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RE: Case Study 7-1: Taxation of Cryptocurrency - Mining (Disregarded Entity - Inventory - Tax Liability)
Great example, very comprehensive. Just to be clear, this is under the fact pattern that mined cryptocurrency is inventory thus ordinary income? I think that makes logical sense as a conservative position (inventory is mentioned in the Notice 2014-21, albeit apparently without bright-lining mined crypto as an ordinary income asset). The position a taxpayer chooses for mined crypto (ordinary versus capital) has significant implications on the profitability of mining in the U.S. at a larger scale.
For my examples, I wanted to look to the taxpayer's selling patterns to try and determine if the property should be treated as inventory or capital. Does the taxpayer hold onto the property as an investment or do they immediately turn around and sell it? Treating it as inventory would clearly be the more conservative approach, but I feel that looking to how the taxpayer treats the property is a reasonable approach.