The main Crypto Currency challenge for tax preparers is that clients do not provide appropriate sales reports for all of their transactions across all crypto currency platforms and exchanges.
Tax regulations require that crypto currency (such as Bitcoin) be treated like assets. When sold, the profit on the sale is taxable or the loss may be deductible. A purchase itself is not a taxable event (although the fact that purchases were made must be reported). However, every sale needs to be traced to the original purchase; therefore, the transaction record of every purchase needs to be retained by the client until that purchase is sold.
If a crypto currency platform does not provide this type of reporting or – more likely – the taxpayer doesn’t have the technical savvy or capability to obtain the correct reports from the provider, then the sale of crypto cannot be accurately reported on the tax return. If the return is filed with inaccuracies, the IRS can assess inaccuracy penalties against the taxpayer and the preparer.
Sometimes a client will provide detail on hundreds of short-term, intraday transactions and expect the tax return preparer to do bookkeeping and accounting with the data. Most tax preparers do not consider this task to be their role or responsibility.
Bottom line: the tax client is responsible for providing full and accurate sales reports including gain/loss, from his/her records or from all crypto currency platforms. Don’t be surprised if a tax preparer declines to prepare the tax return with unorganized or estimated data or incomplete/inappropriate reports.
Kenneth Athon Tax Strategies 