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Tax FAQ:

Specialized Tax Topics

Explore Specialized Tax Topics, including cryptocurrency, Opportunity Zones, tax havens, tax shelters, per diem, and industry taxes.

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Specialized Tax Topics

For federal tax purposes, cryptocurrency is generally treated as property rather than currency. Tax consequences depend on how the cryptocurrency is acquired, held, transferred, or used.

Potentially. Selling cryptocurrency can result in a capital gain or loss when the amount received differs from your adjusted basis in the cryptocurrency.

Generally, exchanging one cryptocurrency for another can be a taxable transaction. The transaction may result in a capital gain or loss.

Potentially. Spending cryptocurrency can be a taxable disposition of the cryptocurrency if its value has changed since you acquired it.

Income received from cryptocurrency mining may be taxable. The tax treatment can depend on whether the activity is conducted as a trade or business or as an individual activity and on the nature of the income.

Generally, cryptocurrency received for goods or services can constitute taxable income based on its fair market value when received.

Taxpayers generally must report taxable cryptocurrency transactions and answer applicable digital-asset questions on their federal tax returns.

Basis generally represents the taxpayer’s investment in the cryptocurrency for tax purposes. It is used to calculate gain or loss when the asset is disposed of.

Potentially. Depending on the nature of the transaction and the taxpayer’s circumstances, qualifying cryptocurrency losses may be deductible under applicable tax rules.

Yes. Taxpayers should maintain records of purchases, sales, exchanges, transfers, dates, amounts, transaction fees, and other information needed to calculate taxable gains or losses.

“Jock tax” is an informal term commonly used for state and local income taxes imposed on professional athletes and other high-income individuals based on income earned while working in particular jurisdictions.

Professional athletes frequently travel and perform services in multiple states. A state may tax income attributable to work performed within its jurisdiction.

Potentially. The applicable rules vary by state and locality, and some jurisdictions may tax income earned from services performed there.

States may use allocation or apportionment methods to determine the portion of an athlete’s compensation attributable to services performed within the state.

They may. Filing requirements depend on the state’s rules, the amount of income earned, and other applicable thresholds and exemptions.

No. The term is commonly associated with professional athletes, but similar state and local taxation can apply to entertainers, performers, executives, consultants, and other people who earn income while working in multiple jurisdictions.

Many states provide some form of credit for qualifying taxes paid to another jurisdiction, although the rules and limitations vary.

Yes. An athlete’s state of residence or domicile can affect their overall tax liability, while other states may tax income earned within their jurisdictions.

Teams may provide tax-related information and compensation records, but the athlete generally remains responsible for meeting applicable personal tax filing obligations.

Athletes may have income sourced to numerous states and cities, endorsement income, bonuses, travel-related considerations, and different state tax rules, making multi-state tax compliance complex.

An Opportunity Zone is a designated economically distressed community where qualifying investments may receive certain federal tax benefits under applicable tax law.

A Qualified Opportunity Fund is an investment vehicle organized to invest in eligible Opportunity Zone property and meet applicable federal requirements.

Opportunity Zone rules can provide tax benefits for qualifying investments, including potential deferral of eligible gains and potential tax benefits associated with long-term qualifying investments, subject to the rules in effect for the investment.

Not necessarily. The gain and investment must satisfy applicable federal requirements, and the investor must follow the rules governing Qualified Opportunity Funds and eligible investments.

The applicable deferral period depends on the rules governing the particular gain and investment. Taxpayers should evaluate the specific dates and current federal requirements applicable to their investment.

It generally refers to qualifying business property or interests in qualifying businesses located within designated Opportunity Zones, subject to statutory requirements.

Certain qualifying investments may provide additional tax benefits depending on the holding period and applicable law, but the tax treatment is subject to specific requirements.

Selling or otherwise disposing of an Opportunity Zone investment can have tax consequences. The consequences depend on the type of investment, holding period, and applicable rules.

Not necessarily. Federal Opportunity Zone treatment does not automatically mean that every state provides identical tax benefits. State conformity varies.

Yes. Opportunity Zone investments can involve complex tax, investment, and compliance requirements. Professional advice can help evaluate whether the potential benefits and risks fit your circumstances.

Per diem generally refers to a daily allowance used to reimburse or cover certain business travel expenses, such as lodging, meals, and incidental expenses.

It depends on how the reimbursement is structured. Payments made under an accountable plan and meeting applicable requirements may generally receive different tax treatment from amounts treated as wages.

An accountable plan is an employer reimbursement arrangement that generally requires a business connection, appropriate substantiation, and the return of excess reimbursements within applicable rules.

A business may generally deduct qualifying business travel expenses that meet applicable federal tax requirements and limitations.

Self-employed taxpayers may be able to use applicable federal per diem methods for certain business travel expenses, subject to the relevant rules and limitations.

Some per diem rates cover lodging and meals and incidental expenses, while other rates apply only to meals and incidental expenses.

Receipt requirements depend on the reimbursement arrangement and applicable substantiation rules. Using a federal per diem rate does not necessarily eliminate all recordkeeping requirements.

Maintain records showing the business purpose, dates, destination, business relationship or activity, and other information required to substantiate the expense.

An employer can establish reimbursement policies, but tax treatment depends on applicable rules. Payments exceeding allowable or properly substantiated amounts may receive different tax treatment.

No. Federal per diem rates can vary by geographic location and may change over time.

Specialized industry taxes are tax rules or taxes that apply to particular industries or business activities because of the nature of the industry, products, services, or transactions involved.

Industries such as transportation, construction, energy, financial services, healthcare, manufacturing, hospitality, entertainment, and others can have specialized federal, state, or local tax requirements.

Special rules may address unique business structures, regulated products, specialized expenses, industry-specific credits, excise taxes, or other characteristics of a particular industry.

No. Specialized tax requirements can exist at the federal, state, and local levels.

Yes. The size of the business does not necessarily determine whether a specialized tax applies. The nature of the business activity may be the determining factor.

Some industries may qualify for specific federal or state tax credits. Eligibility depends on the requirements of each credit.

They may. Certain industries can have specialized information returns, excise tax returns, licensing requirements, payroll obligations, or other reporting requirements.

Yes. Certain industries have special rules concerning deductible expenses, depreciation, inventory, capitalization, or other tax accounting issues.

Identify the business activities, products, services, locations, employees, and entity structure involved, then review the applicable federal, state, and local tax requirements.

It can be beneficial. A professional familiar with the particular industry may be better equipped to identify specialized filing requirements, deductions, credits, and compliance issues.

A tax haven generally refers to a jurisdiction known for relatively low taxes, financial privacy, or favorable rules for certain types of businesses or investments.

Using a foreign jurisdiction is not automatically illegal. However, taxpayers must comply with applicable U.S. tax, reporting, disclosure, and anti-abuse rules.

Generally, U.S. taxpayers may have U.S. tax and reporting obligations concerning worldwide income, including certain foreign income and foreign financial interests.

Generally, no. Moving money to a foreign account does not by itself eliminate U.S. tax obligations.

Certain U.S. persons with qualifying foreign financial accounts may have additional reporting obligations, depending on the type and value of the accounts and applicable rules.

No. Offshore companies can have legitimate business purposes. However, they must comply with applicable U.S. tax, reporting, ownership, and other legal requirements.

Failure to comply with required reporting can result in significant penalties and other consequences, depending on the specific reporting requirement and circumstances.

Yes. International tax professionals can help taxpayers determine applicable reporting obligations and address foreign income, accounts, entities, and investments.

Not necessarily. A jurisdiction’s tax system can involve different rates and rules for different taxpayers and types of income. The term “tax haven” is broader than simply “no-income-tax country.”

Cross-border arrangements can create opportunities for legitimate tax planning but can also be used to conceal income or assets. Tax authorities therefore impose extensive reporting and anti-abuse rules.

A tax shelter is an arrangement, investment, or strategy intended to reduce, defer, or otherwise affect tax liability. Some tax shelters are legitimate, while abusive arrangements can violate tax law.

No. Legitimate tax planning can use provisions specifically allowed by law. However, transactions designed primarily to generate artificial tax benefits may be challenged by tax authorities.

An abusive tax shelter is generally an arrangement that uses artificial, misleading, or otherwise impermissible transactions to obtain tax benefits that are not supported by the substance or intent of the tax law.

The IRS uses various compliance and enforcement tools, including reporting requirements, examinations, disclosure rules, and scrutiny of transactions identified as potentially abusive.

A listed transaction is a transaction that the IRS has specifically identified as a tax avoidance transaction or substantially similar to one identified by the IRS.

Yes. Many legitimate investments and business activities receive tax treatment specifically provided by law, such as deductions, credits, depreciation, or tax deferral.

Potential consequences can include additional tax, penalties, interest, reporting obligations, and increased IRS examination risk.

Be cautious. Marketing claims do not establish that an arrangement is legally valid or that the IRS has approved the specific tax treatment.

Ask how the tax benefit is created, what legal authority supports it, what risks exist, what disclosures are required, and whether an independent tax professional has reviewed the arrangement.

Yes. An experienced tax professional can review the structure, supporting tax authority, economic substance, reporting requirements, and potential risks before you participate.

 
 
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