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A woman wearing a protective face mask is seen in Krakow, Poland on March 25, 2020. Poland's ... [+] government decided that due to the spread of the coronavirus epidemic, new limitations will be introduced across the country, such as rules preventing leaving home unless justified. (Photo by Beata Zawrzel/NurPhoto via Getty Images)

The first quarter of 2020 has been one-of-a-kind. What started as business as usual morphed into unprecedented times with the growth of corona virus. Despite the distraction caused by the virus, there were some noteworthy events occurred in this quarter in the cryptocurrency tax space.

The Virtual Currency Fairness Act was introduced to the House on January 6, 2020. This bill includes a de minimis exemption of up to $200 of capital gains for personal cryptocurrency transactions. Essentially, this would allow cryptocurrency users to buy the proverbial cup of coffee without having to calculate their taxes on the transaction. This was well received among crypto enthusiasts. Making small personal cryptocurrency transactions nontaxable is a great initiative to promote cryptocurrency usage as a medium of exchange for every day use as opposed to a speculative asset.

Its hotly debated how to report staking income for tax purposes. Experts take different positions as to the type and timing of income. In the absence of any tax guidance, it could be argued that staking rewards are taxed similar to rental income, at the time of the receipt. Meanwhile, some experts argue that staking rewards should NOT be taxed at the time of receipt; rather they should be taxed only when they are disposed of. The controversy in this area seems to be an ongoing discussion in the crypto tax community.

We also saw several comment letters being addressed to the IRS and other regulators by various organizations such as AICPA, NY State Bar Association, and the Wall Street Blockchain Alliance.

These letters demanded more clarity on tax treatment for various types of cryptocurrency transactions such as airdrops, forks, as well as timing of income recognition and valuation challenges.

On February 12, 2020, the Government Accountability Office (GAO) published the Virtual Currencies: Additional Information Reporting and Clarified Guidance Could Improve Tax Compliance (GAO-20-188) report after analyzing IRSs efforts in the crypto tax compliance space. The GAO reviewed IRS forms and interviewed various stakeholders such as IRS officials, FinCEN, other federal agencies, tax practitioners, and crypto exchanges to produce this report. The GAO pointed out that 2019 FAQs issued by the IRS may not be binding and demanded the service to strengthen information reporting standards and provide more clarity on Foreign Account Tax Compliance Act (FATCA) reporting. This report also asked FinCEN to provide clear guidance on FBAR filing requirements for cryptocurrency users.

Until early February, gaming tokens such as Robux and V-bucks were also considered to be virtual currencies per the IRS website What is Virtual Currency section. The IRS added and suddenly deleted this guidance from their website raising many eyebrows in the tax space. If it had stood, this guidance would have subjected millions of parents to calculate taxes on their childrens online video gaming habits to the same degree of detail that American taxpayers have to take with their cryptocurrency tax reporting. After many legitimate questions were raised by the public and the media on this matter, the service removed gaming tokens from the definition of virtual currency on the IRS website.

For the first time ever, millions of US taxpayers had to start answering the crypto question on the IRS Schedule 1. The question asks At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?

On March 3, 2020, the IRS held an invite-only Virtual Currency Summit at the IRS headquarters in Washington, DC. This event included stakeholders in the crypto community such as exchanges, crypto tax software companies, tax practitioners and crypto advocacy groups. This was the first of its kind and showed the services effort to learn more about the intricacies of the crypto compliance industry.

As we came closer to the end of this quarter, COVID-19 lockdowns started affecting everyones day-to-day lives. In order to provide tax relief during this difficult time, the US Department of the Treasury and the IRS extended both the tax filing and payment deadlines to July 15, 2020. This offered cryptocurrency taxpayers much needed relief when it comes to paying their taxes. This is the first time in the US history this has happened.

In conclusion, Q1 2020 revealed that the IRS has started showing some notable steps towards improving cryptocurrency tax compliance. Although these efforts have been somewhat slowed by COVID-19 crisis, its clear that the service will actively look into the cryptocurrency space as the situation returns to normal.

Disclaimer: this post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.

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What Happened In Cryptocurrency Tax Space In Q1 2020 - Forbes