Crypto Loss is Disallowed?

Well, this is interesting.

A taxpayer whose cryptocurrency had substantially declined in value didn’t sustain a deductible loss due to the worthlessness or abandonment of the cryptocurrency. The taxpayer purchased units of cryptocurrency in 2022 for $1 per unit as a personal investment. During 2022, the value of the purchased cryptocurrency decreased until it was worth less than $.01 per unit. The taxpayer claimed a loss on their 2022 tax return taking the position that the investment was either worthless or abandoned.

cryptocurrency is not a security

The Chief Counsel determined that the deduction should be disallowed. IRC Sec. 165 allows a deduction for worthless securities. However, cryptocurrency is not listed as a security under IRC Sec. 165. The cryptocurrency also couldn’t be considered worthless because it continued to be traded on more than one cryptocurrency exchange and still had value. CCA 202302011.