Back to Blog

A Few Gotchas: The 2019 IRS Virtual Currency Question

Jan 08, 2021
I've helped hundred of people with crypto taxes, accounting and more over the last 7 years. Now I want to share this wisdom with you in our first ever Crypto Bullseye Blog. In this edition we'll highlight a simple but important pitfall to avoid for 2019 and 2020 taxes. Read on.

In 2019 the IRS added a virtual currency check-the-box question to Schedule 1 (a form that only some people need to file) forcing people to disclose crypto activity under the penalty of perjury. 

Here is the question at the top of the form:

At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency? Yes or No

The Pitfalls:

  • This s a gotcha question you don't want to miss
  • Basically if you had any crypto activity ie trading activity receiving crypto as income you should have checked this box YES
  • Many CPAs didn't pay attention to this question and missed it for their clients
  • There were no 2019 instructions provided to help taxpayers decide how to answer the question
  • If you ONLY bought crypto and did not sell it was not clear if you could answer "NO"

Takeaways: 

  • If you are not sure whether this question was answered, then look on your 2019 tax return for Schedule 1
  • If there is NO Schedule 1 then you did NOT answer the question because that's where the question is
  • If you have Schedule 1 and the crypto (virtual currency) question is checked NO when it should have been YES then you need to amend your tax return. 
  • In incorrectly answered question subjects you to the penalty of perjury and that is not a good situation 
  • Tax returns are amended all the time for various reasons so amending is routine matter

If your question was NOT answered correctly then don't panic. Just amend your return and assuming you filed in good faith just explain:

"I filed the return and inadvertently did not check the box. I had virtually currency transactions and the amended returns reflects a YES answer on Schedule 1"

If you were otherwise not required to file Schedule 1 then add some additional language. 

"In addition, I did not have other income or adjustments to income and was not otherwise required to file Schedule 1."

Good luck and remember your goal is a always a Crypto Bullseye™

DISCLAIMER: The information in this newsletter can not be construed as tax advice because tax advice can only be dispensed with an official engagement letter. 

Yours in Crypto, 

Kirk Phillips, CPA, CMA, CFE, CBP