San Diego Law Review
Document Type
Comment
Abstract
In March of 2014, the IRS issued guidance classifying cryptocurrency as property for most tax purposes, at a time when the total cryptocurrency market capitalization was roughly 6.5 billion dollars. Over ten years later, that figure has grown to four trillion dollars. While taxpayers can now purchase coffee at Starbucks with certain cryptocurrencies, such purchases trigger capital gains reporting, treating the transaction effectively as a taxable disposition of property, despite its economic function as a medium of exchange. Although cryptocurrencies have gained prevalence in commerce and have even been briefly recognized as legal tender in some foreign jurisdictions, the IRS’s antiquated treatment persists: distorting consumer behavior, disincentivizing use in personal transactions, and creating inefficiencies in tax compliance. This Comment explores the policy shortcomings and practical burdens imposed by the current tax framework, recent efforts to update virtual currency guidance for certain cryptocurrency creation mechanisms, and the disconnect between tax enforcement and decentralized blockchain protocols. It expands upon scholarly and legislative proposals advocating for a hybrid tax classification: treating cryptocurrency as property in some contexts and foreign currency in others, and advocates for a de minimis exception for qualifying personal transactions. Further, it proposes tailored guidance for unsolicited airdrops of cryptocurrencies, drawing on international approaches to virtual currency taxation. As the growth and innovation of the cryptocurrency market continues, modernizing virtual currency taxation is long overdue.
Recommended Citation
Matthew Tarasen,
Long Overdue: Modernizing Virtual Currency Taxation,
63
San Diego L. Rev.
141
(2026).
Available at:
https://digital.sandiego.edu/sdlr/vol63/iss1/5