A cryptocurrency is a digital representation of value, recorded on a cryptographically secured distributed ledger, that circulates as a medium of exchange without being legal tender anywhere. US rules almost never use the word itself. Federal tax law reaches it through the wider term digital asset and treats it as property, and US financial reporting reaches it through a scope test on crypto assets that sits inside the intangible asset guidance.
The Definition That Governs the Reporting
The Internal Revenue Code carries the operative wording, and it is deliberately broad. Except as otherwise provided by the Secretary, the term digital asset means any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary (26 U.S.C. 6045(g)(3)(D)). Two things about that sentence do work. It is written open at both ends, by the opening exception and by the closing reference to similar technology, so it is not bound to any one blockchain. And it never says currency.
The IRS reads the same definition as covering more than coins. Its filing guidance names convertible virtual currencies and cryptocurrencies such as Bitcoin, stablecoins, and non fungible tokens as examples of digital assets (IRS, Digital assets). So cryptocurrency is a subset of the defined term, not a synonym for it.
The older description is narrower and still useful, because it says what the thing does. Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value, and in some environments it operates like real currency, the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance, but it does not have legal tender status in any jurisdiction (IRS Notice 2014-21, Section 2). A virtual currency with an equivalent value in real currency, or that acts as a substitute for it, is called convertible.
For Federal Tax It Is Property, Not Currency
This is the sentence the whole tax treatment turns on. For federal tax purposes, virtual currency is treated as property, and general tax principles applicable to property transactions apply to transactions using virtual currency (IRS Notice 2014-21, Q-1 and A-1). Read the notice’s own scope with it. It addresses only the US federal tax consequences of transactions in, or transactions that use, convertible virtual currency, and the term virtual currency as used in its question and answer section refers only to convertible virtual currency (IRS Notice 2014-21, Section 3).
The IRS states the same conclusion plainly in current filing guidance, that for US tax purposes digital assets are considered property, not currency (IRS, Digital assets). One consequence is asked directly in the notice and answered no. Under currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for US federal tax purposes (IRS Notice 2014-21, Q-2 and A-2), and the notice dates that answer to the law as it then stood.
Property treatment is why a disposal has a basis and a holding period, and why picking which units went out matters. Specific identification method sets out the identification rule that applies where units of the same digital asset sit in a broker’s custody.
Where It Sits Under US GAAP
US financial reporting does not define cryptocurrency either. It defines a scope, and holdings either fall inside it or they do not. The guidance applies to holdings of assets that meet all of the following criteria: meet the definition of intangible assets as defined in the Codification, do not provide the asset holder with enforceable rights to or claims on underlying goods, services, or other assets, are created or reside on a distributed ledger based on blockchain or similar technology, are secured through cryptography, are fungible, and are not created or issued by the reporting entity or its related parties (FASB Accounting Standards Update 2023-08, paragraph 350-60-15-1).
Every limb has to hold. The Board said so of one of them directly, that the fungibility criterion excludes nonfungible tokens from the amendments in the Update (FASB Accounting Standards Update 2023-08, paragraph BC23), and the last limb keeps an entity’s own issued token out of the scope. Intangible property covers the wider class the first limb points at.
For what is inside, the measurement rule is short. An entity shall measure crypto assets at fair value in the statement of financial position, and gains and losses from the remeasurement of crypto assets shall be included in net income (FASB Accounting Standards Update 2023-08, paragraph 350-60-35-1). Those holdings are also presented separately from other intangible assets on the balance sheet (FASB Accounting Standards Update 2023-08, paragraph 350-60-45-1). That guidance is effective for all entities for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years, and early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance (FASB Accounting Standards Update 2023-08, paragraph 350-60-65-1). Accounting for fair value works through the measurement itself.
Is Cryptocurrency Real Money?
Not in the sense the accounting and tax rules use. The tax description says it has no legal tender status in any jurisdiction (IRS Notice 2014-21, Section 2), and the reporting guidance reaches it through the intangible asset rules rather than the cash rules. It can still function as a medium of exchange between people who accept it, which is why the same holding can behave like money commercially and be property on both the return and the balance sheet.
Where the Word Reaches a Firm’s Return Work
The question comes before the numbers. A version of the digital asset question appears on Form 709, Form 1040 and Form 1040-SR, Form 1040-NR, Form 1041, Form 1065, Form 1120, and Form 1120-S (IRS, Digital assets). It asks whether, at any time during the tax year, the filer received a digital asset as a reward, award or payment for property or services, or sold, exchanged, or otherwise disposed of a digital asset or a financial interest in one.
That reach is why the topic shows up in ordinary compliance files rather than only in specialist ones. A firm that wants the underlying schedules built and reconciled by someone else can hand Accountably a block of its own files through a trial task and grade the work before anything live depends on it.
