Page 116 - Virtual Currencies

12:10 - 7-Feb-2023
Page 25 of 42
Fileid: … tions/p544/2022/a/xml/cycle03/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
not deemed to be the date the timber is cut be- Precious Metals and of your net investment (like interest on a loan)
cause the landowner can elect to treat the pay- Stones, Stamps, and Coins and the transaction is any of the following.
ment date as the date of disposal (see below). • An applicable straddle (generally, any set
of offsetting positions with respect to per-
Cutting contract. You must treat the disposal Gold, silver, gems, stamps, coins, etc., are cap- sonal property, including stock).
of standing timber under a cutting contract as a ital assets except when they are held for sale by • A transaction in which you acquire prop-
section 1231 transaction if all of the following a dealer. Any gain or loss from their sale or ex- erty and, at or about the same time, you
apply to you. change is generally a capital gain or loss. If you contract to sell the same or substantially
• You are the owner of the timber. are a dealer, the amount received from the sale identical property at a specified price.
• You held the timber longer than 1 year be- is ordinary business income. • Any other transaction that is marketed and
fore its disposal. sold as producing capital gain from a trans-
• You kept an economic interest in the tim- Coal and Iron Ore action in which substantially all of your ex-
ber. pected return is due to the time value of
You have kept an economic interest in You must treat the disposal of coal (including your net investment.
standing timber if, under the cutting contract, lignite) or iron ore mined in the United States as For more information, see chapter 4 of Pub.
the expected return on your investment is con- a section 1231 transaction if both of the follow- 550.
ditioned on the cutting of the timber. ing apply to you.
The difference between the amount realized • You owned the coal or iron ore longer than Virtual Currency
from the disposal of the timber and its adjusted 1 year before its disposal.
basis for depletion is treated as gain or loss on • You kept an economic interest in the coal
its sale. Include this amount on Form 4797 or iron ore. Virtual currency is treated as property for fed-
along with your other section 1231 gains or los- For this rule, the date the coal or iron ore is eral income tax purposes. The general tax prin-
ses to figure whether it is treated as capital or mined is considered the date of its disposal. ciples that apply to property transactions apply
ordinary gain or loss. to transactions using virtual currency. A trans-
Your gain or loss is the difference between action involving virtual currency includes, but is
Date of disposal. The date of disposal is the amount realized from disposal of the coal or not limited to:
the date the timber is cut. However, for outright iron ore and the adjusted basis you use to figure • The receipt of virtual currency as payment
sales by landowners or if you receive payment cost depletion (increased by certain expenses for goods or services provided;
under the contract before the timber is cut, you not allowed as deductions for the tax year). This • The receipt or transfer of virtual currency
can elect to treat the date of payment as the amount is included on Form 4797 along with for free (without providing any considera-
date of disposal. your other section 1231 gains and losses. tion) that does not qualify as a bona fide
This election applies only to figure the hold- gift;
ing period of the timber. It has no effect on the You are considered an owner if you own or • The receipt of new virtual currency as a re-
time for reporting gain or loss (generally when sublet an economic interest in the coal or iron sult of mining and staking activities;
the timber is sold or exchanged). ore in place. If you own only an option to buy • The receipt of virtual currency as a result of
To make this election, attach a statement to the coal in place, you do not qualify as an a hard fork;
the tax return filed by the due date (including owner. In addition, this gain or loss treatment • An exchange of virtual currency for prop-
extensions) for the year payment is received. does not apply to income realized by an owner erty, goods, or services;
The statement must identify the advance pay- who is a co-adventurer, partner, or principal in • An exchange/trade of virtual currency for
ments subject to the election and the contract the mining of coal or iron ore. another virtual currency;
under which they were made. • A sale of virtual currency; and
If you timely filed your return for the year you The expenses of making and administering • Any other disposition of a financial interest
received payment without making the election, the contract under which the coal or iron ore in virtual currency.
you still can make the election by filing an was disposed of and the expenses of preserv-
amended return within 6 months after the due ing the economic interest kept under the con- If, in 2022, you engaged in any transaction
date for that year's return (excluding exten- tract are not allowed as deductions in figuring involving virtual currency, check the "Yes" box
sions). Attach the statement to the amended re- taxable income. Rather, their total, along with next to the question on virtual currency on
turn and write “Filed pursuant to section the adjusted depletion basis, is deducted from page 1 of Form 1040 or 1040-SR. See the in-
301.9100-2” at the top of the statement. File the the amount received to determine gain. If the to- structions for Form 1040. Also, if you disposed
amended return at the same address the origi- tal of these expenses plus the adjusted deple- of any virtual currency in 2022 that was held as
nal return was filed. tion basis is more than the amount received, the a capital asset through a sale, exchange, or
result is a loss. transfer, use Form 8949 to figure your capital
Owner. The owner of timber is any person gain or loss and report it on Schedule D (Form
who owns an interest in it, including a sublessor Special rule. The above treatment does not 1040). See the Instructions for Form 8949.
and the holder of a contract to cut the timber. apply if you directly or indirectly dispose of the
You own an interest in timber if you have the iron ore or coal to any of the following persons. If you received any virtual currency as com-
right to cut it for sale on your own account or for • A related person whose relationship to you pensation for services or disposed of any virtual
use in your business. would result in the disallowance of a loss currency that you held for sale to customers in a
(see Nondeductible Loss under Sales and trade or business, you must report the income
Tree stumps. Tree stumps are a capital asset Exchanges Between Related Persons, as you would report other income of the same
if they are on land held by an investor who is not earlier). type (for example, W-2 wages on Form 1040 or
in the timber or stump business as a buyer, • An individual, trust, estate, partnership, as- 1040-SR, line 1, or inventory or services from
seller, or processor. Gain from the sale of sociation, company, or corporation owned Schedule C (Form 1040) on Schedule 1).
stumps sold in one lot by such a holder is taxed or controlled directly or indirectly by the For additional information on virtual cur-
as a capital gain. However, tree stumps held by same interests that own or control your rency, see the Instructions for Form 1040. Also,
timber operators after the saleable standing tim- business. visit IRS.gov/VirtualCurrencyFAQs.
ber was cut and removed from the land are con-
sidered by-products. Gain from the sale of Conversion Transactions
stumps in lots or tonnage by such operators is
taxed as ordinary income.
See Form T (Timber) and its separate in- Recognized gain on the disposition or termina-
structions for more information about disposi- tion of any position held as part of certain con-
tions of timber. version transactions is treated as ordinary in-
come. This applies if substantially all of your
expected return is attributable to the time value
Chapter 2 Ordinary or Capital Gain or Loss Page 25