The U.S. Internal Revenue Service (IRS) has published a draft of the 2021 Form 1040, the main individual income tax return form, featuring a revised question about virtual currency. The updated question now reads: “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”
Key Changes from the 2020 Version
The previous version for the 2020 tax year asked: “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” The removal of the word 'send' and the replacement of 'acquire' with 'disposed of' represent a deliberate shift in focus.
Shehan Chandrasekera, Head of Tax Strategy at tax software firm Cointracker, explained that the revised question “only inquires about your taxable transactions compared to the much broader scope of the 2020 version.” He elaborated: “Under the revised question, you don’t have to check ‘Yes’ if you send cryptocurrency in between wallets/exchanges or acquire them, which are both non-taxable transactions.”
Why This Matters for Crypto Investors
Previously, many crypto users who merely transferred coins between their own wallets or purchased cryptocurrency with fiat money were forced to answer “Yes,” potentially triggering unnecessary IRS scrutiny or confusion. The new version aligns the question more directly with taxable events — primarily sales, exchanges, and other dispositions that generate capital gains or income.
Chandrasekera suggested that the change indicates what the IRS learned from the 2020 version and hints at its direction moving forward: “Although these changes have no big impact on your taxes, it hints at what the IRS has learned from the 2020 version and the direction it’s heading.”
What Hasn’t Changed: Continued Enforcement
While the question has been refined, the IRS’s overall scrutiny of cryptocurrency transactions remains intense. Taxpayers are still required to report all taxable events — including sales, trades, staking rewards, airdrops, mining income, and payments received in crypto. The new question simply serves as an initial filter to identify filers likely to have reportable transactions.
The IRS has continued its enforcement efforts, including issuing John Doe summonses to major exchanges like Coinbase and Kraken, and requiring foreign crypto accounts to be reported on FinCEN Form 114 (FBAR) or IRS Form 8938 under certain conditions. Crypto investors should maintain detailed records of cost basis, transaction dates, and fair market values.
Looking Ahead
The evolution of the crypto question from 2020 to 2021 suggests that the IRS is moving toward more precise, transaction-based reporting. As the crypto ecosystem expands into DeFi, NFTs, and derivatives, further adjustments to tax forms — possibly a dedicated crypto schedule — are likely. Taxpayers should monitor annual form changes and consult with tax professionals to ensure compliance.