A question regarding virtual currencies will be part of the Form 1040 package for 2019, as the IRS has now released the final version of Schedule 1 (Form 1040 and Form 1040-SR)[1] and the question added in the second draft version about virtual currencies remains on the final form.

The Schedule can be downloaded at https://www.irs.gov/pub/irs-pdf/f1040s1.pdf.

Taxpayers who otherwise have to file Schedule 1 and those who would answer the following question “Yes” are required to provide an answer to the following question:

At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?

Advisers will need to obtain an answer to this question from all clients in order to properly complete Schedule 1 of Form 1040.  CPAs in particular are generally required to obtain information from clients to answer questions on tax filings under the provisions of Statements on Standards for Tax Services No. 2:

A member should make a reasonable effort to obtain from the taxpayer the information necessary to provide appropriate answers to all questions on a tax return before signing as preparer.[2]

While the standard does provide there are some cases where it would be appropriate to omit an answer[3] the standard notes:

A member should not omit an answer merely because it might prove disadvantageous to a taxpayer.[4]

The standard also reminds CPAs that there may be consequences to omitting an answer that would always have to be considered even if the CPA believes the question meets the criteria to avoid providing an answer:

A member should consider whether the omission of an answer to a question may cause the return to be deemed incomplete or result in penalties.[5]

Conceivably the IRS could prevail in taking the position a return was never filed if it is incomplete and the IRS has had success in using the fact that the taxpayer’s return did not indicate they had an FBAR filing obligation on Schedule B to prove willful failure to file an FBAR.  Presumably the IRS will look to take similar positions if taxpayers are found to have unreported virtual currency transactions when the question has not been answered yes on Schedule 1.

The final version of the Schedule, like its predecessor from 2018, contains additional income items not found on the main Form 1040, as well as all adjustments to income.

[1] Schedule 1 (Form 1040 and Form 1040-SR), December 5, 2019, https://www.irs.gov/pub/irs-pdf/f1040s1.pdf  retrieved December 7, 2019

[2] AICPA Statement on Standards for Tax Services No. 2, ¶2, https://www.aicpa.org/content/dam/aicpa/interestareas/tax/resources/standardsethics/statementsonstandardsfortaxservices/downloadabledocuments/ssts-no.2-answers-to-questions-on-returns.pdf retrieved December 7, 2019

[3] AICPA Statement on Standards for Tax Services No. 2, ¶4

[4] AICPA Statement on Standards for Tax Services No. 2, ¶5

[5] AICPA Statement on Standards for Tax Services No. 2, ¶6