Binding Information on Cryptoasset Swaps — Qualification and Timing of Taxation under IRS

Author: Luiza Rey

Editorial Summary

This article breaks down and contextualizes the recent binding information issued by the Portuguese Tax Authority regarding the qualification and timing of taxation on income earned from cryptoasset swap operations.

It clarifies when income is subject to IRS, when the exclusion for assets held for more than 365 days applies, and how technical conversions into stablecoins are treated.

Primary source: Doctrinal Sheet – IRS Code, Article 10 (Capital Gains), Case No. 28969, Order of 2025-10-31. Binding Information – Doctrinal Sheet.

1) What’s at stake: cryptoasset operations and “technical conversions”

The applicant, a Portuguese tax resident, engages in the purchase and sale of cryptoassets and describes a typical operational flow:

• Purchase and holding of a cryptoasset for more than 365 days;

• Immediate and technical “swap” of the cryptoasset into USDC due to the absence of a direct EUR trading pair;

• Immediate conversion of USDC into EUR.

  
  

The request focused on two main points:

• Whether the IRS exemption for capital gains on cryptoassets held for more than 365 days still applies when a technical conversion to a stablecoin occurs right before the sale in EUR;

• Whether this technical conversion constitutes an independent taxable event.

2) Key legal foundations

2.1. Concepts and scope

Capital gains under IRS: Article 10(1)(k) of the IRS Code covers gains from the onerous transfer of cryptoassets that are not securities.

Calculation of gains: Difference between the sale value and the acquisition value (subject to paragraph 19).

Definition of cryptoasset: Paragraph 17 defines a cryptoasset as a digital representation of value or rights that can be transferred or stored using DLT (distributed ledger technology). Paragraph 18 expressly excludes NFTs (non-fungible tokens).

365-day rule: Gains on cryptoassets held for 365 days or more are excluded from IRS taxation (paragraph 19).

Crypto-to-crypto swaps: When the consideration is not fiat currency, there is no immediate taxation. The cryptoassets received take on the acquisition value of those delivered (paragraph 20).

Territorial and personal limitation: The exclusion in paragraph 20 does not apply if the income is earned or due by entities or individuals not resident in the EU/EEA or in jurisdictions without a tax treaty or information exchange agreement (paragraph 21).

3) Key positions in the binding information

3.1. Technical conversion to stablecoin is not taxable by itself

The technical conversion of a cryptoasset into a stablecoin (e.g., USDC), carried out immediately and solely to enable a subsequent conversion into EUR, does not trigger taxation at the time of the swap, provided that:

• The exchange is crypto-to-crypto;

• The operation fits within the principle of realization of income;

• It complies with Article 10(20), and the exclusion in paragraph 21 does not apply.

  
  

3.2. Moment of taxation: conversion of stablecoin into EUR

The taxable event occurs at the conversion of the stablecoin into fiat currency (EUR), not at the swap into the stablecoin.This interpretation follows the principle of taxing realized income, excluding potential or latent capital gains.

3.3. Exemption for holding period over 365 days still applies

If the original cryptoasset was held for 365 days or more, and the sale in EUR occurs immediately after the technical swap, the capital gain from the conversion into EUR remains exempt from IRS taxation.

The holding period and the qualification of the operation respect the nature of the technical conversion and the logic of paragraph 19.

4) Illustrative timeline and practical implications

4.1. Typical sequence

• Date A: Acquisition of the cryptoasset

• Date A + 365: Technical swap to USDC due to absence of a direct EUR pair

• Date A + 366: Conversion of USDC → EUR (realization of income)

  
  

4.2. Implications

• The technical swap does not trigger IRS taxation if it fits within paragraph 20.

• Taxation is only assessed at the moment of USDC → EUR conversion.

• If the original asset was held for 365 days or more, the capital gain on the EUR sale is excluded from IRS.

• Attention to paragraph 21: if the income is earned or due outside the EU/EEA and in a jurisdiction without a tax treaty or information exchange agreement, the crypto-to-crypto neutrality may not apply.

5) Compliance and evidence best practices

To substantiate the tax treatment and application of the exemption:

• Document:

  • Acquisition date and holding period (≥ 365 days) of the original asset;

  • Absence of a direct EUR pair that required the technical swap;

  • Immediacy between the swap and EUR sale;

  • Tax residence of counterparties or jurisdiction relevant under paragraph 21.

• Maintain exportable records from exchanges/wallets: transaction hashes, IDs, order logs, and timestamps.

• Ensure consistency between:

  • Acquisition value and the value attributed during the technical swap (to maintain neutrality under paragraph 20);

  • Realization value at the USDC → EUR conversion.

6) Key considerations and limitations

• NFTs are excluded from this regime, as they are non-fungible (paragraph 18).

• The qualification depends on the cryptoassets not being securities.

• The exception in paragraph 21 may remove crypto-to-crypto neutrality when involving non-cooperative jurisdictions.

• The immediacy between the swap and the EUR sale is relevant to support the technical conversion nature and prevent factual requalification.

7) Editorial conclusion

Moment of taxation: Occurs only upon conversion of the stablecoin into EUR.

Technical swap crypto → stablecoin: Generally not taxable if within paragraph 20 and not excluded by paragraph 21.

365-day exemption: Remains valid when the original asset was held for ≥ 365 days and the sale in EUR follows the technical swap immediately.

8) Simplified conclusion

Under the IRS, gains are taxable only when there is conversion into fiat currency (EUR).

A technical crypto → stablecoin swap (e.g., USDC), performed immediately and solely to enable sale in EUR, does not trigger taxation by itself.

If the original asset was held for 365 days or more, the capital gain realized upon sale in EUR is exempt from IRS.

⚠️ Note: The neutrality of crypto-to-crypto swaps may not apply if income involves jurisdictions outside the EU/EEA or without tax treaties/information exchange agreements.

Appendix: Frequently Asked Questions

What is a “technical conversion”?

A crypto-to-crypto swap required to enable conversion into EUR, performed immediately and without any independent speculative intent.

If I hold the asset for 364 days, is it exempt?

No. The exclusion in paragraph 19 requires a holding period of at least 365 days.

Are all crypto-to-crypto swaps neutral?

In principle, yes — under paragraph 20 — but note the exception in paragraph 21 (jurisdictions outside the EU/EEA and without tax treaties/information exchange agreements).

Does this apply to NFTs?

No. NFTs are excluded under paragraph 18.

By Luiza Castro Rey