposes.
Controlling Law
Code §165 is the source for the answer to almost all questions as to the deductibility of economic loss with respect to digital assets. I say “almost all questions” because there are exceptions:
- Code §67(g) provides that if an individual taxpayer’s loss would be deductible as a miscellaneous itemized deduction under Code §165, then it is not deductible unless it is incurred in 2026 or later.
- There are questions as to whether certain types of digital assets are subject to the wash sales rule in Code § 1091 (which would prevent an otherwise permissible loss from being deductible).
- If the loss is the result of a Ponzi scheme, then it could be subject to special rules set out in Revenue Ruling 2009-9[1] and Revenue Procedure 2009-20.[2]
In all cases, however, it is important to note whether the taxpayer is an individual; whether the loss was incurred in connection with a trade or business; whether the loss is capital or ordinary; and how the deduction is to be reported on the taxpayer’s tax return.
Broad Standards
Code §165 sets out three broad standards that must be met if an economic loss is to be deductible for tax purposes:
- The loss must be the result of a “closed and completed transaction,”
- The loss must be “actually sustained during the tax year,” and
- The loss must not be compensated for “by insurance or otherwise.”
While these are the general standards applicable to all loss situations, it is important to keep in mind a few general tax principles about digital assets. First, the IRS regards digital assets as property.[3] Therefore, regardless of the characteristics of a particular digital asset, it is not taxed as currency but in accordance with the general tax rules that apply to property. This means that it is essential to determine if the digital assets are held in connection with the taxpayer’s trade or business, or for investment. If held as neither, the loss will not be deductible.
As I discuss below and in an earlier article[4], the tax rules can change if the digital asset is considered to be a security for tax purposes. When a digital asset is deemed a security for tax purposes, it is a very different determination than if it is deemed a security for securities law purposes. Specific digital assets could well be securities for securities law purposes but not securities for tax purposes.
Deductibility Scenarios
Taxpayers can experience losses on digital assets in many ways. For tax purposes, however, some economic losses are the result of the taxpayer’s action, while others result from activities or events entirely outside of the taxpayer’s control.
Sale or Exchange
Because digital assets are categorized as property for tax purposes, they are either capital assets or ordinary assets in a taxpayer’s hands. In this article I am focusing on investors who generate capital gain or loss (short-term or long-term depending on the taxpayer’s holding period) on sales or exchanges of capital assets.[5] Therefore, my concern in this article is with respect to digital assets that are capital assets in the hands of an individual taxpayer.
Net capital losses for noncorporate taxpayers is deductible against ordinary income to the extent of $3,000 per year.[6] The sale or exchange of an ordinary asset generates ordinary income or loss. For individuals, property is treated as a capital asset unless the taxpayer is in a trade or business involving that type of property.[7] Capital gains are reported on IRS Form 8949, “Sales and other Dispositions of Capital Assets.”[8]
Even though a taxpayer may sell or exchange a digital asset and incur a loss, that loss is not deductible unless the taxpayer had acquired the asset in a transaction entered into for profit. If the digital asset is held pursuant to a hobby or for personal use, the loss is not deductible. Thus, a taxpayer’s intent in acquiring a digital asset is critically important in determining whether that asset is investment property or a personal use asset. A taxpayer’s intent is demonstrated by all of the facts and circumstances surrounding the transaction and the taxpayer’s other transactions for the taxable year. Upon audit, the IRS can require a taxpayer to show objective evidence of investment intent. And, of course, a taxpayer’s intent can change over time.
Personal use assets are taxed as capital assets, but with some important tax differences. Because of 2017 tax law changes, losses from the sale or exchange of personal use assets are not deductible.[9]Gains, however, are taxable as capital gains. In other words, personal use assets result in taxable capital gains and nondeductible losses. Also, as a result of 2017 tax law changes, a taxpayer cannot deduct expenses in connection with personal use assets.
A taxpayer’s standard capital gain rate generally applies to personal use assets, but it does not apply to personal use assets that are treated as collectibles.[10] IRS Notice 2023-27, issued in March of 2023, states that the IRS intends to issue future guidance as to the treatment of those NFTs that should be classified as “collectibles.”[11] Collectibles are subject to the higher capital gain tax rate of 28 percent.[12] Because such assets are not treated as currency for federal tax purposes,[13] even though Code § 988(e) allows individual taxpayers to exclude up to $200 of gains from personal use foreign currency transactions, such a de minimis exemption is not available for personal use digital assets.[14]
In summary, digital asset losses from a sale or exchange are deductible as long as the digital assets are held as investment property, and the loss is not compensated for by insurance or otherwise. The amount of the deduction equals the amount that the taxpayer’s basis exceeds the amount that the taxpayer received in the sale or exchange.[15]
Mistakes or Accidents
Mistakes and accidents happen. Taxpayers might lose their passwords or private keys to their digital wallets, or otherwise lose access to these wallets. Taxpayers might send digital assets by mistake to the wrong digital address. Losses from a taxpayer’s own mistakes or from an accident are not deductible for tax purposes.
Worthless, Abandoned, or Stolen Property
Under Code §165(a), taxpayers can deduct as an ordinary loss, losses incurred with respect to worthless, abandoned, or stolen property (subject to a special rule for worthless securities). Whether such a deduction is actually available, however, is anything but straightforward. The IRS Office of Chief Counsel issued Advice Memorandum CCA 202302011(CCA)[16] addressing those circumstances under which a taxpayer may deduct losses on digital asset as worthless or abandoned.
The CCA set up a relatively simple fact pattern with a hypothetical taxpayer who purchased digital assets for $1 a unit in 2022 and still held the units at the end of 2022. At that time, the units had declined in value to $0.01 but still traded on at least one cryptocurrency exchange. The CCA then addressed why the taxpayer could not deduct losses in this situation. The CCA states that although the taxpayer’s digital assets had “substantially decreased in value,” the remaining value was “greater than zero.” Moreover, the taxpayer still had dominion and control over the digital assets, which continued to trade on at least one cryptocurrency exchange.
The CCA quoted a U.S. Tax Court case where property was classified as worthless only if an economic loss in the value of property is “evidenced by the permanent closing of a transaction with respect to the property.”[17] In other words, to receive a Code §165 loss, the taxpayer must show “an identifiable event that occurs during the tax year” showing that “the asset in question is in fact essentially worthless.” Although “it is not necessary to relinquish title” to demonstrate worthlessness, a taxpayer must show that the asset has no current value and no prospect of acquiring “value in the future.”
The CCA does not offer any guidance as to how a taxpayer can demonstrate that there is no possibility of the crypto acquiring value in the future. As a practical matter, it is hard to imagine how a taxpayer can make such a showing unless the digital assets were recorded on a blockchain that is no longer active.
Putting aside the future value issue for a moment, perhaps one method of showing that a digital asset has no liquidating value might be to document the taxpayer’s unsuccessful efforts to sell the cryptocurrency and that there were no buyers at any price. Or, perhaps it might be possible to make such a showing by obtaining an appraisal from a qualified appraiser to demonstrate that their digital asset is worthless.[18] Despite such possibilities, serious questions remain as to whether and how a taxpayer can successfully show that digital assets are, indeed, worthless.
Under Code §165, taxpayers can also deduct a loss on abandoned property. “Abandonment” is demonstrated by an evaluation of all of the facts and circumstances. In this evaluation, the taxpayer must demonstrate two things: first, a subjective intent to abandon the property; and second, confirmation that action has been taken to abandon it.[19] As the CCA notes, intention alone “is not sufficient to accomplish abandonment.” With intangible assets, such as digital assets,[20] there must be an explicit manifestation of abandonment.
In the CCA, the hypothetical taxpayer did not take any affirmative steps to abandon the cryptocurrency. The taxpayer continued to have dominion and control over it; retained the ability to sell, exchange, or otherwise dispose of it; and took no steps to demonstrate it was abandoned. Therefore, the CCA makes it clear that this taxpayer did not sustain a Code §165(a) abandonment loss.
Unfortunately, the CCA is also silent as to the types of actions a taxpayer might take to demonstrate an affirmative act of abandonment. Cryptocurrency is not akin to an old car: it cannot be simply towed away. Indeed, the only affirmative act of abandonment that I can think of would be for a taxpayer to send digital assets to a null address, sometimes called a “burner address” or “eater address.” Such an address is a digital wallet specifically set up to receive crypto that is to be permanently removed from circulation. While the current balance in such an account is publicly visible on the blockchain, its contents are unavailable to anyone.[21]
The CCA has put taxpayers on notice that even if they experience a dramatic decline in the value of their cryptocurrency, that is not sufficient to trigger a Code §165 loss. But hard questions remain unanswered. For example, how could a taxpayer send crypto units to a null address if the taxpayer cannot get access to the units because they are held by a bankrupt exchange, such as FTX? How can a taxpayer demonstrate that its digital assets have no future value? If a null account is not provided for a particular blockchain, how can a taxpayer demonstrate “abandonment”?
The bottom line is that the CCA tells us that the IRS is paying close attention to how taxpayers report their crypto losses on their tax returns, but it does not tell us how they can appropriately qualify for tax losses on worthless or abandoned crypto.
Worthless Securities
A digital asset that is a security for tax purposes is subject to special rules if it becomes worthless. Worthless securities are treated as if the loss resulted from a sale or exchange.[22] Thus unlike other digital assets, if a digital asset that is a security becomes worthless, the taxpayer’s loss is treated as capital.
When is a digital asset a “security” for tax purposes? The operative phrase in the Code is “stock or securities.” To be stock, the asset must be a share of stock in a corporation or a right to subscribe for, or to receive, a share of stock in a corporation. To be a “security,” the asset must be “a bond, debenture, note, or certificate or other evidence of indebtedness, issued by a corporation or by a government or political subdivision thereof.”[23] Consequently, an interest in a partnership that is not publicly traded is not a security.[24] A worthless security that is a capital asset generates capital loss on the last day of the tax year so this capital loss is netted along with other capital gains and losses.[25]
Theft
Taxpayers can take a tax deduction with respect to the “theft” of digital assets from an illegal “taking of property” done with criminal intent.[26] Theft losses, including those from fraud are deductible under Code §165 upon a showing that the loss resulted from an illegal “taking of property” done with criminal intent. This means a taxpayer must show that the thief had the intent to deprive the taxpayer of money or property. Thus, there must be a showing that there was a theft under state law in the state where the taxpayer is domiciled. The taxpayer does not, however, need to show the thief has been convicted of a crime. Of course, a loss is not deductible if it is compensated for by insurance or through other means.
A theft loss is deductible in the year the taxpayer discovers the theft as long as the theft is evidenced by a closed and completed transaction and the loss is fixed by identifiable events. Further, the loss must not be subject to a claim for reimbursement or recovery if there is a reasonable prospect of recovery.
The amount of a theft loss depends on whether or not the loss is with respect to a transaction entered into for purposes of making a profit. If the taxpayer had a profit motive when they entered into these transactions, the loss is subject to Code §165(c)(2) and the deductible amount is generally the sum of the amount invested minus amounts withdrawn (if any), plus purported gains that had been included in the taxpayer’s taxable income, reduced by reimbursements or recoveries, and further reduced by claims as to which there is a reasonable prospect of recovery.
Theft losses of digital assets that were not purchased for profit—for example, an NFT purchased as a collectible or a digital token purchased to be used to acquire specific property—are subject to Code §165(c)(3), not Code §165(c)(2). Such losses under Code §165(c)(3) are subject to significant limitations that do not apply to theft losses under Code §165(c)(2). As a result, Code §165(c)(3) theft losses are subject to the deduction limitations in Code §165(h). This means that the taxpayer’s loss must exceed $100 and the deduction is limited to the amount by which the loss exceeds 10 percent of the taxpayer’s adjusted gross income for the years in which the deduction may be taken.
Whether the theft loss is subject to Code §165(c)(2) or to Code §165(c)(3), these losses are treated as itemized deductions excluded from the miscellaneous itemized deduction definition. Therefore they are not subject to the limitation on itemized deduction contained in Code §67(a), and they are also exempt from the Code §68 limitations on the overall limit on itemized deductions based on a percentage of adjusted gross income or total itemized deductions.
Recoveries on a claim for reimbursement, or other recoveries in a subsequent tax year are not included in gross income. If the taxpayer recovers an amount greater than the amount of the claim, the excess recovery is included in gross income. If the amount recovered is less than the claim, a deduction in that amount is allowed in the year that the recovery amount is ascertained with reasonable certainty.
The requirement that a theft loss must be “fixed” by identifiable events should be relatively easy to establish when digital assets are stolen from a taxpayer’s digital wallet, but it may not be clear with respect to other theft schemes or for NFTs. For example, in the case of a digital asset investment scam where NFTs are sold to investors before the promoters shuts down the website (eliminating any liquidity for the NFTs), would the transaction be treated as closed and completed? After all, the taxpayer still has the NFT; the NFT might still have some value; and it is possible that the website could be reinstated.[27]
More troubling is the situation in which there is a claim for reimbursement by the SEC or CFTC. What if the SEC or the CFTC have ordered restitution? How is a taxpayer to know whether there is a “reasonable prospect of recovery” and if so, for how much? In such a circumstance, it appears that a taxpayer cannot take a tax deduction until it can be ascertained with reasonable certainty that there will or won’t be reimbursement.
The determination of a “reasonable prospect of recovery” is a question of fact. It must be determined based on an examination of all the facts and circumstances. It may be difficult for individual taxpayers who are adversely affected by fraud to determine whether and when there has been a definitive settlement or adjustment of the claim.
In such circumstances, a taxpayer might seek to abandon its claim to any portion of such reimbursement.[28] Abandonment must be proven by objective evidence, such as a written release. But is it enough for the taxpayer to file a statement with the SEC or CFTC, for example, saying that they intend to abandon the property?
A further complication is that a reimbursement suit can remain open for many years while the scammer defendant is sought or prosecuted, or the defendant’s assets are sought to be discovered and thus subject to a formal legal discovery process. After all, money is still being recovered from the Bernard Madoff Ponzi scheme, more than 15 years after the crime was uncovered.
Ponzi Scheme Losses
Digital assets are a prime target for fraudsters peddling Ponzi schemes. Many investors don’t understand digital asset technologies, or they don’t have the means to evaluate whether these assets are sound investments.[29] Unlike many traditional investments, digital asset investors cannot obtain earning reports, third-party research reports, audited financial statements, or regulatory filings. Few digital asset investment opportunities are regulated, and their promoters are often anonymous. In 2022, alone, more than 10 Ponzi schemes came to light involving digital assets.[30]
In 2009, shortly after the Bernard Madoff Ponzi scheme was uncovered, the IRS issued a Rev. Rul. 2009-9[31] and Rev. Proc. 2009-20[32] to provide victims with tax guidance and an elective safe harbor procedure. Rev. Rul. 2009-9 provides that Ponzi scheme theft losses can be deducted under Code §165(c)(2) as losses incurred in a transaction entered for profit, not as a casualty or theft under Code §165(c)(3).[33] This means that Ponzi scheme victims can deduct the full amount of their theft loss even if it does not exceed 10 percent of their adjusted gross income as would otherwise be required by Code §165(h) for casualty or theft losses under Code §165(c)(3). It also means that Ponzi scheme losses are not limited by the limitations on itemized deductions in Code §§67 and 68.
The revenue procedure provides an optional safe harbor, designed to avoid “potentially difficult problems of proof… and alleviated compliance and administrative burdens on both taxpayers and the Service.” The safe harbor applies to taxpayer losses where “the party perpetrating the fraud received cash or property from investors, purports to earn income for the investors, and reports income amounts to the investors that are wholly or partially fraudulent. Payments, if any, of purported income or principal are made from cash or property that other investors have invested in the fraudulent arrangement. To be eligible for the safe harbor, the arrangement must not be a tax shelter under Code §6662(d)(2)(C)(ii).” In other words, the safe harbor is limited solely to losses incurred from Ponzi schemes.
To qualify for the safe harbor, the “lead figure” in the Ponzi scheme must have been criminally charged by indictment or information under state law with the commission of fraud or embezzlement. If the lead figure is only subject to a criminal complaint, the lead figure must have admitted to the crime, a receiver or trustee must have been appointed with respect to the arrangement, or its assets must be frozen.
In 2011 the revenue procedure was modified by Rev. Proc. 2011-58 to address those situations in which death of the lead figure eliminates the possibility of criminal charges. In the event of such a death, the safe harbor is still available if the lead figure “or an associated entity” was the subject of one or more civil complaints or similar documents filed with a court or in an administrative proceeding alleging facts supporting the elements of a fraudulent Ponzi scheme. In addition, either a receiver or a trustee must have been appointed, or assets were frozen.[34]
The safe harbor is only available to taxpayers who have invested in the Ponzi scheme directly. Thus, if a taxpayer invested in an investment fund or pool that invested in the Ponzi scheme, the taxpayer cannot rely on safe harbor provisions. The investment fund, itself, however, could seek to apply the safe harbor. Whoever seeks to utilize the safe harbor must not have known of the fraud prior to its becoming known to the general public.
A taxpayer who is eligible to use the safe harbor can deduct losses in the “discovery year,” which is (as that term was modified by the 2011 revenue procedure) either (1) the year when the criminal indictment, information, or complaint was filed against the lead figure, or (2) the year when a civil complaint was filed and the lead figure dies, whichever is later. A qualified taxpayer can take a deduction in the discovery year that is based on the excess, if any, of the sum of the total amount of cash or the basis of the property invested in the arrangement, plus the total amount of the net income from the arrangement included in the taxpayer’s income for federal tax purposes for all years prior to the discovery year minus the total amount of cash or property that the taxpayer received from the arrangement. This is referred to in the revenue procedure as the “qualified investment.”
If a taxpayer complies with the safe harbor requirements, the amount deductible in the discovery year is either 95 percent of the qualified investment (if the taxpayer does not pursue a potential third-party recovery) or 75 percent of the qualified investment if the taxpayer is pursuing or intends to pursue third-party recovery. In both cases, the permissible deductible amount is reduced by any actual recovery (amounts the taxpayer actually receives in the discovery year from any sources, or as reimbursement or recovery for the loss) and any potential insurance/ Securities Investor Protection Corporation recovery.
The revenue procedure sets out the steps taxpayers must follow to claim deductions under the safe harbor. As long as taxpayers follow these procedures, the IRS will not challenge their claims of a theft loss; the taxable year in which the loss is deducted; or the amount of the deduction. Taxpayers relying on the safe harbor must also submit a statement in the form specified in Appendix A to the revenue procedure, declaring among other things, that they have written documentation to support the amount of the deduction as calculated in the statement.
The safe harbor provides taxpayers with certainty as to their ability to deduct their losses in connection with a criminally fraudulent investment arrangement in the form of a Ponzi scheme. Unfortunately, it is unlikely to be available in many situations, because so many Ponzi schemes involving digital assets will not be subject to criminal proceedings. For many Ponzi schemes, there are a small number of victims or the lead figure (and anyone else involved in the fraud) is unknown and cannot be identified.
When Realized Losses May Not Be Deductible
What if a taxpayer sells a digital asset and repurchases the same digital asset? Is such a loss subject to the wash sales rule in Code §1091 that prevents investors from deducting capital losses while they hold substantially identical stock or securities? Under Code §1091, losses “sustained from the sale or other disposition of shares of stock or securities” (Disposition Event) are disallowed when the taxpayer has, within 30 days before or after the Disposition Event, “acquired … or has entered into a contract or option so to acquire substantial identical stock or securities” (Acquisition Event).[35]
By its terms, the wash sales rule does not apply to digital assets unless they qualify as stock or securities for tax purposes. The wash sales rule also does not apply if the taxpayer is a dealer in stock or securities.[36] The structure and language of the wash sales rule are essentially unchanged from the predecessor provision adopted in 1920 and amended in 1924. Code §1091(a) was, however, amended in 1988 to provide, “For purposes of this section the term ‘stock or securities’ shall … include contracts or options to acquire or sell stock or securities.”
The reasoning in the court case of Gantner v. Commissioner of Internal Revenue,[37] makes it clear that the wash sales rule cannot be extended by analogy to digital assets. In Gantner, the taxpayer purchased and sold a large quantity of stock options within the 61-day prohibited wash sale period. The taxpayer took a deduction for the loss, which the IRS disallowed on the grounds that stock options are “securities” for purposes of Code §1091 and, therefore, are subject to loss disallowance under the wash sales rule. The Tax Court found the issue to be “one of first impression.” Employing the “cardinal rule of statutory construction” that “effect shall ‘be given to any clause and part of a statute,’ the Tax Court held that a Disposition Event applied to “stock or securities,” while an Acquisition Event also applied to “a contract or option to acquire substantially identical stock or securities.” According to the Tax Court “the plain meaning of section 1091(a) is that an option to acquire stock is not equivalent to ‘stock or securities’ and a loss sustained from a sale or disposition of stock options is not a loss which comes within the plain meaning of section 1091.”
Despite finding that Code §1091(a) did not apply to losses on the disposition of options, the court went on to examine the legislative history to determine whether the intent of Congress in adopting the wash sales rule was contrary to a straightforward reading of the statute. The Tax Court found that Congress “certainly did not contemplate the application of [the predecessor of Code §1091] to losses on sales of options.” The Court surmised that the absence of a ready resale market for stock options in 1921 and 1924, when the wash sales rule was first added to the Code, explained why Congress did not include options in the Disposition Event component of the wash sales rule. Furthermore, despite obvious evidence that Congress was aware of the growth of the options market, Congress had not attempted to bring stock options into Code §1091. As a result, the Court concluded, “Congress had never intended for losses on sales of stock options to be subject to disallowances under the statutory wash sale provision of section 1091.”
Two things about Gantner are particularly relevant to the question of whether the wash sales rule applies to digital assets. First, at no point did the Tax Court (or the Eighth Circuit on review) consider whether the wash sales rule should be applied to options in a Disposition Event in order to further the purposes of the rule. Statutory construction is a matter of interpreting the language of a statute in light of its plain meaning, as illuminated by its history. Because there is no suggestion in the language of Code §1091 or its legislative history that digital assets are to be included in its coverage, there is no legal justification to apply the wash sales rule to digital assets.
Second, while it might be reasonable to argue that the term “securities” includes options, given that certain Code provisions define securities to include options, the Code does not define “securities” to include digital assets.[38] Therefore, digital assets do not fall within the wash sales rule.
But if the wash rule does not apply, might the economic substance doctrine apply to disallow a loss where a taxpayer’s position is basically unchanged? For example, what if a taxpayer sells 10 bitcoins at a loss and repurchases 10 bitcoins almost immediately thereafter? If yes, what is the requisite time to wait to repurchase to avoid application of the economic substance argument? At present we have no answer to that question.
Conclusion
In reporting digital asset losses, taxpayers must pay careful attention to the facts and circumstances surrounding their losses so they can then apply relevant tax rules. As with other types of property, the rules vary depending on the taxpayer’s situation, and taxpayers must carefully document their transactions to support their tax positions. Taxpayers should consult their advisors to help them navigate the various situations they face when they have losses on digital asset transactions.
FOOTNOTES
[1] 2009-14 I.R.B. 735.
[2] 2009-14 I.R.B. 749, as modified by Rev. Proc. 2011-58.
[3] Notice 2014-21, 2014-16 I.R.B. 938.
[4] See “Are Some Tokens Securities? Stock? And What Does It Mean for Taxes?” ASKramer Law LLC, 2023.
[5] Code § 1222.
[6] Code § 1211(b).
[7] Code §§ 1221(a)(i), 1221(a(6), 1221(a)(7), and 1221(a)(8).
[8] irs.gov/instructions/i8949.
[9] IRS, Topic No. 409 Capital Gains and Losses, last updated Sept. 21, 2017.
[10] Code § 408(m).
[11] See “IRS Takes a New Approach to NFTs and Collectibles” ASKramer Law LLC, 2023.
[12] Topic No. 409, supra note 7.
[13] Notice 2014-21, 2014-16 I.R.B. 938.
[14] irs.gov/instructions/i8949.
[15] Subject to limitations on the amount and timing of capital loss deductions.
[16] Jan. 10, 2023
[17] See Massey-Ferguson, Inc. v. Comm’r, 59 T.C. 220, 225 (1972) (citing Boston Elevated Railway Co. v. Comm’r, 16 T.C. 1084, 1108 (1951), aff’d, 196 F.2d 923 (1st Cir. 1952)).
[18] A qualified appraiser is an individual with verifiable education and experience in valuing the type of property for which the appraisal is performed. Treas. Reg. § 1.170A-17.
[19] Beus v. Comm’r, 261 F2d. 176, 189 (9th Cir. 1958), aff’g 28 T.C. 1133 (1957).
[20] Citron v. Comm’r, 97 T.C. 200, 209-10, 213 (1991) (finding that taxpayer abandoned a partnership interest when the limited partners voted to dissolve the partnership, directed that a final partnership return be filed, and treated partnership property as no longer belonging to the limited partners).
[21] “What Is the Null Address in Crypto?” Nov. 19, 2021, https://educationecosystem.com/blog/what-is-the-null-address-in-crypto/.
[22] Code § 165(g).
[23] Code § 165(g)(2).
[24] Draper v. U.S., 62 Fed. Cl. 409 (2004).
[25] Code § 165(g).
[26] Code § 165(a).
[27] See “The Down and Dirty on Crypto Scams” ASKramer Law LLC, 2023.
[28] For a discussion of the tax treatment of worthless and abandoned property, see https://www.askramerlaw.com/publications/are-crypto-losses-tax-deductible-as-worthless-or-abandoned-property.
[29] See “The Down and Dirty on Crypto Scams” ASKramer Law LLC, 2023.
[30] “10 Crypto Ponzi Schemes that Ravaged the Digital Asset Market in 2022,” https://www.analyticsinsight.net/10-crypto-ponzi-schemes-that-ravaged-the-digital-asset-market-in-2022/.
[31] 2009-14 I.R.B. 735.
[32] 2009-14 I.R.B. 749, as modified by Rev. Proc. 2011-58.
[33] Code § 165(c)(3) casualty or theft losses involve losses other than those connected with a trade or business or a transaction entered into for profit.
[34] 2011-58 I.R.B. 849.
[35] Code § 1091(a).
[36] Code § 1091.
[37] 905 F2d 241, 8th Cir. 1990, affirming Tax Court Case.
[38] Code § 6045(g) does provide that “digital assets” are treated as a “covered security” for broker reporting purposes but there are other items in that term that are not “securities” for tax purposes.
