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.
Many practitioners treat wrapping and unwrapping as non-taxable because the economic position is unchanged; others treat it as a swap. The position taken should be documented and applied consistently.
Why it matters: this is exactly the kind of position where a written opinion protects against penalties if the IRS later disagrees. See tax opinion letters.
IRS crypto audits and letters, unreported years, theft loss opinions, and returns that survive an audit.
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Definitions are general information, not legal advice, and may not reflect the most recent changes in law.
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