Audit Finding
OpenWrong tax treatment
H&R Block AI

Federal Module -- Wash Sale Rule (Crypto) -- Wrong tax treatment

The Claim
H&R Block's AI Tax Assist chatbot incorrectly told users that the IRS wash sale rule applies to cryptocurrency transactions, when in fact it does not under current law.
The Error
H&R Block's 'AI Tax Assist' affirmatively stated that wash sale rules apply to crypto, which is wrong. Under IRC §1091, the wash sale rule applies only to 'stock or securities'; the IRS classifies cryptocurrency as property under Notice 2014-21, not as a security, so §1091 does not apply to digital asset trades. A taxpayer relying on this advice could unnecessarily forgo legitimate crypto tax-loss harvesting deductions.
The Citation
IRC §1091; IRS Notice 2014-21 (classifying virtual currency as property, not securities);IRC §1091 (wash sale -- stock or securities only); IRS Notice 2014-21 (cryptocurrency as property); IRC §1222 (capital loss); IRC §1211(b) ($3,000 annual capital loss limit)
Business Impact
A small business owner who holds crypto and relies on this incorrect advice may unnecessarily forgo valid capital loss deductions from tax-loss harvesting, overpaying federal taxes and missing a legal planning opportunity.
Verdict
KKATC Tax Response
Note
Sourced from reddit candidate: https://www.taxpayeradvocate.irs.gov/news/tax-tips/is-ai-generated-tax-advice-making-the-grade/2024/06/
#federal#IRC §1091#cryptocurrency#wash sale rule#H&R Block AI Tax Assist
Share This Entry
AI tax error documented by @KKATCOfficial Audit Watchdog: Wrong tax treatment -- IRC §1091; IRS Notice 2014-21 (classifying virtual currency as property, not securities);IRC §1091 (wash sale -- stock or securities only); IRS Notice 2014-21 (cryptocurrency as property); IRC §1222 (capital loss); IRC §1211(b) ($3,000 annual capital loss limit). Full record: https://www.kkatc.com/watchdog/hrblock-ai/h-r-block-s-ai-tax #IRSCode #SmallBusiness #TaxCompliance #AIAccountability #AuditWatchdog #KKATC #HRBlock #HRBlockAI
Share on X →
KKATC Tax Prep and Consulting
This scenario is covered.
If AI gave you advice like this, a review costs less than the penalty. Twelve years of Fortune-level corporate tax experience.
Book a Consultation →
KKATC Audit Watchdog documents specific AI outputs against specific regulatory citations. The standard is the IRC, Treasury Regulations, and state code -- not professional opinion. KKATC is not a licensed CPA firm. Always consult a CPA or enrolled agent for advice specific to your situation.