IRS updates Form 1040 to include definition of virtual currency

According to Forbes, the U.S. Internal Revenue Service (IRS) released a revised draft 1040 instruction on December 31, 2020, which clarified what is covered by the term virtual currency.

The IRS uses the term virtual currency to describe various types of convertible virtual currencies used as a medium of exchange, such as digital currencies and cryptocurrencies, and states that regardless of which term is used, if a particular asset has the characteristics of a virtual currency, it will be considered a virtual currency. The updated draft requires that if a citizen purchased cryptocurrency during 2020, they must check "yes" on the virtual currency question on Page 1, although this may not trigger any taxable event.

Earlier news, on December 11, the IRS released a new 1040 return form for the 2020 tax year, which all US taxpayers need to submit. The lack of clear guidance on the definition of "virtual currency" has confused some cryptocurrency users.