Breaking Down the New IRS Cryptocurrency Tax Guidance

[bobthebuildr]

https://www.cryptotrader.tax/blog/new-irs-cryptocurrency-tax-guidance

[1715251997]

1715251997

[1715251997]

1715251997

[1715251997]

1715251997

[1715251997]

1715251997

[squatter]

For example - If you held 2.5 Bitcoin in July of 2017, and received 2.5 Bitcoin Cash as a result of the bitcoin cash hard fork, you recognize this received 2.5 Bitcoin Cash as income at the fair market value of the bitcoin cash at the time it was received. If Bitcoin Cash was trading for $500 a piece that day, you would recognize income of $1,250 ($500 * 2.5). Your cost basis in this Bitcoin Cash becomes $1,250.

It depends if you held your own keys or had bitcoins on an exchange.

At the time of the fork, tokens had not yet been credited to exchange accounts, so price discovery hadn't begun. Therefore -- for keys you controlled -- the value at time of receipt was $0.

If an exchange credited you with BCH, then it depends when you received them. For example, Bitstamp took almost two months to credit users. Those people won't be able to claim the income was zero.

[CryptoBry]

It is always amazing how the tax agency of the country can be more advanced in their guidelines on reporting income and how to pay them but in regard to other sides of cryptocurrency the development is too slow and many times stalled for different reasons. Sometimes I found it funny but many times sad. But this is a big reality we have to face.

At any rate, getting clarifications and providing more animations in gray areas can be much better than groping in the dark. Taxation is such a powerful tool by the government and failure to obey the laws can be a big hassle later.

[hugeblack]

https://www.cryptotrader.tax/blog/new-irs-cryptocurrency-tax-guidance

The system looks fair and categorizes cryptocurrencies well, citing some cases in which cryptocurrencies can be obtained and how to tax them, but I'm still surprised at how to pay taxes for currencies that I don't have access to.
It can also be avoided by arguing that coins have been hacked or that someone has been able to access them.

[squatter]

The system looks fair and categorizes cryptocurrencies well, citing some cases in which cryptocurrencies can be obtained and how to tax them, but I'm still surprised at how to pay taxes for currencies that I don't have access to.

It would help if the IRS clarified exactly what "dominion and control" mean, but if you can't dispose of hard forked coins then it isn't considered income:

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.

Source: https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions

Furthermore, in a typical hard fork where you control your own private keys, you would receive tokens on the ledger before markets exist. The price and fair market value would therefore be $0 and you would just be liable for 100% of the capital gains when you sell.

If you receive hard forked coins on an exchange after markets already exist, then it's hard to argue you didn't receive income. The fair market value would be the price when the coins were credited to your exchange account x the number of coins.

[gentlemand]

I can't believe they're going to leave it as is. One of their documents mentioned that they were waiting for feedback and hopefully they get plenty of it.

The bit about forks and airdrops simply doesn't make enough sense at present. Fuck knows who wrote it but they need slapping upside the head.

'If you did not receive any cryptocurrency when an airdrop event occurred, you do not recognize income as you did not receive the property.'

What airdrop does not give you crypto? And what is the EXACT definition of receiving?

And someone's comment here makes for a plain bizarre set of circumstances which as far as I know hasn't been addressed clearly - https://www.coindesk.com/the-irs-just-issued-its-first-cryptocurrency-tax-guidance-in-5-years

“One unfortunate consequence of this guidance is that third parties can now create tax reporting obligations for you by simply forking a network whose coins you own, or foisting on you an unwanted airdrop.”

[squatter]

I can't believe they're going to leave it as is. One of their documents mentioned that they were waiting for feedback and hopefully they get plenty of it.

The bit about forks and airdrops simply doesn't make enough sense at present. Fuck knows who wrote it but they need slapping upside the head.

'If you did not receive any cryptocurrency when an airdrop event occurred, you do not recognize income as you did not receive the property.'

What airdrop does not give you crypto? And what is the EXACT definition of receiving?

That was likely written with exchanges in mind. If an exchange credited you with forks/airdrops based on your balance, then receipt occurs.

My reading of the guidelines is that if you controlled your own keys, the fair market value of hard forks was $0 at the time of receipt since no markets existed yet. Futures markets or chain split tokens are different assets.

“One unfortunate consequence of this guidance is that third parties can now create tax reporting obligations for you by simply forking a network whose coins you own, or foisting on you an unwanted airdrop.”

The first situation probably isn't possible. A hard fork falls under the situation I outlined above.

Centralized airdrops -- like when a developer team air drops ERC-20 tokens into ETH public addresses -- could result in unwanted tax liabilities, though. Fortunately, these airdrops are probably worth far too little for the IRS to pay any attention.

[Famente]

Great!

[audaciousbeing]

It is always amazing how the tax agency of the country can be more advanced in their guidelines on reporting income and how to pay them but in regard to other sides of cryptocurrency the development is too slow and many times stalled for different reasons. Sometimes I found it funny but many times sad. But this is a big reality we have to face.

At any rate, getting clarifications and providing more animations in gray areas can be much better than groping in the dark. Taxation is such a powerful tool by the government and failure to obey the laws can be a big hassle later.

The reason why we have the government regulatory agencies every step ahead when it comes to tax payment is because the think-thank they have. The people who formulated this policies are the combinations of various smart guys in virtually all the industries I mean the best of the best from top schools talk about the business schools, the intelligence community, the hackers, the developers and not limited to those that even operate in the dark world. Put all these people together to formulate a policy will probably cover any cheap loopholes you can immediately look for while the other loopholes are left for taxpayers to point out for them to block after series of legal battles to their own advantage and because there is always an element of fear and punishments in these regulations, they hardly get contested by the tax payers.