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The tax situation is interesting. Many believe that you owe taxes as soon as the funds for a bitcon fork are available to you. For someone with bitcoin in a pri

by dmm 9y ago

The tax situation is interesting. Many believe that you owe taxes as soon as the funds for a bitcon fork are available to you. For someone with bitcoin in a private wallet that's instantly. For someone with bitcoin in an exchange that's whenever the exchange implements the coin or you withdraw to a private wallet. For example bitcoin cash was forked August 1, 2017 but coinbase didn't implement it until December 19, 2017. https://bitcoin.tax/blog/how-to-tax-bitcoin-cash-bch/ https://bitcoin.tax/blog/how-to-tax-bitcoin-cash-bch/

pjc50 9y ago
Isn't it treated as an unrealised capital gain?
- twohlix_ 9y ago
  And if you realize it I imagine your strike price was $0, so its full profit. IANAL tho.
  - jsty 9y ago
    (This thought experiment may be completely wrong, I'm unfamiliar with US tax law) If people were attempting to propose improvements via forking and this were true, would that not create rather dire tax liabilities? Say you bought into bitcoin 'original', and then it forks into bitcoin 'improved' as well. Loads of people agree that the improved version is much better and switch to it, leaving the original near worthless. But then if this interpretation of tax rules were true you'd be left paying cap gains on the full value of the improved version, rather than the difference between original and improved at sale time. Ouch.
    - my_username_is_ 9y ago
      I think there's an implication in your thought process that the 'bitcoin original' value, which you bought into, goes to $0. This would constitute a capital loss, and you would have gains up from $0 on the secondary blockchain ('bitcoin improved'). This would seem reasonable to me, as it's essentially a wash. The only thing that would muddy the whole thing up is the holding period for short term and long term capital gains.
- dmm 9y ago
  The site I linked argues not because unrealized gains occur when something you own goes up in value. But during a fork you are given (access to) something new.
- bpicolo 9y ago
  New tax bill specifies that currency-to-currency transfers are now taxable events, I assume this falls in line. It's not only about turning things into fiat. Really the law's going to have to adapt here if people are ever going to use crypto as an actual currency. Owing capital gains every time you order a latte is nuts.
  - Retric 9y ago
    There is no sale from a new coin being created. There is a sale if you trade coin X for coin Y. PS: Trading cars with someone counts as 2 sales, assuming the titles change hands.
    - raybayfay 9y ago
      exactly
  - Glyptodon 9y ago
    This seems more like a stock split than a transfer.
Cyberdog 9y ago
It illustrates how ludicrous the idea of being taxed for a fork is (along with taxes on crypto not exchanged for fiat in general). I had never even heard of most of the forks discussed in this article. Were I a holder of BTC, how am I supposed to pay taxes on the "wealth" "generated" from forks I didn't even know existed?
- tehlike 9y ago
  The idea of crypto taxation (besides forks) is same as stocks. Thus, selling crypto for fiat is same as selling crypto to buy another crypto tax wise. Taxation in general is not a happy event, but it is consistent in this case.
  - deleted 9y ago
    [deleted]
  - raybayfay 9y ago
    Once again - you expect people to somehow magically track the value on 20 hard forks in 2017, many are scam / not listed on US sites / unclear value, and on the 50 hard forks in 2018? Not possible - not feasible - and goes counter to what many EAs and CPAs are advising their clients. People need to stop giving "couch" advise without considering the consequences.
    - tehlike 9y ago
      Best effort. If you went the lengths to "cash it out" because it was free money, you should pay someone to keep track of it for you, if you don't intend to. Wasn't the whole point of bitcoin that it was auditable? IF you know and want to use a fork for something, you can figure out the exact price fork has happened. IF you don't know, you have plausible deniability.
      - raybayfay 9y ago
        Responded somewhere else; but to be fair hard forks should be unrealized gain with 0 cap gains. IF/when someone wants to cash out is when they should pay the tax. It resolves the bad actor issue with scam coins; meets the need to pay tax on gains and ultimately saves everyone in bitcoin land (or other crypto for that matter) from inadvertently not declaring income. It's a win win for everyone; including the IRS. This is the most common sense approach and it stuns me that many of the couch / tax advisers are positioning otherwise.
nokcha 9y ago
>Many believe that you owe taxes as soon as the funds for a bitcon fork are available to you. I think that belief is mistaken. (1) Suppose Bitcoin has a contentious fork into two chains, say BitcoinA and BitcoinB. The supporters of each chain claim that their chain is the "true" Bitcoin. Before the split, you had 1 btc worth $10k, and after the fork, you have 1 btcA worth $5k and 1 btcB worth $5k. Which of the two chains do you owe taxes on? (2) Even if a hard-forked chain is treated as a new asset instead of a split of an old asset, it shouldn't be taxed until the user actually exercises control over it. In order to control funds on a new hard fork, generally the user must take the risky action of installing new (potentially malicious) software and importing their private keys --- this would seem to be a "substantial limitation or restriction" under 26 CFR 1.451-2(a).
- dmm 9y ago
  That's an interesting position. This is definitely an area that needs more clarification. I do think that treating forks like income is the most conservative interpretation and the one least likely to result in trouble from the IRS.
  - raybayfay 9y ago
    Really? So you're going to declare income on the 20 hard forks in 2017 (many were scams / questionable value... if any, also not listed on US exchanges), and on the 50 hard forks this year? Don't you think this is a bit insane??
    - jebeng 9y ago
      There should be some sort of value threshold or something similar. If your holdings of the hard fork's resulting coin is worth less than some trivial amount, then it shouldn't be necessary. But if for some crazy reason the market decides that another joke like Bitcoin Cash is actually worth some significant amount, then it seems hard to argue that this should somehow be immune to tax.
      - 9y ago

by dmm 9y ago

pjc50 9y ago

Isn't it treated as an unrealised capital gain?

twohlix_ 9y ago
And if you realize it I imagine your strike price was $0, so its full profit. IANAL tho.
- jsty 9y ago
  (This thought experiment may be completely wrong, I'm unfamiliar with US tax law) If people were attempting to propose improvements via forking and this were true, would that not create rather dire tax liabilities? Say you bought into bitcoin 'original', and then it forks into bitcoin 'improved' as well. Loads of people agree that the improved version is much better and switch to it, leaving the original near worthless. But then if this interpretation of tax rules were true you'd be left paying cap gains on the full value of the improved version, rather than the difference between original and improved at sale time. Ouch.
  - my_username_is_ 9y ago
    I think there's an implication in your thought process that the 'bitcoin original' value, which you bought into, goes to $0. This would constitute a capital loss, and you would have gains up from $0 on the secondary blockchain ('bitcoin improved'). This would seem reasonable to me, as it's essentially a wash. The only thing that would muddy the whole thing up is the holding period for short term and long term capital gains.
dmm 9y ago
The site I linked argues not because unrealized gains occur when something you own goes up in value. But during a fork you are given (access to) something new.
bpicolo 9y ago
New tax bill specifies that currency-to-currency transfers are now taxable events, I assume this falls in line. It's not only about turning things into fiat. Really the law's going to have to adapt here if people are ever going to use crypto as an actual currency. Owing capital gains every time you order a latte is nuts.
- Retric 9y ago
  There is no sale from a new coin being created. There is a sale if you trade coin X for coin Y. PS: Trading cars with someone counts as 2 sales, assuming the titles change hands.
  - raybayfay 9y ago
    exactly
- Glyptodon 9y ago
  This seems more like a stock split than a transfer.

Cyberdog 9y ago

It illustrates how ludicrous the idea of being taxed for a fork is (along with taxes on crypto not exchanged for fiat in general). I had never even heard of most of the forks discussed in this article. Were I a holder of BTC, how am I supposed to pay taxes on the "wealth" "generated" from forks I didn't even know existed?

tehlike 9y ago
The idea of crypto taxation (besides forks) is same as stocks. Thus, selling crypto for fiat is same as selling crypto to buy another crypto tax wise. Taxation in general is not a happy event, but it is consistent in this case.
- deleted 9y ago
  [deleted]
- raybayfay 9y ago
  Once again - you expect people to somehow magically track the value on 20 hard forks in 2017, many are scam / not listed on US sites / unclear value, and on the 50 hard forks in 2018? Not possible - not feasible - and goes counter to what many EAs and CPAs are advising their clients. People need to stop giving "couch" advise without considering the consequences.
  - tehlike 9y ago
    Best effort. If you went the lengths to "cash it out" because it was free money, you should pay someone to keep track of it for you, if you don't intend to. Wasn't the whole point of bitcoin that it was auditable? IF you know and want to use a fork for something, you can figure out the exact price fork has happened. IF you don't know, you have plausible deniability.
    - raybayfay 9y ago
      Responded somewhere else; but to be fair hard forks should be unrealized gain with 0 cap gains. IF/when someone wants to cash out is when they should pay the tax. It resolves the bad actor issue with scam coins; meets the need to pay tax on gains and ultimately saves everyone in bitcoin land (or other crypto for that matter) from inadvertently not declaring income. It's a win win for everyone; including the IRS. This is the most common sense approach and it stuns me that many of the couch / tax advisers are positioning otherwise.

nokcha 9y ago

>Many believe that you owe taxes as soon as the funds for a bitcon fork are available to you. I think that belief is mistaken. (1) Suppose Bitcoin has a contentious fork into two chains, say BitcoinA and BitcoinB. The supporters of each chain claim that their chain is the "true" Bitcoin. Before the split, you had 1 btc worth $10k, and after the fork, you have 1 btcA worth $5k and 1 btcB worth $5k. Which of the two chains do you owe taxes on? (2) Even if a hard-forked chain is treated as a new asset instead of a split of an old asset, it shouldn't be taxed until the user actually exercises control over it. In order to control funds on a new hard fork, generally the user must take the risky action of installing new (potentially malicious) software and importing their private keys --- this would seem to be a "substantial limitation or restriction" under 26 CFR 1.451-2(a).

dmm 9y ago
That's an interesting position. This is definitely an area that needs more clarification. I do think that treating forks like income is the most conservative interpretation and the one least likely to result in trouble from the IRS.
- raybayfay 9y ago
  Really? So you're going to declare income on the 20 hard forks in 2017 (many were scams / questionable value... if any, also not listed on US exchanges), and on the 50 hard forks this year? Don't you think this is a bit insane??
  - jebeng 9y ago
    There should be some sort of value threshold or something similar. If your holdings of the hard fork's resulting coin is worth less than some trivial amount, then it shouldn't be necessary. But if for some crazy reason the market decides that another joke like Bitcoin Cash is actually worth some significant amount, then it seems hard to argue that this should somehow be immune to tax.
    - 9y ago