Fair value accounting

US generally accepted accounting principles (GAAP) define fair value as the price an asset would bring in an orderly sale between market participants. Tax rules use a separate measure, fair market value, for example when a company is paid in crypto.

For crypto, fair value became the rule with ASU 2023-08, which the Financial Accounting Standards Board issued in December 2023. It took effect for fiscal years beginning after December 15, 2024. For crypto the standard covers, the change in value since the last reporting date goes into net income as a gain or loss. Before the ASU, most companies used cost less impairment. That model recorded drops in value, but no rise until the crypto was sold.

The standard applies to any company that holds crypto, but only to crypto that passes six tests. The crypto must be intangible and fungible, meaning each unit is interchangeable with another. It must be secured by cryptography and recorded on a blockchain or similar ledger. It must give the holder no enforceable right to underlying goods, services or other assets. The holder, or a party related to it, cannot have created or issued it. A token project’s own tokens are therefore outside the standard on its own books. An unrelated investor holding them may still apply it.

NFTs (non-fungible tokens) fail the fungibility test, because each is unique. Stablecoins redeemable for dollars are likely outside the standard too. The ASU does not name them, but a right to redeem them can fail the enforceable right test.

Regular federal income tax generally does not count fair value gains until the crypto is sold or otherwise disposed of. So a company’s books and tax return can show different income from the same crypto. The corporate alternative minimum tax (CAMT) is the exception, because it starts from the income on a company’s financial statements, called book income.

It reaches only corporations averaging over $1 billion of book income, never S corporations, and they can elect to leave crypto fair value changes out.