Cryptocurrency has long operated in a gray accounting area for taxes due to the complexities surrounding its classification and the potential challenges of enforcing virtual monies. The ambiguity of cryptocurrency created confusion among cryptocurrency users, making it difficult to accurately determine their tax obligations. This ambiguity also makes it challenging for tax authorities to trace and verify transactions. As a result, the government has long been working to update tax laws and regulations to address these issues.
Last month, the government made significant strides with cryptocurrency legislation. On September 6th, 2023, The Financial Accounting Standards Board (FASB) voted unanimously to approve a new standard relating to cryptocurrencies. The standard provides long-awaited guidance for the accounting and disclosure requirements for cryptocurrencies, an area that previously lacked specific rules in the United States.
Under the new standard, fair-value accounting treatment will apply for cryptocurrencies such as Bitcoin. However, non fungible tokens (NFTs) and certain stablecoins are excluded and will continue to be treated as long-lived intangible assets for accounting purposes.
The new rules require companies to disclose crypto assets in their financial statements separately at market value. Cryptocurrencies will no longer be permitted to be recorded at cost and grouped with other intangible assets such as patents or trademarks. Gains and losses from market value changes will be recognized immediately and included in net income. Additionally, crypto assets received and nearly immediately converted to cash as part of ordinary business transactions will be treated as operating cash flows.
The FASB hopes the new standard will increase transparency and facilitate better decision-making for the readers of financial statements. The final written standard is expected to be released in the 4th quarter of 2023. The rule is scheduled to go into effect for fiscal years beginning after December 15, 2024.