January 22, 2023 - Douglas Myser


Unregulated crypto no loss deduction. Cryptocurrency that continues to trade on an exchange, even for a fraction of a penny per unit, isn't worthless for purposes of triggering a deductible loss, the IRS advised in a statement, reflecting the massive losses that have happened recently. In non-taxpayer specific advice (ILM 202302011) released January 13, 2022, the IRS advised that a taxpayer who continues to hold cryptocurrency despite a significant decline in its value, and has taken no steps to abandon it, hasn't suffered a loss for which a deduction can be claimed under Section 165. The January 10th, Chief Counsel advice memorandum puts taxpayers on notice, ahead of the 2022 tax filing season that begins January 23rd, that the agency's current legal position is to deny deductions for diminutions in crypto currency value that don't reduce that value to zero. Unregulated crypto no loss deduction.

The memo specifies that each unit of the cryptocurrency theoretically at issue "had liquidating value, though it was valued at less than one cent at the end of 2022," having been purchased earlier in the year for $1 per unit. The cryptocurrency "continued to be traded on at least one cryptocurrency exchange, allowing for the possibility that it may increase in the future", and the taxpayer continued to own it and hadn't taken any steps to abandon or permanently dispose of it. As a result the cryptocurrency was neither worthless nor abandoned for purposes of a loss deduction under Section 165, the memo concluded.


Chief Counsel memos provide a window into the thinking of the IRS, but the advice they contain isn't binding on the agency and is subject to change without notice. If you relied on a memo for advice, or received a IRS Letter Ruling, that was changed, and as a result have a large tax debt, finding a good Tax Resolution Company may be the answer. We offer Tax Court services for these type situations. If you want to know the strength of your case, contact our Tax Resolution Services for help.