Janus, the two-headed Roman deity for whom the month January is
named, could see the past and the future but not the present. The
US Internal Revenue Service (“IRS”) must have been
inspired by Janus when thinking about cryptocurrencies recently. On
one hand, the IRS looked back to 2022 and issued puzzling but
adverse guidance for individuals who were crushed in the
cryptocurrency meltdown.1Looking forward, the IRS
postponed broker reporting for cryptocurrency transactions until
after it issues final regulations on this topic.2 This
Legal Update will explore both of these developments.
I. CCA 202302011
CCA 202302011 provides a relatively simple fact pattern. An
individual investor purchases an on-exchange fungible digital token
for $1.00 in 2022. After the cryptocurrency meltdown, the token is
worth less than $.01 at year-end but is still traded on at least
one cryptocurrency exchange. The taxpayer did not undertake any
overt acts indicating that he abandoned the cryptocurrency. The
taxpayer claims a tax loss for the diminution in value on his 2022
tax return on the theory that the token is either worthless or that
he abandoned the token. There is no discussion as to whether the
taxpayer was “gated,” that is, there is no discussion as
to whether the exchange suspended redemptions so that the taxpayer
was unable to sell the token.3 It’s worth noting
that the “market price” is indicative of value only if
the token can be sold. If the exchange is…
