CFP Tax Planning & Compliance 2 — Questions and Answers
Question 1: A fintech company classifies stablecoin redemptions as non-taxable return of principal. Under IRS guidance, this treatment is:
- Correct, as stablecoins maintain a fixed value and generate no gain
- Incorrect, because any realized gain or loss on disposition of a stablecoin is a taxable event (Correct answer)
- Correct only if the stablecoin is backed 1:1 by USD in a regulated account
- Incorrect only if the stablecoin was held for more than one year
Correct answer: Incorrect, because any realized gain or loss on disposition of a stablecoin is a taxable event
The IRS treats virtual currency, including stablecoins, as property, so any disposal triggering a gain or loss is a taxable event regardless of the peg.
Question 2: Which US tax form must a fintech platform use to report payments of $600 or more made to freelancers via digital payment networks starting in 2024?
- Form 1099-B
- Form 1099-K
- Form 1099-MISC
- Form 1099-NEC (Correct answer)
Correct answer: Form 1099-NEC
Form 1099-NEC is used to report nonemployee compensation of $600 or more paid to independent contractors.
Question 3: A DeFi protocol automatically converts one token to another in a liquidity pool rebalance. For a US taxpayer holding pool tokens, this swap is generally:
- A non-taxable event because no fiat currency was received
- A taxable disposition that may trigger capital gains or losses (Correct answer)
- Tax-deferred under like-kind exchange rules of IRC Section 1031
- Exempt because DeFi transactions are excluded from IRS reporting
Correct answer: A taxable disposition that may trigger capital gains or losses
The IRS has clarified that crypto-to-crypto swaps are taxable dispositions, and like-kind exchange treatment under Section 1031 no longer applies to personal property after 2017.
Question 4: Under the Bank Secrecy Act, a fintech money services business must file a Currency Transaction Report (CTR) when a customer conducts a cash transaction exceeding:
- $5,000
- $10,000 (Correct answer)
- $25,000
- $50,000
Correct answer: $10,000
CTRs must be filed for cash transactions exceeding $10,000 in a single business day, as required by the Bank Secrecy Act.
Question 5: A US taxpayer receives 50 tokens as a reward for staking cryptocurrency. The correct tax treatment at receipt is to recognize:
- No income until the tokens are sold
- Ordinary income equal to the fair market value of the tokens on the date received (Correct answer)
- Capital gain equal to the fair market value of the tokens
- Section 1231 gain, since staking is a trade or business activity
Correct answer: Ordinary income equal to the fair market value of the tokens on the date received
Per Jarrett v. United States and subsequent IRS guidance, staking rewards are generally taxed as ordinary income at fair market value when received.
Question 6: Which IRS information return is a cryptocurrency exchange required to file for customers with gross proceeds from digital asset sales beginning in tax year 2025?
- Form 1099-B only
- Form 1099-DA (Correct answer)
- Form 8949 submitted on behalf of the customer
- Form 1099-K only
Correct answer: Form 1099-DA
The IRS introduced Form 1099-DA (Digital Asset) specifically for brokers to report digital asset transactions beginning with the 2025 tax year.
Question 7: A fintech startup grants an employee ISO (Incentive Stock Options) with an exercise price equal to fair market value at grant. When the employee exercises the options, the spread is subject to:
- Ordinary income tax and FICA withholding immediately upon exercise
- The Alternative Minimum Tax (AMT) but not regular income tax at exercise (Correct answer)
- Capital gains tax at the time of exercise
- No tax until the options expire or lapse
Correct answer: The Alternative Minimum Tax (AMT) but not regular income tax at exercise
ISO spreads at exercise are a preference item for AMT purposes but are not subject to regular income tax or FICA withholding at exercise if all qualifying conditions are met.
CFP Tax Planning & Compliance 2
A fintech company classifies stablecoin redemptions as non-taxable return of principal.
Under IRS guidance, this treatment is: