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There's an FAQ for virtual currency on the IRS website. There's a question, Q38, indicating that transfers between your own wallets or accounts are not taxable:

Q38. Will I have to recognize income, gain, or loss if I own multiple digital wallets, accounts, or addresses capable of holding virtual currency and transfer my virtual currency from one to another?

A38. No. If you transfer virtual currency from a wallet, address, or account belonging to you, to another wallet, address, or account that also belongs to you, then the transfer is a non-taxable event, even if you receive an information return from an exchange or platform as a result of the transfer.

However, in the same FAQ, there's other information stating that you do have a capital gain or loss if you pay someone for a service with cryptocurrency:

Q14. Will I recognize a gain or loss if I pay someone with virtual currency for providing me with a service?

A15. Your gain or loss is the difference between the fair market value of the services you received and your adjusted basis in the virtual currency exchanged. For more information on gain or loss from sales or exchanges, see Publication 544, Sales and Other Dispositions of Assets.

It seems like these are in conflict. Wouldn't a mining fee be a payment for a service? Assuming A38 trumps A14, would you then just offset the size of the lot by the fee and simply reduce the basis by a proportional amount?

For example, if you bought 100 XYZ at the price of 100 USD (1 XYZ = 1 USD), and say you incurred a fee of 10 XYZ in a transfer, you own 90 XYZ now. Is your basis then adjusted to 90 USD? Or is there some associated gain or loss based on the market price of XYZ at the time that the fee was incurred?

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  • How's Q38 relevant to your scenario?
    – littleadv
    Apr 18 at 16:35
  • @littleadv I'm asking about whether transfer fees are taxable. Q38 asks if you have taxable income or gains (losses) if you transfer virtual currency from one wallet/address/account to another. I guess Q38 could be asking whether the principal amount transferred is taxable, saying nothing of fees. Or maybe not.
    – tsj
    Apr 18 at 16:52
  • when you transfer money between your bank accounts, is the transfer fee taxable? Is it deductible?
    – littleadv
    Apr 18 at 17:23
  • @littleadv are there transfer fees at your bank? I move my money for free, have never seen a bank that takes a fee for that. - but your comparison is not valid; money is not an investment, so move-around fees are not deductible. If you buy a share and move it between banks / brokers, the fees are deductible.
    – Aganju
    Apr 18 at 17:31
  • @Aganju try a wire transfer. But on the other hand, I haven't paid fees for brokerage transfers and haven't heard of anyone paying fees for transferring crypto between their own wallets, so there's that...
    – littleadv
    Apr 18 at 17:35

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There is no reason to assume crypto currencies are treated any other way than other investments, so fees reduce the gain when you sell them (or 'increase the base' if you prefer it that way). Your taxable income is 'sale price - buy price - fees', no different than shares or bonds or ETFs.

Neither of the two cited q&a touch this topic, so they are both not relevant.
What they talk about is if a transfer from one provider/wallet to another is a taxable event (it is not, same as for shares and bonds, etc), and if paying with crypto is a taxable event (it is, as it is considered as selling the crypto and paying with the cash you got).

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  • Thanks. I'm not talking about selling the lot in whole or in part though, so I have no sale price. My question is about a fee for a transfer, where the fee a fraction the virtual currency, never converted to USD. It's taken out of the original lot and it seems like it is a payment for a service, so I don't see how the two questions aren't related.
    – tsj
    Apr 18 at 17:33
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    Well you'll have to remember (=documentation) the fees and apply them when you sell and file taxes.
    – Aganju
    Apr 18 at 17:36
  • I understand that. But in the absence of a sale, I'm asking whether the transfer itself counts as a taxable event. It would seem that the transfer fee is a payment for a service, paid for with virtual currency.
    – tsj
    Apr 18 at 17:38
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    I see. Yes, that should be a 'sale' to pay for a service'... but there is no clear $ value associated with it, so you would have to use the market price. Lot's of effort to document that...
    – Aganju
    Apr 18 at 17:40
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    The value is changing every second - so which one do you use? That's what I meant with 'no clear value'. It would be tough to find the exact value at the second you transferred... - However, the IRS will typically accept the closing value of the day, or an averaged value for the day; just be consistent in usage across all your reporting.
    – Aganju
    Apr 18 at 17:46

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