February 2023 Foodman Website
Cryptocurrency,criptoactivos cripto and the IRS

In January 2023, regulatory agencies; including the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller issued a Joint Statement on Crypto-Asset Risks to Banking Organizations.

The warning asks the banking system to do everything in its power to avoid having the risks related to the crypto-asset sector that cannot be mitigated, or controlled, migrate to the banking system.

While each organization is free to implement its own compliance practice, all “should ensure appropriate risk management, including board oversight, policies, procedures, risk assessments, controls, gates and guardrails, and monitoring, to effectively identify and manage risks”.

This includes making sure that you (the client) understand that there is NO Regulatory Agency that oversees crypto, and that crypto asset accounts and value balances are not covered by FDIC insurance or SIPIC protection, as well as making sure that there are no inaccurate or misleading representations and disclosures by crypto-asset companies, and other practices that may be unfair, deceptive, or abusive.

At the same time, banking organizations also need to be compliant with anti-money laundering and illicit finance statutes and rules, meaning they need to have robust controls and KYC practices. Which in practice can translate to: “be ready to answer questions.”

However, some argue that digital assets, via its blockchain, leave a longer trail than banks with the travel rule, since they record each step of an asset’s transactions, and that while virtual wallets might not have a readily available first and last name, they do have a unique address that allows for identification, which OFAC has used for sanctions by since 2018.

Form 1040 2022

Moreover, now that tax season is upon us, it is important to remember that in September 2022, the IRS put forward changes to Form 1040, which is the U.S. Individual Income Tax Return that since tax year 2019 has been asking taxpayers about their virtual currency doings on the front page.

In this draft, the IRS changed the crypto terminology from “virtual currency” to “digital assets.” Which includes a broader category that includes cryptocurrencies, stablecoins, NFTs, as well as staking tokens, amongst others.

According to the 1040 2022 Instructions, all taxpayers must answer the digital asset 2022 question on Forms 1040 and 1040-SR: “Do not leave this field blank. The question must be answered by all taxpayers, not just taxpayers who engaged in a transaction involving digital assets”.

Having proper documentation of your digital assets will help in case of banking requirements and while filing taxes, at the same time protecting you against an IRS audit. Remember that changes in your holdings of digital assets have to be reported even if you received or transferred digital assets for free, be it as a bona fide gift, or the result of a reward or award.

Remember that “You have a financial interest in a digital asset if you are the owner of record of a digital asset, or have an ownership stake in an account that holds one or more digital assets, including the rights and obligations to acquire a financial interest, or you own a wallet that holds digital assets.”

Are you properly accounting your Digital assets? ©