Fundamentals: Currency or Property?

Accounting For Crypto Assets

UPDATE: the CFTC announced on December 13, 2022 that some assets, including BTC, ETH, and USDT are commodities under US Law. The IRS has generally classified cryptocurrency as property and applies tax regulations in a similar fashion to stocks or real estate. For this reason, we will not discuss the tax treatment of fiat currency transactions here. Crypto assets can be held as capital assets or received as W-2 wages, self-employment income, or royalty income. Additionally, they may also be treated as inventory by traders and brokers in certain instances.

As you can see, this asset class is extremely versatile and complex as it encompasses many different types of transactions and tax/ accounting treatments. Additionally, as explained by the U.S. Securities and Exchange Commission (SEC), a commodity falls under the classification of a property asset. According to the SEC, “A Bitcoin futures contract is a standardized agreement to buy or sell a specific quantity of Bitcoin at a specified price on a particular date in the future.

In the United States, Bitcoin is a commodity, and commodity futures trading is required to take place on futures exchanges regulated and supervised by the Commodity Futures Trading Commission (CFTC).” As a result, we look more to the substance of each transaction to get a sense of what accounting treatment we use.

When new decentralized applications (dAPPs) and protocols are introduced within the industry that have no official guidance tied to them, we rely on our knowledge of accounting theory and transactions of a similar nature in order to determine the proper accounting and tax treatment. In these cases, we tend toward the more conservative treatment to protect our clients and ourselves; however, the client is ultimately responsible for their tax filings (and we make adequate disclosures, such as an IRS Form 8275, to the taxing authority if required when taking a more aggressive tax position).