art werner: crypto caution | quick tax tip

as cryptocurrencies continue to infiltrate everyday investment portfolios and client conversations, seasoned tax educator and cpa art werner offers a stark warning to practitioners: “crypto concerns me—and i think it should concern accountants.”

in a recent episode of quick tax tips with art werner, the well-respected tax advisor and educator peels back the hype to expose the risks tax professionals and their clients face when navigating the unpredictable world of digital currency. with over 20,000 cryptocurrencies in existence globally and little regulation governing many of them, werner believes the speculative nature of crypto investments resembles past financial manias—with potentially devastating consequences.

“it looks like the speculative issue of this century,” werner said. “clients invest when they don’t know what they’re investing in.”

despite teaching courses on cryptocurrency taxation and estate planning implications, werner openly admits he doesn’t understand why cryptocurrencies hold value—pointing to a fundamental problem.

“no one’s ever been able to give me a great answer,” he confesses. “and if i don’t understand it, what about the average client?”

that knowledge gap, he argues, is dangerous. many taxpayers, enticed by stories of turning $1 into $100,000, are diving headfirst into crypto without understanding the mechanics, volatility, or risks. this leads to common tax pitfalls, including incorrect basis calculations, unreported capital gains, and overlooked foreign reporting requirements.

and clients aren’t alone in their confusion. a recent survey by cointracker and the harris poll found that 46% of crypto investors didn’t realize they owed taxes on digital asset transactions—and 95% of tax professionals said clients are underreporting crypto income.

perhaps the most ominous sign of how seriously regulators are taking crypto is the question now appearing front and center on form 1040: “at any time during [the tax year], did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”

to werner, the irs’s persistent emphasis on this question raises red flags.

“why are they asking this?” he asks. “the answers that come to my mind aren’t good. maybe they want to investigate more thoroughly.”

indeed, the irs has ramped up enforcement, expanding its virtual currency compliance campaign and issuing john doe summonses to crypto exchanges to uncover users who fail to report taxable income. in 2022 the irs seized $7 billion in crypto-related assets (irs-ci, 2022), underscoring its growing focus.

werner doesn’t dismiss cryptocurrency entirely. he supports a measured, diversified approach for clients who understand what they’re doing. but he urges practitioners to apply the same caution they would with any high-risk asset.

“i’d never advise a client to invest in something they didn’t understand,” he said. “and i certainly wouldn’t tell them to put everything into crypto—or even microsoft, for that matter.”

drawing parallels to the late-1990s dot-com bubble, werner sees history at risk of repeating itself. without regulation, investor education, or tangible underlying value for many coins, crypto remains, in his eyes, a risky proposition.

“unless you have a good reason or good knowledge to deal with crypto,” he said, “i’d tell your clients to be very cautious.”

as the digital asset landscape evolves, that caution may prove to be a cpa’s most valuable currency.