Resources
Tax and crypto glossary
Plain-English definitions of the terms that show up in IRS letters, crypto tax reports, offshore disclosures, and opinion letters, written by the attorneys and accountants who deal with them every day. Each term links to the guide or service page where we go deeper.
Browse by topic: All terms Business and Corporate (18) Crypto Tax (71) International Tax (24) IRS Forms (47) IRS Notices and Letters (10) Opinion Letters (4) Tax Controversy (68) Web3 Regulation (7)
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- 83(b) election
- An 83(b) election is a filing made within 30 days of receiving restricted stock or a profits interest that elects to be taxed on its value at grant rather than at vesting, which for early-stage equity usually means paying tax on a small amount now instead of a large amount later.
A
- Accuracy-related penalty
- The accuracy-related penalty is a 20 percent penalty under Section 6662 on the portion of an underpayment caused by negligence or a substantial understatement of income tax.
- Adjusted gross income (AGI)
- Adjusted gross income is total income minus the adjustments on Schedule 1 (retirement contributions, half of self-employment tax, and others), and it is the figure most thresholds in the tax code are measured against.
- Airdrop
- An airdrop is a distribution of tokens to wallet holders, and the IRS treats tokens you receive and control as ordinary income at their fair market value on the date of receipt.
- Allowable living expenses
- Allowable living expenses are the IRS's national and local standard amounts for food, housing, transportation, and healthcare that it uses instead of actual spending when calculating what a taxpayer can pay.
- Alternative minimum tax (AMT)
- The alternative minimum tax is a parallel calculation that adds back certain deductions and preferences and applies its own rates and exemption; you pay the higher of regular tax or AMT.
- Attorney-client privilege (tax)
- Attorney-client privilege protects confidential communications between a client and attorney made to obtain legal advice, and it is the reason taxpayers with potential exposure should speak to a tax attorney before an accountant.
- Audit reconsideration
- Audit reconsideration is the process for asking the IRS to re-examine an assessment after an audit or a substitute for return when the taxpayer did not respond, moved, or has new information.
- Automatic Exemption from Penalty (AEP)
- Automatic Exemption from Penalty is the IRS program, announced July 8, 2026, that replaces First Time Abate by automatically suppressing failure-to-file, failure-to-pay, and failure-to-deposit penalties for taxpayers with a clean three-year compliance history, without a request.
B
- Backup withholding
- Backup withholding is the 24 percent the IRS requires a payer to withhold when a payee has not provided a valid taxpayer identification number or the IRS has notified the payer of underreporting.
- Badges of fraud
- Badges of fraud are the circumstantial indicators the IRS and courts use to infer intent, such as understated income, inadequate records, implausible explanations, concealment of assets, dealing in cash, and failure to cooperate with an examiner.
- Bank levy
- A bank levy is an IRS seizure of funds in a bank account, which freezes the balance on the day the bank receives it and requires the bank to send the funds to the IRS after 21 days unless the levy is released.
- Bank Secrecy Act and AML
- The Bank Secrecy Act is the federal law requiring financial institutions, including registered crypto money services businesses, to maintain anti-money laundering programs, verify customers, keep records, and report suspicious activity and large cash transactions.
- Blockchain analytics
- Blockchain analytics is software, from vendors such as Chainalysis, that clusters wallet addresses, follows funds across chains, and links on-chain activity to real identities, and the IRS uses it to select and build crypto cases.
- Bona fide residence test
- The bona fide residence test qualifies a taxpayer for the foreign earned income exclusion if they are a bona fide resident of a foreign country for an uninterrupted period that includes a full tax year, based on the facts of their life there.
- Bridging
- Bridging is moving an asset from one blockchain to another through a protocol that locks the original and issues an equivalent on the destination chain, and its tax treatment follows the same unsettled analysis as wrapping.
C
- C corporation
- A C corporation pays tax on its own income at the corporate rate, and shareholders pay again on dividends. It is the structure for venture-backed startups, companies with foreign owners, and businesses that qualify for the Section 1202 exclusion.
- Capital gains (crypto)
- A capital gain is the profit from selling, trading, or spending a digital asset for more than your cost basis; short-term gains (held one year or less) are taxed as ordinary income and long-term gains at lower rates.
- Centralized versus decentralized exchange (CEX versus DEX)
- A centralized exchange (Coinbase, Kraken, Binance) holds customer assets and reports to the IRS; a decentralized exchange (Uniswap, Curve) is a set of smart contracts with no custodian and no reporting.
- Civil fraud penalty
- The civil fraud penalty is a 75 percent penalty under Section 6663 on the portion of an underpayment attributable to fraud, and it has no statute of limitations.
- Collectibles tax rate
- The collectibles tax rate is a 28 percent maximum federal rate on long-term gains from collectibles such as art, antiques, and coins, and the IRS has said it will apply a look-through test to decide whether an NFT is a collectible.
- Collection Due Process hearing
- A Collection Due Process hearing is the taxpayer's right to have the IRS Independent Office of Appeals review a proposed levy or a lien filing before enforcement, requested on Form 12153 within 30 days of the notice.
- Collection statute expiration date (CSED)
- The collection statute expiration date is the day the IRS's ten-year period to collect an assessed tax ends, after which the debt is no longer enforceable.
- Constructive receipt
- Under constructive receipt, income is taxable when it is made available to you without substantial restriction, even if you have not taken it.
- Controlled foreign corporation (CFC)
- A controlled foreign corporation is a foreign corporation more than 50 percent owned by U.S. shareholders who each hold at least 10 percent, and its U.S. owners must report on Form 5471 and may owe tax on the corporation's income before it is distributed.
- Correspondence audit
- A correspondence audit is an IRS examination conducted entirely by mail, typically focused on one or two items such as a deduction, a credit, or an income mismatch, and it is the most common type of audit.
- Cost basis (crypto)
- Cost basis is what you paid to acquire a digital asset, including fees, and is the starting point for calculating gain or loss when you sell, trade, or spend it.
- CP2000 notice
- A CP2000 notice is an IRS proposed adjustment issued when income reported by third parties, such as a 1099 or 1099-DA, does not match what you reported on your return.
- Crypto audit
- A crypto audit is an IRS examination focused on digital asset transactions, typically triggered by mismatches between broker reports and the return, John Doe summons data, or a "no" answer to the digital asset question when the IRS holds contrary records.
- Crypto donations
- Donating appreciated cryptocurrency to a qualified charity generally avoids capital gains tax and allows a deduction for fair market value, but donations over 5,000 dollars require a qualified appraisal and Form 8283.
- Crypto gifts
- Giving cryptocurrency to another person is not a taxable sale; gifts above the annual exclusion require a gift tax return, and the recipient generally takes the giver's cost basis and holding period.
- Crypto reconciliation
- Crypto reconciliation is the process of matching every on-chain and exchange transaction to a complete, consistent set of records with dates, amounts, and cost basis, so the resulting gains, losses, and income are correct and defensible.
- Crypto tax software errors
- Crypto tax software errors are the systematic mistakes tax calculators make with wallet transfers, missing cost basis, DeFi transactions, and NFTs, which routinely produce reports that overstate or understate gains.
- Crypto theft loss
- A crypto theft loss is the deduction available under Section 165 when digital assets are taken by fraud, hacking, or a scam, allowed for losses on transactions entered into for profit but generally not for personal losses.
- Currently not collectible
- Currently not collectible status is an IRS determination that a taxpayer cannot pay any amount toward a tax debt without hardship, which pauses collection while interest and penalties continue.
- Custodial versus non-custodial wallet
- In a custodial wallet a third party (usually an exchange) holds the private keys; in a non-custodial wallet you hold them. Custodians report to the IRS; you do not.
D
- Decentralized autonomous organization (DAO)
- A decentralized autonomous organization is a blockchain-based entity governed by token holders through smart contracts, and for U.S. tax purposes an unincorporated DAO is often treated as a partnership, making members responsible for its income.
- Decentralized finance (DeFi)
- Decentralized finance is a set of blockchain applications, such as lending protocols, decentralized exchanges, and liquidity pools, that let users transact without an intermediary, and every swap, deposit, or reward in them can be a taxable event.
- Delinquent FBAR submission procedures
- The delinquent FBAR submission procedures allowed taxpayers who reported all foreign income but missed the FBAR to file late reports with an explanation and generally no penalty. Their status changed in 2026; confirm current availability before relying on them.
- Digital asset (IRS definition)
- A digital asset is any digital representation of value recorded on a cryptographically secured distributed ledger, the IRS term that covers cryptocurrency, stablecoins, and NFTs for tax purposes.
- Digital asset broker regulations
- The digital asset broker regulations are the Treasury rules, finalized in 2024, that require exchanges and certain other brokers to report customer sales of digital assets to the IRS on Form 1099-DA, beginning with 2025 transactions.
- Digital asset question (Form 1040)
- The digital asset question is the yes-or-no question near the top of Form 1040 asking whether you received, sold, exchanged, or otherwise disposed of a digital asset during the year.
- Dominion and control
- Dominion and control is the standard the IRS uses to decide when you have received crypto as income: the moment you can transfer, sell, exchange, or otherwise dispose of it.
E
- Economic nexus
- Economic nexus is a sales tax obligation created by sales into a state above a threshold, typically 100,000 dollars or 200 transactions, without any physical presence, under the Supreme Court's 2018 Wayfair decision.
- Eggshell audit
- An eggshell audit is a civil IRS examination in which the taxpayer knows the return contains issues that could become criminal if discovered, so every answer must be handled carefully.
- Employee Retention Credit (ERC)
- The Employee Retention Credit was a refundable payroll tax credit for employers that kept workers on payroll during the pandemic, worth up to 7,000 dollars per employee per quarter at its peak, and it is now a top IRS enforcement priority because of widespread improper claims.
- Employer identification number (EIN)
- An EIN is the IRS's nine-digit identifier for a business, required for entities with employees, corporations, partnerships, most LLCs, and trusts, and obtained free from the IRS.
- Equity compensation (RSUs, ISOs, NSOs)
- Equity compensation is pay in the form of company stock or options; restricted stock units are taxed as wages at vesting, non-qualified options at exercise, and incentive stock options at sale, with alternative minimum tax exposure at exercise.
- Estimated tax safe harbor
- The safe harbor lets you avoid an underpayment penalty by paying, through withholding and estimates, at least 100 percent of last year's tax (110 percent if prior-year AGI exceeded 150,000 dollars) or 90 percent of the current year's tax.
- Estimated taxes
- Estimated taxes are quarterly payments of income and self-employment tax required from taxpayers whose income is not subject to withholding, including traders, business owners, and anyone with large crypto gains.
- Exit tax (expatriation)
- The exit tax is a mark-to-market tax under Section 877A on covered expatriates who renounce U.S. citizenship or give up long-term residency, treating their worldwide assets as sold the day before expatriation.
F
- Failure-to-file penalty
- The failure-to-file penalty is 5 percent of the unpaid tax for each month or part of a month a return is late, up to 25 percent, with a minimum penalty for returns more than 60 days late.
- Failure-to-pay penalty
- The failure-to-pay penalty is 0.5 percent of the unpaid tax per month or part of a month, up to 25 percent, reduced to 0.25 percent while an installment agreement is in effect and increased to 1 percent after a final notice of intent to levy.
- Fair market value (crypto)
- Fair market value is the price a digital asset would sell for on the open market at a given time, used to measure income when crypto is received and proceeds when it is spent or traded.
- FATCA and Form 8938
- FATCA is the Foreign Account Tax Compliance Act, and Form 8938 is the statement of specified foreign financial assets it requires U.S. taxpayers to attach to their return when foreign assets exceed set thresholds.
- FBAR (FinCEN Form 114)
- The FBAR is the annual Report of Foreign Bank and Financial Accounts, filed with FinCEN by any U.S. person whose foreign accounts had a combined value over 10,000 dollars at any point in the year.
- FBAR penalties
- FBAR penalties for non-willful violations are up to an inflation-adjusted amount per report per year (over 16,000 dollars in 2026), and for willful violations the greater of an inflation-adjusted amount (over 165,000 dollars) or 50 percent of the account balance, with criminal exposure in extreme cases.
- Field audit
- A field audit is an in-person IRS examination, usually at the taxpayer's business, home, or representative's office, conducted by a revenue agent and typically covering multiple years and issues.
- FIFO (first in, first out)
- FIFO is the default cost basis method for digital assets, treating the earliest units you acquired in a wallet as the first ones sold.
- First Time Abate (FTA)
- First Time Abate was the IRS administrative waiver that removed failure-to-file, failure-to-pay, and failure-to-deposit penalties on request for taxpayers with no penalties in the prior three years, and it is being replaced by the Automatic Exemption from Penalty program.
- Foreign earned income exclusion (FEIE)
- The foreign earned income exclusion lets qualifying U.S. taxpayers living abroad exclude an inflation-adjusted amount of earned income (over 130,000 dollars for 2025) from U.S. tax, using either the bona fide residence test or the physical presence test.
- Foreign gift reporting
- A U.S. person who receives more than 100,000 dollars in gifts or bequests from a foreign individual in a year, or a smaller inflation-adjusted amount from a foreign corporation or partnership, must report it on Form 3520, even though the gift itself is not taxable.
- Foreign tax credit
- The foreign tax credit reduces U.S. tax dollar for dollar by income taxes paid to a foreign country on the same income, claimed on Form 1116 and limited to the U.S. tax attributable to foreign-source income.
- Form 1040
- Form 1040 is the U.S. individual income tax return that every citizen and resident with a filing requirement submits each year to report income, deductions, credits, and tax owed or refunded.
- Form 1040-X
- Form 1040-X is the amended U.S. individual income tax return, used to correct a return that has already been filed, including adding unreported income or fixing crypto gains.
- Form 1065
- Form 1065 is the annual U.S. return of partnership income, filed by partnerships and multi-member LLCs taxed as partnerships, which report income at the entity level and pass it to partners on Schedule K-1.
- Form 1099-B
- Form 1099-B is the broker statement reporting proceeds from sales of stocks, bonds, and other securities, and until Form 1099-DA took over in 2025, some crypto exchanges used it to report digital asset sales.
- Form 1099-DA
- Form 1099-DA is the IRS information return that brokers and exchanges use to report a customer's digital asset sales and exchanges, starting with transactions in tax year 2025.
- Form 1099-K
- Form 1099-K reports payments received through payment card processors and third-party networks such as PayPal, Venmo, and some crypto payment platforms, once the annual threshold is met.
- Form 1099-MISC
- Form 1099-MISC reports miscellaneous income such as rents, prizes, and certain other payments of 600 dollars or more, and some crypto exchanges use it to report staking, rewards, and referral income.
- Form 1099-NEC
- Form 1099-NEC reports nonemployee compensation of 600 dollars or more paid to independent contractors, and the income is subject to both income tax and self-employment tax.
- Form 1116
- Form 1116 is the foreign tax credit form, used to claim a dollar-for-dollar credit against U.S. tax for income taxes paid to a foreign country on the same income.
- Form 1120
- Form 1120 is the U.S. corporation income tax return filed by C corporations, and a pro forma version is required from foreign-owned single-member LLCs that must file Form 5472.
- Form 1120-S
- Form 1120-S is the S corporation's annual return, due March 15 for calendar-year companies, reporting income and passing it through to shareholders on Schedule K-1.
- Form 12153
- Form 12153 is the request for a Collection Due Process hearing, filed within 30 days of a final notice of intent to levy or a notice of federal tax lien filing to have Appeals review the collection action.
- Form 14457
- Form 14457 is the Voluntary Disclosure Practice preclearance and application form submitted to IRS Criminal Investigation by taxpayers with potential criminal exposure who want to come forward.
- Form 14653
- Form 14653 is the certification of non-willful conduct signed by U.S. persons residing outside the United States who submit under the Streamlined Foreign Offshore Procedures.
- Form 14654
- Form 14654 is the certification of non-willful conduct for U.S. residents submitting under the Streamlined Domestic Offshore Procedures, and it also computes the 5 percent miscellaneous offshore penalty.
- Form 2553 (S corporation election)
- Form 2553 elects S corporation status for a corporation or LLC, due within two months and 15 days of the start of the tax year it is to take effect, with late-election relief available if the requirements are met.
- Form 2555
- Form 2555 is the form used to claim the foreign earned income exclusion, which lets qualifying Americans living abroad exclude an inflation-adjusted amount of wages or self-employment income from U.S. tax.
- Form 2848
- Form 2848 is the power of attorney and declaration of representative that authorizes an attorney, CPA, or enrolled agent to represent you before the IRS and receive your confidential tax information.
- Form 3520 and 3520-A
- Forms 3520 and 3520-A report transactions with foreign trusts and the receipt of large gifts or inheritances from foreign persons, and late filing penalties start at 10,000 dollars or a percentage of the amount involved.
- Form 4180
- Form 4180 is the IRS interview form used to determine whether an individual is a responsible person who willfully failed to pay over employment taxes, the two elements of the trust fund recovery penalty.
- Form 433-A and 433-A (OIC)
- Form 433-A is the collection information statement for individuals that discloses income, expenses, assets, and debts to the IRS; the OIC version is the required attachment to an Offer in Compromise.
- Form 433-B
- Form 433-B is the collection information statement for businesses, disclosing the entity's income, expenses, assets, and liabilities when a business owes taxes or applies for an Offer in Compromise.
- Form 433-F
- Form 433-F is the short collection information statement used by the IRS Automated Collection System to evaluate installment agreements and hardship status for individuals with simpler finances.
- Form 4868
- Form 4868 is the application for an automatic six-month extension of time to file an individual income tax return, moving the deadline from April 15 to October 15.
- Form 5471
- Form 5471 is the information return U.S. persons file to report ownership of, or certain transactions with, a foreign corporation, with different filing categories depending on ownership and control.
- Form 5472
- Form 5472 is the information return filed by 25 percent foreign-owned U.S. corporations, foreign corporations doing business in the United States, and foreign-owned single-member LLCs, reporting transactions with related parties.
- Form 656
- Form 656 is the Offer in Compromise application, submitted with a collection information statement and the application fee to propose settling a tax debt for less than the balance owed.
- Form 8300
- Form 8300 is the report a business must file within 15 days of receiving more than 10,000 dollars in cash in one transaction or related transactions, and a 2021 law extended it to digital assets pending IRS regulations.
- Form 843
- Form 843 is the claim for refund and request for abatement, used to ask the IRS to refund penalties or interest already paid or to abate certain penalties and additions to tax.
- Form 8621
- Form 8621 is the annual return for U.S. shareholders of a passive foreign investment company (PFIC), including most foreign mutual funds and ETFs, reporting distributions and elections.
- Form 8821
- Form 8821 is the tax information authorization that lets a designated person receive your IRS transcripts and notices without the authority to represent you.
- Form 8832 (entity classification election)
- Form 8832 lets an eligible entity, typically an LLC, choose how it is taxed: as a corporation, a partnership, or a disregarded entity. Without it, a single-member LLC is disregarded and a multi-member LLC is a partnership.
- Form 8833
- Form 8833 is the treaty-based return position disclosure, attached to a return when a taxpayer relies on a U.S. tax treaty to reduce or modify tax on an item of income.
- Form 8854
- Form 8854 is the initial and annual expatriation statement filed by anyone who renounces U.S. citizenship or terminates long-term residency, certifying five years of tax compliance and reporting net worth for the exit tax.
- Form 8857
- Form 8857 is the request for innocent spouse relief, filed by a taxpayer seeking to be relieved of tax, penalties, and interest on a joint return that are attributable to a spouse or former spouse.
- Form 8858
- Form 8858 is the information return for U.S. persons who own a foreign disregarded entity or operate a foreign branch, reporting the entity's activity and financials.
- Form 8865
- Form 8865 is the return U.S. persons file to report interests in certain foreign partnerships, with four filer categories based on control, ownership percentage, contributions, and acquisitions or dispositions.
- Form 8949
- Form 8949 is the IRS form used to list each sale or exchange of a capital asset, including cryptocurrency, with the date acquired, date sold, proceeds, cost basis, and gain or loss.
- Form 926
- Form 926 is the return a U.S. person files to report a transfer of cash or property to a foreign corporation, required under IRC Section 6038B.
- Form 941
- Form 941 is the employer's quarterly federal tax return reporting wages paid, income tax withheld, and both shares of Social Security and Medicare tax.
- Form 9465
- Form 9465 is the installment agreement request, used to ask the IRS for a monthly payment plan on a tax balance when you cannot pay in full.
- Form W-2
- Form W-2 reports an employee's wages and the taxes withheld, including wages paid in cryptocurrency, which are reported at fair market value on the payment date.
- Form W-8BEN
- Form W-8BEN is the certificate a non-U.S. individual gives to a U.S. payer or broker to establish foreign status and claim reduced treaty withholding on U.S.-source income.
- Form W-9
- Form W-9 is the request for taxpayer identification number that businesses collect from U.S. contractors and payees before issuing 1099 forms, and that brokers and crypto exchanges collect before reporting on Form 1099-DA.
G
- Gas fees
- Gas fees are the transaction fees paid to a blockchain network, and for tax purposes they are added to the cost basis of an asset acquired or subtracted from the proceeds of an asset sold.
- GILTI
- GILTI, global intangible low-taxed income, is a category of controlled foreign corporation income that U.S. shareholders must include in their own income each year under rules enacted in 2017, even if nothing is distributed.
H
- Hard fork
- A hard fork is a change to a blockchain's protocol that splits it into two chains, and receiving new tokens from the fork is taxable income if you gain control of them.
- HIFO (highest in, first out)
- HIFO is a cost basis method that treats the most expensive units you hold as the ones sold first, which minimizes gain in the current year, and it is only allowed if you specifically identify the units with records at the time of sale.
- Historical Digital Asset Form
- The Historical Digital Asset Form is an IRS examination document, seen in crypto audits since 2025, that asks taxpayers to disclose every wallet and exchange account they have controlled and the history of each.
- Hobby versus business income
- The hobby-versus-business distinction determines whether an activity's income is subject to self-employment tax and whether its expenses are deductible; the IRS looks at profit motive using a nine-factor test.
- Holding period
- The holding period is the time between acquiring a digital asset and disposing of it; one year or less makes the gain or loss short-term, taxed at ordinary rates, and more than one year makes it long-term.
- Hot wallet versus cold wallet
- A hot wallet is connected to the internet (exchange accounts, browser and mobile wallets); a cold wallet is offline (hardware or paper). The distinction affects security and reporting, not how transactions are taxed.
- Howey test
- The Howey test is the Supreme Court standard for whether an arrangement is an investment contract, and therefore a security: an investment of money in a common enterprise with an expectation of profit from the efforts of others.
I
- Illinois Department of Revenue (IDOR)
- The Illinois Department of Revenue is the state agency that administers Illinois income, sales and use, and excise taxes, conducts state audits, and pursues collection separately from the IRS.
- Illinois sales and use tax audit
- An Illinois sales and use tax audit is a Department of Revenue examination of whether a business collected and remitted the correct sales tax, frequently targeting restaurants, grocery and liquor stores, and other cash-heavy retailers.
- Initial coin offering (ICO)
- An ICO is a token sale used to raise funds for a project. Buying into one is a purchase of property; the SEC has treated many ICOs as unregistered securities offerings.
- Injured spouse claim
- An injured spouse claim (Form 8379) recovers your share of a joint refund that was taken to pay your spouse's separate debt, such as back taxes, child support, or student loans.
- Innocent spouse relief
- Innocent spouse relief removes a taxpayer's liability for tax, penalties, and interest on a joint return attributable to a spouse or former spouse's errors that the requesting spouse did not know about.
- Installment agreement
- An installment agreement is an arrangement with the IRS to pay a tax debt in monthly payments, which stops levies while it is in place and the terms are kept.
- IRC Section 1202 (qualified small business stock)
- Section 1202 lets non-corporate shareholders exclude up to 100 percent of the gain on qualified small business stock held more than five years, subject to a cap of the greater of 10 million dollars or ten times basis.
- IRC Section 165
- Section 165 of the Internal Revenue Code allows deductions for losses not compensated by insurance, including capital losses on property held for investment and, in limited cases, theft and casualty losses.
- IRC Section 6662
- Section 6662 imposes the 20 percent accuracy-related penalty on underpayments due to negligence, substantial understatement of income tax, or substantial valuation misstatements.
- IRC Section 6663
- Section 6663 imposes the 75 percent civil fraud penalty on the portion of an underpayment attributable to fraud, which the IRS must prove by clear and convincing evidence.
- IRC Section 6672
- Section 6672 is the statute behind the trust fund recovery penalty, making any person required to collect and pay over employment taxes who willfully fails to do so personally liable for the unpaid trust fund amount.
- IRC Section 7609 (summons tolling)
- Section 7609 governs third-party IRS summonses, and subsection (e)(2) pauses the statute of limitations on assessment when a summoned third party, such as an exchange, does not fully respond within six months.
- IRC Section 877A (exit tax)
- Section 877A imposes the expatriation tax, treating a covered expatriate's worldwide property as sold for fair market value the day before expatriation and taxing the net gain above an inflation-adjusted exclusion.
- IRS audit letter
- An IRS audit letter is the formal notice that a return has been selected for examination, identifying the tax year, the items under review, the documents requested, and the deadline to respond, and it arrives by mail, never by phone or email.
- IRS Fresh Start Program
- The IRS Fresh Start Program is not a program you apply to; it is the name given to a set of 2011 and 2012 changes that raised installment agreement thresholds, expanded Offer in Compromise eligibility, and adjusted lien filing rules.
- IRS Independent Office of Appeals
- The IRS Independent Office of Appeals is a division separate from examination and collection that resolves disputes without litigation, weighing the hazards of litigation for both sides.
- IRS Letter 6173
- IRS Letter 6173 is a crypto compliance letter that requires a response by a stated deadline, warning that the IRS has information suggesting you failed to report virtual currency transactions.
- IRS Letters 6174 and 6174-A
- IRS Letters 6174 and 6174-A are educational crypto compliance notices that do not require a response but signal that the IRS has your name from an exchange or summons.
- IRS transcript
- An IRS transcript is the agency's record of your account, return, wage and income reporting, or record of account, available online or through a representative with Form 8821 or 2848.
- IRS Voluntary Disclosure Practice
- The IRS Voluntary Disclosure Practice is the program for taxpayers with potential criminal exposure to come forward, disclose unreported income or accounts, and pay tax and penalties in exchange for a generally reduced risk of prosecution.
J
- John Doe summons
- A John Doe summons is a court-approved IRS summons that compels a third party, such as a crypto exchange, to turn over records on a class of unnamed customers who may have failed to comply with tax law.
K
- Know your customer (KYC)
- Know your customer refers to the identity verification that exchanges and brokers must perform before opening an account, which is how a wallet address becomes connected to a name and Social Security number.
- Kovel agreement
- A Kovel agreement is an arrangement in which an attorney engages an accountant to assist in providing legal advice, extending attorney-client privilege to the accountant's work on that matter.
L
- Layer 2 network
- A Layer 2 is a network built on top of a base blockchain (Arbitrum, Optimism, Base, Lightning) to process transactions faster and cheaper, settling back to the base chain.
- Letter 1058 and LT11 (final notice of intent to levy)
- Letter 1058 and LT11 are the IRS final notices of intent to levy and notice of your right to a hearing, after which the IRS may seize wages, bank accounts, and other property unless you respond within 30 days.
- Letter 525 (30-day letter)
- Letter 525 is the IRS examination report and 30-day letter issued at the end of an audit, proposing changes to your return and giving you 30 days to agree or to protest to the Independent Office of Appeals.
- LIFO (last in, first out)
- LIFO treats the most recently acquired units as the ones sold first. It is a form of specific identification and is allowed only with records identifying the units at the time of sale.
- Like-kind exchange (crypto)
- A like-kind exchange under Section 1031 lets taxpayers defer gain when swapping certain property, but since 2018 it applies only to real estate, so crypto-to-crypto trades are fully taxable.
- Liquid staking
- Liquid staking is depositing tokens with a protocol that stakes them and issues a receipt token you can trade or use in DeFi, and whether the deposit itself is a taxable exchange is an unsettled question.
- Liquidity pool
- A liquidity pool is a smart contract holding paired tokens that traders swap against, and depositing tokens into one usually means exchanging them for a pool token, which the IRS may treat as a taxable disposition.
- LLC (limited liability company)
- A limited liability company is a state-law entity that shields owners from business liabilities and is taxed by default as a sole proprietorship (one owner) or a partnership (multiple owners), with an option to elect corporate or S corporation treatment.
M
- Margin and perpetual futures (crypto)
- Crypto margin trading and perpetual futures are leveraged positions, common on offshore platforms, whose gains and losses are generally taxed as capital gains and losses when positions close, with funding payments treated as income or expense.
- Marginal versus effective tax rate
- Your marginal rate is the rate on the next dollar of income; your effective rate is total tax divided by total income. Planning decisions depend on the marginal rate.
- Memecoin
- A memecoin is a token created around a joke, meme, or community rather than a technical purpose. For tax purposes it is property like any other digital asset; the difference is how often it goes to zero.
- MiCA (EU Markets in Crypto-Assets Regulation)
- MiCA is the European Union's framework for crypto issuers and service providers, fully applicable since the end of 2024, requiring licensing, disclosures, and reserve rules for stablecoins across the EU.
- Mining income
- Mining income is the fair market value of coins received for validating transactions on a proof-of-work network, taxed as ordinary income when received and, for miners operating as a business, subject to self-employment tax.
- Money transmitter license
- A money transmitter license is a state authorization required for businesses that transmit or exchange money on behalf of others, and depending on the state and business model it can apply to crypto exchanges, custodians, and payment services.
- More likely than not
- More likely than not is a confidence level in a tax opinion meaning the attorney concludes there is a greater than 50 percent chance the position would be upheld if challenged.
N
- Net investment income tax (NIIT)
- The net investment income tax is a 3.8 percent tax on investment income, including capital gains from crypto, for taxpayers with modified adjusted gross income above 200,000 dollars (single) or 250,000 dollars (joint).
- Non-fungible token (NFT)
- A non-fungible token is a unique blockchain token representing ownership of a digital or physical item, taxed as property when bought and sold and potentially as a collectible at a 28 percent maximum long-term rate.
- Non-willful certification
- The non-willful certification is the sworn narrative on Form 14653 or 14654 in which a taxpayer explains how the failure to report foreign accounts happened and why it was not willful.
- Notice 2014-21
- Notice 2014-21 is the IRS's foundational guidance on virtual currency, establishing that cryptocurrency is treated as property for federal tax purposes, so general property transaction rules apply rather than currency rules.
- Notice CP14
- Notice CP14 is the first bill the IRS sends when a return shows a balance due that was not paid, stating the tax, penalties, and interest owed and a payment deadline.
- Notice CP2501
- Notice CP2501 is an early income mismatch notice, sent before a CP2000, telling you that information reported by third parties does not match your return and asking you to respond or explain.
- Notice CP3219A (statutory notice of deficiency)
- Notice CP3219A is the statutory notice of deficiency issued after a CP2000 or audit goes unresolved, stating the tax the IRS intends to assess and starting the 90-day period to petition the Tax Court.
- Notice CP508C
- Notice CP508C tells a taxpayer that the IRS has certified a seriously delinquent tax debt to the State Department, which can deny a passport application or renewal and may revoke an existing passport.
- Notice CP523
- Notice CP523 is the IRS notice that an installment agreement is in default and will be terminated, usually for a missed payment, a new unpaid balance, or an unfiled return, with about 30 days to fix the problem before collection resumes.
- Notice CP59
- Notice CP59 is the IRS notice that it has no record of a required tax return for a specific year, with a request to file, explain why no return is due, or confirm one was already filed.
- Notice CP75
- Notice CP75 tells you the IRS is auditing your return to verify the earned income credit, head of household status, or dependents, and holds the related refund until you send documentation.
- Notice CP90
- Notice CP90 is a final notice of intent to levy and notice of your right to a hearing, sent for unpaid balances, and like Letter 1058 it starts the 30-day window to request a Collection Due Process hearing before the IRS can levy.
- Notice of deficiency
- A notice of deficiency, often called a 90-day letter, is the IRS's formal determination that you owe additional tax and the document that gives you the right to petition the U.S. Tax Court before paying.
- Notice of federal tax lien
- A notice of federal tax lien is the public filing that establishes the government's claim against a taxpayer's property for an unpaid assessed tax, filed after a demand for payment goes unpaid.
- Notices CP501, CP503, and CP504
- Notices CP501, CP503, and CP504 are the IRS reminder sequence for an unpaid balance, escalating from a first reminder to a notice that the IRS intends to levy state tax refunds and may file a lien.
O
- Offer in Compromise
- An Offer in Compromise is an agreement with the IRS to settle a tax debt for less than the full amount owed, generally accepted when the IRS concludes it could not collect the full balance within the collection period.
- Operating agreement
- An operating agreement is the contract among an LLC's members that sets ownership percentages, management, profit allocations, distributions, and what happens when a member leaves, dies, or is sued.
- Operation Hidden Treasure
- Operation Hidden Treasure is an IRS enforcement initiative launched in 2021 that pairs the civil Office of Fraud Enforcement with Criminal Investigation to find taxpayers who omit cryptocurrency income, using blockchain analytics contractors.
- Opinion letter
- An opinion letter is a signed written analysis from an attorney that applies the law to a client's specific facts and states a conclusion at a defined level of confidence, used to support a position with a preparer, a counterparty, or the IRS.
- Ordinary income
- Ordinary income is income taxed at the regular graduated rates, including wages, business profit, interest, staking and mining rewards, airdrops, and short-term capital gains, as opposed to long-term capital gains taxed at lower rates.
P
- Partial payment installment agreement
- A partial payment installment agreement is an IRS payment plan in which the monthly payments will not pay off the balance before the collection statute expires, so the remaining debt is never collected.
- Partnership taxation
- A partnership, including a multi-member LLC by default, pays no income tax itself; it files Form 1065 and passes income, losses, and credits to partners on Schedule K-1, taxed whether or not cash is distributed.
- Passive foreign investment company (PFIC)
- A passive foreign investment company is a foreign corporation whose income or assets are mostly passive, which includes most foreign mutual funds and ETFs, and U.S. shareholders face punitive tax rules and Form 8621 filings unless they make an election.
- Paying employees in crypto
- Wages paid in cryptocurrency are subject to income tax withholding, Social Security, and Medicare tax at the fair market value of the crypto on the payment date, and are reported on Form W-2 like cash wages.
- Payroll taxes
- Payroll taxes are the federal income tax withholding, Social Security, and Medicare taxes an employer must withhold from wages and deposit with the IRS on a set schedule, along with the employer's matching share and federal unemployment tax.
- Penalty abatement
- Penalty abatement is the removal of IRS penalties, most often through First Time Abate or a showing of reasonable cause, leaving the underlying tax and its interest in place.
- Physical presence test
- The physical presence test qualifies a taxpayer for the foreign earned income exclusion if they are physically present in a foreign country for at least 330 full days during any 12-consecutive-month period.
- Pig butchering scam
- A pig butchering scam is a long-con investment fraud in which the victim is groomed over weeks or months, persuaded to move funds onto a fake trading platform, and then locked out when they try to withdraw.
- Play-to-earn gaming
- Tokens and NFTs earned in blockchain games are income at fair market value when you gain control of them, and selling them later is a capital transaction.
Q
- Qualified business income deduction (Section 199A)
- The qualified business income deduction lets owners of pass-through businesses deduct up to 20 percent of qualified business income, subject to income thresholds and limits based on wages paid and property for higher earners.
- Quiet disclosure
- A quiet disclosure is filing amended or late returns and FBARs that report previously omitted foreign income or accounts without using an IRS disclosure program, in the hope they are processed without scrutiny.
R
- Realized vs. unrealized gain
- A realized gain occurs when you dispose of a digital asset for more than its cost basis; an unrealized gain is an increase in value on an asset you still hold and is not taxed.
- Reasonable cause
- Reasonable cause is the standard the IRS applies to remove penalties when a taxpayer shows they exercised ordinary business care and prudence but still could not meet a tax obligation.
- Reasonable collection potential
- Reasonable collection potential is the IRS's calculation of what it could collect from a taxpayer, the net realizable equity in assets plus future disposable income over a set number of months, and it is the number an Offer in Compromise must meet.
- Reasonable compensation
- Reasonable compensation is the salary an S corporation must pay an owner who works in the business before taking distributions, measured by what the business would pay someone else for the same services.
- Restaking
- Restaking commits already-staked tokens (or their liquid staking receipts) to secure additional protocols for extra rewards, layering income streams and unsettled tax questions on top of each other.
- Revenue agent
- A revenue agent is the IRS employee who conducts field audits of businesses and higher-income individuals, as distinct from a revenue officer, who collects assessed tax.
- Revenue officer
- A revenue officer is an IRS collection employee assigned to larger or more complex unpaid balances, who may visit your home or business, demand financial statements, and issue levies and liens.
- Revenue Procedure 2024-28 safe harbor
- Revenue Procedure 2024-28 provided a one-time safe harbor letting taxpayers allocate their pre-2025 crypto cost basis across specific wallets before January 1, 2025, as the IRS moved to mandatory wallet-by-wallet accounting.
- Revenue Ruling 2019-24
- Revenue Ruling 2019-24 addresses hard forks and airdrops, holding that new tokens received and controlled after a fork are ordinary income at fair market value, while a fork that produces no new tokens to the taxpayer creates no income.
- Revenue Ruling 2023-14
- Revenue Ruling 2023-14 holds that a cash-method taxpayer who receives staking rewards must include their fair market value in gross income in the year the taxpayer gains dominion and control over them.
- Rug pull
- A rug pull is a crypto scam in which a project's developers abandon it and withdraw investor funds, leaving holders with a worthless token, and whether the loss is deductible as a theft loss or a worthless security depends on the facts.
S
- S corporation
- An S corporation is a corporation or LLC that elects pass-through taxation under Subchapter S, so income is taxed once on the owners' returns, and owners who work in the business must be paid a reasonable salary subject to payroll tax.
- Sales tax nexus
- Sales tax nexus is the connection between a seller and a state that lets the state require the seller to register, collect, and remit sales tax, created by physical presence or, since the 2018 Wayfair decision, by economic activity above a threshold.
- Schedule 1
- Schedule 1 reports additional income (business income, rental income, unemployment, and other income such as staking rewards and airdrops) and adjustments to income, and its totals flow to Form 1040.
- Schedule B
- Schedule B reports interest and dividend income on Form 1040 and contains Part III, the questions asking whether you had a foreign financial account or received a distribution from a foreign trust.
- Schedule C
- Schedule C is the Form 1040 attachment on which sole proprietors and single-member LLC owners report business income and expenses, with the net profit subject to income and self-employment tax.
- Schedule D
- Schedule D is the Form 1040 attachment that summarizes capital gains and losses for the year, separating short-term from long-term and carrying the totals to the return.
- Schedule K-1
- Schedule K-1 is the statement a partnership, S corporation, or trust issues to each owner or beneficiary reporting their share of income, deductions, and credits for the year.
- Schedule SE
- Schedule SE computes self-employment tax (15.3 percent Social Security and Medicare) on net earnings from self-employment reported on Schedule C, and half of that tax is deducted on Form 1040.
- SEC and CFTC jurisdiction over crypto
- The SEC regulates digital assets that are securities and the CFTC regulates those that are commodities, including Bitcoin and Ether, and legislation to define the boundary between them has been debated in Congress through 2025 and 2026.
- Section 179 and bonus depreciation
- Section 179 lets a business deduct the full cost of qualifying equipment in the year of purchase up to an annual limit, and bonus depreciation allows immediate expensing of a percentage of qualifying property, with the percentage set by current law.
- Security token versus utility token
- A security token represents an investment interest and is regulated as a security; a utility token provides access to a product or service and, if properly designed and sold, may fall outside securities law, and the classification is decided by the Howey test, not the label.
- Seed phrase and private key
- A private key is the secret that controls a wallet; a seed phrase is the human-readable backup that regenerates it. Whoever holds them owns the assets, which is why loss and theft of keys are tax events in their own right.
- Self-custody wallet
- A self-custody wallet is one where the user controls the private keys, with no exchange or custodian, and although no third party reports its activity to the IRS, transactions in it are fully traceable on chain and fully taxable.
- Self-employment tax
- Self-employment tax is the 15.3 percent Social Security and Medicare tax on net earnings from self-employment, owed in addition to income tax by sole proprietors, contractors, and business miners and validators.
- Smart contract
- A smart contract is code deployed on a blockchain that executes automatically when its conditions are met; most DeFi, NFT, and token activity runs through them.
- Smart contract enforceability
- Whether a smart contract is a legally enforceable contract depends on ordinary contract law: offer, acceptance, consideration, and intent. Several states have passed laws confirming that code-based agreements and blockchain signatures are valid.
- Soft fork
- A soft fork is a backward-compatible change to a blockchain's rules that does not create a new coin, so it has no tax consequence for holders.
- Sole proprietorship
- A sole proprietorship is a business owned by one person with no separate entity; income and expenses go on Schedule C, profit is subject to self-employment tax, and the owner is personally liable for the business.
- Specific identification
- Specific identification is a cost basis method that lets you choose which units of a digital asset you are selling, provided you can identify them by acquisition date and cost and document the choice at the time of the transaction.
- Stablecoin
- A stablecoin is a digital asset designed to hold a fixed value, usually one dollar, and despite the stable price it is property for tax purposes, so trading into or out of one is a taxable event.
- Staking rewards
- Staking rewards are tokens received for validating transactions on a proof-of-stake network and are taxable as ordinary income at their fair market value when you gain control over them.
- Statute of limitations (assessment)
- The assessment statute of limitations is the period the IRS has to audit and assess additional tax, generally three years from the filing date, six years if income was understated by more than 25 percent, and unlimited for fraud or unfiled returns.
- Streamlined Domestic Offshore Procedures
- The Streamlined Domestic Offshore Procedures are an IRS program that lets U.S. residents correct non-willful failures to report foreign accounts or income by filing three years of amended returns and six years of FBARs and paying a 5 percent penalty.
- Streamlined Filing Compliance Procedures
- The Streamlined Filing Compliance Procedures are the IRS program for non-willful taxpayers to catch up on unreported foreign income and accounts by filing three years of returns and six years of FBARs with a certification of non-willfulness; the domestic version carries a 5 percent penalty and the foreign version none.
- Streamlined Foreign Offshore Procedures
- The Streamlined Foreign Offshore Procedures let U.S. persons living abroad who non-willfully failed to file returns or FBARs catch up on three years of returns and six years of FBARs with no offshore penalty.
- Subpart F income
- Subpart F income is passive and certain related-party income of a controlled foreign corporation that U.S. shareholders must include in their own income currently, whether or not it is distributed.
- Substitute for return
- A substitute for return is a tax return the IRS prepares for a taxpayer who did not file, using third-party income data and no deductions, credits, or cost basis, which usually overstates the tax owed.
T
- Tax Court petition
- A Tax Court petition is the document that starts a case in the U.S. Tax Court, filed within 90 days of a notice of deficiency, and it is the only way to dispute a proposed tax before paying it.
- Tax evasion
- Tax evasion is the willful attempt to evade or defeat a tax, a felony under IRC Section 7201 punishable by up to five years in prison and fines, distinct from the civil fraud penalty and from non-willful errors.
- Tax fraud versus negligence
- Fraud is an intentional effort to underpay tax; negligence is carelessness or disregard of the rules without intent, and the distinction decides whether a taxpayer faces a 20 percent accuracy penalty, a 75 percent fraud penalty, or a criminal referral.
- Tax levy
- A levy is the IRS's legal seizure of property to satisfy a tax debt, most often a bank account or wages, issued after a final notice of intent to levy and the expiration of the 30-day hearing period.
- Tax lien
- A federal tax lien is the government's legal claim against all of a taxpayer's property that arises automatically when tax is assessed and not paid after demand; the public notice of federal tax lien is the filing that makes it visible to others.
- Tax loss harvesting
- Tax loss harvesting is selling an asset at a loss to offset capital gains, and for crypto it is especially effective because the wash sale rule does not currently apply.
- Tax relief scams
- Tax relief scams are companies that advertise settlement of tax debt for pennies on the dollar, collect large upfront fees, and then file boilerplate offers that are rejected or never file at all, leaving the taxpayer worse off.
- Tax treaty
- A tax treaty is an agreement between the United States and another country that allocates taxing rights and reduces double taxation, and treaty benefits claimed on a return are disclosed on Form 8833.
- Taxable event (crypto)
- A taxable event is any transaction that requires you to recognize gain, loss, or income, and for crypto that includes selling for dollars, trading one coin for another, spending crypto, and receiving crypto as income.
- Totalization agreement
- A totalization agreement is a treaty between the United States and another country that decides which country's social security system a worker pays into and lets contributions in both count toward benefits.
- Travel Rule
- The Travel Rule requires financial institutions, including registered crypto money services businesses, to collect and pass along sender and recipient information for transfers above a threshold, so the data travels with the funds.
- Trust fund recovery penalty
- The trust fund recovery penalty is a personal assessment against any individual responsible for collecting and paying over employment taxes who willfully failed to do so, equal to the unpaid trust fund portion.
U
- Underpayment penalty
- The underpayment penalty is interest-like charge for not paying enough tax through withholding or estimated payments during the year, computed quarterly at the federal short-term rate plus three percentage points.
- Universal accounting (pre-2025)
- Universal accounting was the pre-2025 practice of pooling cost basis across all wallets and exchanges as if they were one account, which the IRS ended effective January 1, 2025 in favor of wallet-by-wallet tracking.
- Use tax
- Use tax is the counterpart to sales tax, owed by a buyer on taxable purchases where sales tax was not collected, such as goods bought from an out-of-state seller, and it is a frequent finding in state audits of businesses.
V
- Validator
- A validator runs a node that proposes and confirms blocks on a proof-of-stake network in exchange for staking rewards, and often stakes on behalf of others for a commission.
- Voluntary compliance
- Voluntary compliance is the principle that taxpayers assess and report their own tax, with the IRS enforcing through matching, audits, and penalties.
W
- Wage garnishment (IRS wage levy)
- An IRS wage levy is a continuing levy on your paycheck that requires your employer to send the IRS everything above an exempt amount based on your filing status and dependents, every pay period, until it is released.
- Wallet-by-wallet accounting
- Wallet-by-wallet accounting is the IRS requirement, effective January 1, 2025, that cost basis for digital assets be tracked separately for each wallet or account rather than pooled across everything you own.
- Wash sale rule (crypto)
- The wash sale rule disallows a loss on a security sold and repurchased within 30 days, and as of 2026 it does not apply to cryptocurrency because digital assets are treated as property rather than securities.
- Wash sale rule (securities)
- Section 1091 disallows a loss on stock or securities sold and repurchased within 30 days before or after the sale, adding the disallowed loss to the basis of the replacement shares.
- Willful vs. non-willful
- In offshore compliance, willful means a voluntary, intentional violation of a known legal duty, including reckless disregard, while non-willful means negligence, mistake, or a good-faith misunderstanding of the rules.
- Worker classification (W-2 versus 1099)
- Worker classification is whether a worker is an employee, paid on a W-2 with payroll taxes withheld, or an independent contractor, paid on a 1099-NEC and responsible for their own taxes; the IRS decides based on control over the work, not the label the parties use.
- Worthless crypto
- A digital asset that has lost all value is not deductible merely because it is worthless; a loss generally requires a completed disposal, such as a sale for a nominal amount or an affirmative abandonment.
- Wrapped token
- A wrapped token is a token on one blockchain that represents an asset from another, such as wrapped Bitcoin on Ethereum, and whether wrapping is a taxable exchange is an unsettled question the IRS has not addressed directly.
Y
- Yield farming
- Yield farming is moving crypto between DeFi protocols to earn rewards, and each reward is ordinary income at its value on receipt while each move between protocols may be a taxable exchange.
