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Author Topic: New IRS 'guidance'  (Read 105 times)
gentlemand
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October 09, 2019, 07:35:27 PM
 #1

https://www.irs.gov/newsroom/frequently-asked-questions-on-virtual-currency-transactions

One for all you lucky Americans.

The standout here is this - "

Q22. One of my cryptocurrencies went through a hard fork followed by an airdrop and I received new cryptocurrency. Do I have income?

A22. If a hard fork is followed by an airdrop and you receive new cryptocurrency, you will have taxable income in the taxable year you receive that cryptocurrency.

Q23. How do I calculate my income from cryptocurrency I received following a hard fork?

A23. When you receive cryptocurrency from an airdrop following a hard fork, you will have ordinary income equal to the fair market value of the new cryptocurrency when it is received, which is when the transaction is recorded on the distributed ledger, provided you have dominion and control over the cryptocurrency so that you can transfer, sell, exchange, or otherwise dispose of the cryptocurrency."


As far as I know no other tax authority has come out with this and it's ludicrous. In the UK it's taxable when you get rid. Then again I'm not sure what they mean by hard fork followed by an airdrop. They are in effect the same thing.

This conjures up images of people hard forking each other just to land them with giant tax bills.

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October 09, 2019, 07:54:32 PM
 #2

Aren't dividends handled differently in the US also? (a hf has to come under dividends doesnt it)?

And yeah the UK one makes a lot more sense, report it once you've sold it and won't buyback again...

The term "fair" does seem a bit obscure though. Probably to protect against forks like bcg that started off being worth 0.

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October 09, 2019, 07:59:42 PM
 #3

Aren't dividends handled differently in the US also? (a hf has to come under dividends doesnt it)?

Well, they're calling it income in that blurb. I think this is one area they really need to consult more people on and clarify what they're trying to say at present. It doesn't make a great deal of sense.

A bit more here - https://www.irs.gov/pub/irs-drop/rr-19-24.pdf

https://www.irs.gov/newsroom/virtual-currency-irs-issues-additional-guidance-on-tax-treatment-and-reminds-taxpayers-of-reporting-obligations

This is stating they're awaiting public input so hopefully it's going to be sorted.

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October 09, 2019, 08:08:17 PM
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Q22. One of my cryptocurrencies went through a hard fork followed by an airdrop and I received new cryptocurrency. Do I have income?

A22. If a hard fork is followed by an airdrop and you receive new cryptocurrency, you will have taxable income in the taxable year you receive that cryptocurrency.

Q23. How do I calculate my income from cryptocurrency I received following a hard fork?

A23. When you receive cryptocurrency from an airdrop following a hard fork, you will have ordinary income equal to the fair market value of the new cryptocurrency when it is received, which is when the transaction is recorded on the distributed ledger, provided you have dominion and control over the cryptocurrency so that you can transfer, sell, exchange, or otherwise dispose of the cryptocurrency."

okay, not panicking yet........

let's decipher what this means: "provided you have dominion and control over the cryptocurrency"

a hard fork (like bitcoin cash) requires that a bitcoin user download a new software/ledger in order to gain control over that cryptocurrency. if that never occurs---if you just left your BCH in their original outputs---i'm wondering if there is no taxable event.

if they are taking the position that any shitcoin deposited to our pubkeys is taxable at the time received, that's infuriating. my cold storage ETH addresses have dozens of random airdropped tokens in there. these shitcoin markets are extremely illiquid too---if everyone dumped to cover their tax liabilities, the fair market value would undoubtedly be $0!

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October 09, 2019, 08:15:04 PM
 #5

a hard fork (like bitcoin cash) requires that a bitcoin user download a new software/ledger in order to gain control over that cryptocurrency. if that never occurs---if you just left your BCH in their original outputs---i'm wondering if there is no taxable event.

if they are taking the position that any shitcoin deposited to our pubkeys is taxable at the time received, that's infuriating. my cold storage ETH addresses have dozens of random airdropped tokens in there. these shitcoin markets are extremely illiquid too---if everyone dumped to cover their tax liabilities, the fair market value would undoubtedly be $0!

Every single comment I've seen about this so far from everyone vaguely in the know is along the lines of - WTF? One of the most persistent points is that if these rules are the rules countless random strangers can drop tax bills on you like cluster bombs and you have no say in it.

I can't imagine they're going to leave this section as is.

https://twitter.com/lopp/status/1181980062318551040

https://coincenter.org/entry/irs-cryptocurrency-guidance-answers-some-questions-while-raising-messy-new-ones

I see no reason why gaining control should be any more taxable than the fork in the first place. All you're doing is initiating some bits of code with some software. Spending or selling or swapping, so be it. Anything before that should not be so be it.

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October 09, 2019, 08:33:18 PM
 #6

Every single comment I've seen about this so far from everyone vaguely in the know is along the lines of - WTF? One of the most persistent points is that if these rules are the rules countless random strangers can drop tax bills on you like cluster bombs and you have no say in it.

The most frustrating thing is the liquidity aspect. If you follow their guidelines to the letter, then a single overpriced trade at 0.00000001 BTC volume could result in billions of dollars in tax liability across the market. It's completely absurd.

More than that, this could stick taxpayers with huge bills based on the value at fork time, but if the value plummets, those taxpayers will only be able to deduct $3,000 in capital losses. This could ruin people's lives if they honestly report these transactions.

It would be one thing if they were treated like bona fide gifts, but if there are no standards and every token in existence is reportable based on the time of receipt, then this is incredibly screwed up.

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October 09, 2019, 09:01:25 PM
 #7

a hard fork (like bitcoin cash) requires that a bitcoin user download a new software/ledger in order to gain control over that cryptocurrency. if that never occurs---if you just left your BCH in their original outputs---i'm wondering if there is no taxable event.
https://twitter.com/lopp/status/1181980062318551040

point #1 is the most glaring. i don't see how it could be construed as income if it's not immediately accessible or spendable. let's say someone sticks a key in my mailbox and it opens a trunk full of cash, but i need to travel half way across the world to access it. is that income---at the time i received the key no less?

point #3 as well. exchanges generally don't list the fork or activate trading until after the fork has occurred. doesn't that technically mean the fair market value is $0? then you would just incur 100% of the capital gains as income when you sell it. i'm fine with that......

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October 10, 2019, 08:35:16 AM
 #8

Here's an attorney's take on this on Twitter:

The IRS has told us that if you accept an airdrop, the proceeds will be treated as income.

But the airdrop itself is a transfer of property, and as such it can be disclaimed.

"Tax hits by stealth" won't happen.

Problem is, the disclaimer must be sent to the donor, which is...the blockchain in this case?

I hope the IRS clears this up.

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October 10, 2019, 01:39:56 PM
 #9

The statement is complete nonsense, clearly written by someone who doesn't understand this stuff whatsoever. It sounds like the IRS asked around the office, "Hey, anyone know what this hardfork/airdrop stuff is?", and one guy said, "Oh yeah, Coinbase gave me an airdrop in my account that one time! Something about a hardfork. Dunno what it was about, but I guess it's income?"

Coin Center says:
because the value of a coin is typically zero at the moment of a hard fork (given there are no markets yet), then the reportable income would be zero
So it seems that the accounting that everyone was already using (ie. when you sell it, it's capital gains with zero basis) holds up even under the nonsense guidance except perhaps when it's an exchange giving you the "airdrop".

If they try to go after someone for this sort of thing, they're going to have a hell of a time pinning down a market value. If you're Mark Zuckerburg and you want to gift all of your Facebook shares to a charity, you don't get to deduct the current market price of FB shares times the number of shares you donated: firstly because if you actually sold those shares, it'd crash the market; and secondly because many of those shares are of an untraded class. In this scenario, Zuckerburg would have to get an appraisal done by a specialist appraiser to estimate the actual cash value of the shares.

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October 10, 2019, 03:15:15 PM
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As far as I know no other tax authority has come out with this and it's ludicrous. In the UK it's taxable when you get rid. Then again I'm not sure what they mean by hard fork followed by an airdrop. They are in effect the same thing.

This conjures up images of people hard forking each other just to land them with giant tax bills.

I sort of get the point on why they are doing this, its similar how dividends work from a stock company and they treated forked coins as dividends of that cryptpcurrency. I remembered that when BTC was about to fork a lot of traders took advantage and bought Bitcoin to receive the forked coin, its similar how traders want to earn money from dividend plays in stocks. They are just trying to cover all our earnings coming from the market and I think its reasonable.

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October 10, 2019, 06:19:39 PM
 #11

Here's an attorney's take on this on Twitter:

The IRS has told us that if you accept an airdrop, the proceeds will be treated as income.

But the airdrop itself is a transfer of property, and as such it can be disclaimed.

"Tax hits by stealth" won't happen.

Problem is, the disclaimer must be sent to the donor, which is...the blockchain in this case?

I hope the IRS clears this up.

preston as usual is sowing confusion and then telling people to hire a tax attorney---like him. Tongue

his "qualified disclaimer" position is pretty unhelpful. these are some of the conditions:

Quote
The disclaimer is made in writing and signed by the disclaiming party. In addition, s/he must identify the property or interest in property that is being disclaimed. The disclaimed interest must then be delivered, in writing, to the person or entity charged with the obligation of transferring assets from the giver to the receiver(s).

The writing is received by the transferor of the interest, his legal representatives, or the holder of legal title to the property to which the interest relates in less than nine months after the date the property was transferred.

considering that most airdrops occurred in 2017 and 2018, this 9 month deadline has long passed. it's also a lot easier for an airdropper to drop coins in a public key than it is for a recipient to find their legal mailing address for service. they could be completely anonymous on the other side of the world.

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October 10, 2019, 07:40:41 PM
Last edit: October 10, 2019, 07:52:44 PM by squatter
 #12

They seem to be referring to "airdrops" only as tokens credited by exchanges after a hard fork. What about "airdrops" of already existing cryptocurrency into public keys? I'm thinking of things like the weekly Bitsend airdrop that went on for years. I'm guessing that they'd get the same treatment as hard forks, but I was hoping they might qualify for bona fide gift treatment since technically they appear to fit the IRS definition of "gift."

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