The IRS has released revised draft instructions that clarify the approach digital currency owners should take when it comes to the virtual currency question on the 1040 tax form. The guidance was released on December 31st, defines digital currency, and clarifies what activities require an individual to answer \u201cyes\u201d or \u201cno\u201d to their virtual currency question. What virtual currency question? In December 2020, the IRS updated its 1040 form to include this question at the top of page one \u201cAt any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?\u201d Although the question is relatively straightforward, it was not quite clear what \u201cfinancial interest\u201d meant. However, the recently released revised draft instructions dive into the specifics of the question. The instructions state that if you participated in any of the following activities, then you are required to answer \u201cyes\u201d on the 1040 form.\u00a0 \tThe receipt or transfer of virtual currency for free (without providing any consideration), including from an airdrop or hard fork; \tAn exchange of virtual currency for goods or services;\u00a0 \tA purchase or sale of virtual currency; \tAn exchange of virtual currency for other property, including for another virtual currency; and \tAn acquisition or disposition of a financial interest in virtual currency And that \u201cA transaction involving virtual currency does not include the holding of virtual currency in a wallet or account, or the transfer of virtual currency from one wallet or account you own or control to another that you own or control.\u201d\u00a0 Why is the IRS collecting this data? The IRS seems to be asking this question for purposes other than accurate tax reporting. Purchasing digital currency in USD is not a taxable event\u2013it is the capital gains (and losses) that have an impact on your tax filing. The IRS may be using this question on their tax form as a survey to see just how many Americans are interested in digital currency. It's also possible that they will use this information as evidence in case an individual does gain or lose due to their digital currency in the coming years.