IRS official challenged like-kind treatment for pre-2018 crypto swaps

An Internal Revenue Service attorney said on November 13, 2019 that the agency regarded like-kind exchange principles as inapplicable to cryptocurrency transactions, including exchanges completed before 2018.

Bloomberg Tax attributed the statement to Suzanne Sinno of the IRS Office of the Associate Chief Counsel for Income Tax and Accounting. Sinno spoke at an American Institute of Certified Public Accountants conference in Washington, according to the report published at 10:36 p.m. UTC on November 13.

The remarks mattered because some taxpayers and advisers had argued that certain crypto-for-crypto trades completed before 2018 qualified for deferred recognition under Section 1031 of the Internal Revenue Code. Sinno’s statement indicated that the IRS might reject that position broadly.

It was nevertheless an official’s conference remark, not a revenue ruling, regulation, court judgment or taxpayer-specific determination. No transcript or written IRS release preserving the complete statement was identified for this reconstruction.

Why the pre-2018 boundary mattered

Before the Tax Cuts and Jobs Act changed Section 1031, qualifying exchanges of certain business or investment property could defer recognition of gain when one property was exchanged for another of like kind. The 2017 legislation limited that treatment, for exchanges after December 31, 2017, to real property.

That amendment made the treatment of cryptocurrency trades from 2018 onward comparatively clear: cryptocurrency was not real property and therefore could not qualify under the revised provision. The disputed territory concerned earlier transactions, when Section 1031 could still reach some personal or intangible property.

IRS Notice 2014-21 had established that convertible virtual currency was treated as property for federal tax purposes and that general tax principles governing property transactions applied. The notice did not decide whether exchanging one cryptocurrency for another satisfied Section 1031’s separate like-kind requirements.

Property classification alone therefore did not resolve the question. A taxpayer still had to establish that the assets exchanged were sufficiently alike in nature or character and that every other statutory requirement was met. Sinno’s reported position suggested the IRS believed cryptocurrency exchanges failed at that threshold, but the event-day record did not provide her complete legal analysis.

Airdrop guidance remained narrower than the terminology

The same conference also addressed Revenue Ruling 2019-24, which the IRS had released on October 9. That ruling covered cryptocurrency received following a hard fork and treated receipt as income when the taxpayer obtained dominion and control over the new units.

Bloomberg Tax reported that another IRS attorney, Christopher Wrobel, said the ruling did not cover promotional distributions commonly described by cryptocurrency projects as airdrops. He said the agency had not decided how those promotions should be treated.

That distinction was important on November 13 because the industry used “airdrop” for several different events. The ruling’s conclusion could not automatically be extended to every free token distribution carrying the same label.

What remained unsettled on November 13

The strongest contemporaneous conclusion was that an IRS attorney had expressed a broad agency position against pre-2018 crypto like-kind treatment. The remarks increased enforcement uncertainty, but they did not create a new statute or binding precedent and did not determine any individual return.

Later clarification

On November 15, 2019, Bloomberg Tax reported that Wrobel said the IRS had no blanket policy denying Section 1031 treatment for every pre-2018 cryptocurrency exchange. He said determinations would depend on the taxpayer’s facts and circumstances. That clarification narrowed the apparent scope of the November 13 statement.

In Chief Counsel Advice released in 2021, the IRS concluded that pre-2018 exchanges of bitcoin for ether, bitcoin for litecoin and ether for litecoin did not qualify. The memorandum expressly limited itself to those three combinations and stated that it could not be cited as precedent. It supplies later support for rejecting those specified exchanges, not for treating Sinno’s reported November 13 formulation as a universal rule.