Enrolled Agent: IRS is asking about substance of client's bitcoin tax-loss harvesting

An "immediate" repurchase could be problematic

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This is me, as I’m exited off the Internet for suggesting that spot Bitcoin tax-loss harvesting could be challenged as lacking economic substance if it’s purely tax-motivated. The facts and circumstances matter. Consult an attorney who understands substance over form for personalized guidance.

Enrolled Agent: IRS is asking about substance of client’s bitcoin tax-loss harvesting

Whenever the price of Bitcoin bounces around, a trove of social media and blog posts pop up “reminding” investors that §1091(a), loss from wash sales of stock or securities, generally does not apply to Bitcoin.

These posts may also remind investors that The Joint Committee on Taxation has explicitly suggested applying the wash sale rule to bitcoin and that legislators have tried and failed to pass legislation doing just that.

They conclude that because §1091 generally does not apply, investors are safe to tax-loss harvest and “immediately” repurchase their direct, spot bitcoin holdings (bitcoin ETFs generally are subject to the wash sale rule).

Then an enrolled agent mentioned that his client’s bitcoin tax-loss harvesting activity is under audit…