12 ms·

IRS issues additional guidance on tax treatment for cryptocurrency

168 points by sunils34 7y ago

rwmurrayVT 7y ago
tl;dr if you take possession of any 'new' crypto holdings after a hard fork you now have new tax liability !
- oiasdjfoiasd 7y ago
  lol ain't nobody paying tax on crypto
jerkstate 7y ago
What does this mean if I have coins on an exchange when they fork and the exchange decides not to support the new coin? Is that theft?
- gamblor956 7y ago
  This just addresses the tax consequences. Theft is something else. The ruling is basically saying that if your exchange didn't support the fork, you didn't receive any crypto, so there's no taxable income. But if your exchange did support the fork, you have taxable income once those crypto show up in your exchange account and you can transact with them.
  - Legogris 7y ago
    Isn't it rather that you have taxable capital gains once you choose to transact those assets?
    - nullc 7y ago
      That might be a reasonable position to take: it would nicely avoid the issue that you might not know or be able to know about the fork, that the value at the instant of creation is exceptionally unclear, and it would nicely avoid the issue that you might not meaningfully have access to the coins. The ruling appears to say nothing like that and nothing that would particularly support that interpretation.
- jefftk 7y ago
  > A taxpayer does not have receipt of cryptocurrency when the airdrop is recorded on the distributed ledger if the taxpayer is not able to exercise dominion and control over the cryptocurrency. For example, a taxpayer does not have dominion and control if the address to which the cryptocurrency is airdropped is contained in a wallet managed through a cryptocurrency exchange and the cryptocurrency exchange does not support the newly-created cryptocurrency such that the airdropped cryptocurrency is not immediately credited to the taxpayer’s account at the cryptocurrency exchange. If the taxpayer later acquires the ability to transfer, sell, exchange, or otherwise dispose of the cryptocurrency, the taxpayer is treated as receiving the cryptocurrency at that time. So you would not owe tax until they supported it (if at some point they do). Whether it's theft isn't a matter for the tax agency.
modeless 7y ago
Finally! Guidance on airdrops and forks was sorely needed. The guidance seems mostly in line with expectations, but I find one bit confusing. The IRS is drawing a distinction between a hard fork with an airdrop and a hard fork without an airdrop. I don't understand the concept of a hard fork without an airdrop. If the new chain doesn't at least maintain the balances of all existing accounts using the new chain's token, then IMO it's not a fork at all but simply the launch of a new cryptocurrency. Can someone give an example of the kind of hard fork with no airdrop the IRS is talking about?
- draaglom 7y ago
  People are speculating this is for e.g. when your coins are at an exchange; the currency hard forks; and the exchange does not (yet) implement the fork so you can't access the coins.
  - modeless 7y ago
    No, that's handled separately. You're not in possession of the coins if you can't access them, and you aren't taxed on them until you gain possession.
- gamblor956 7y ago
  This guidance specifically applies to forks where you receive the forked coins through an exchange because you held pre-fork coins in the exchange. If you receive the new coins directly, this guidance does not apply to you.
- Scoundreller 7y ago
  Quite refreshing to see. Canada’s CRA publishes some crypto guidance, but delicately avoided any discussion about forks and airdrops, which is the only thing that’s unlike any other asset that someone buys and sells that goes up or down in value. Clarifying the parts that are already clear wasn’t too valuable. Maybe useful for a consumer that thinks “I can trade all day and never pay tax”, but nothing actionable for any accountant.
- nullc 7y ago
nsfyn55 7y ago
>A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer. What does this mean for crypto players that exchanged a lot of crypto, realized gains, then lost their wallet? Are they still on the hook for taxes on the gains even though they can't access the wallet anymore?
- koolba 7y ago
  How is that different then realizing gains for stock, converting it to cash, then losing the cash?
- wbl 7y ago
  Yes. But they also incurred a loss of the wallet that may be used to offset. IANAL and the tax code makes Shadowrun look simple.
- deleted 7y ago
  [deleted]
- tathougies 7y ago
  If you lost access to cash, perhaps you can claim it as a tax deduction, since you can claim lost or stolen cash, I think.
cft 7y ago
I think it's the decision to treat it as property (and not its scalability) that killed the use of crypto in the US as payment mechanism, and limited its use only to store of value, speculation, and illicit payments.
- tathougies 7y ago
  They were supposed to treat cryptocurrency as not property? How would that work?
  - lostmsu 7y ago
    Same as dollar. E.g. you are not taxed, if dollar aporeciates.
    - wmf 7y ago
      Note that treating cryptocurrency as a "foreign" currency would not be magic; you still have to pay capital gains on any transaction over $200 AFAIK. But the IRS decided it's property so you still have to calculate capital gains on pizza and alpaca socks.
    - deleted 7y ago
      [deleted]
    - tathougies 7y ago
      But that would put bitcoin above every other currency. As far as the United States is concerned, one dollar is one dollar and dollar is the unit of currency. Whether you own bitcoin, Mexican Pesos, Canadian dollars, etc, holding another currency as an American citizen means you are subject to appreciation of that currency when compared against the dollar, which is the unit of currency in which the IRS collects tax. You are right you are not taxed (in nominal terms) if your dollar appreciates. That is because payment to the IRS is rendered in dollars, and dollars only. If your dollar increases, well so does the amount you lose when you give that dollar to the IRS.
      - 7y ago
kauffj 7y ago
In honor of the IRS fork guidance I’m announcing BBV — Bitcoin Bruce’s Vision. It’s a Bitcoin fork that gives me an extra 1 million coins. I’ll sell one sat to you for $300. Also: I’m sending a 12 word seed phrase poem to each member of Congress right before the fork. https://twitter.com/brucefenton/status/1181981988221329413 https://twitter.com/brucefenton/status/1181981988221329413
- aakilfernandes 7y ago
  Might even be profitable! https://money.cnn.com/2010/03/02/pf/taxes/rat_out_tax_cheat/ https://money.cnn.com/2010/03/02/pf/taxes/rat_out_tax_cheat/
- rtkwe 7y ago
  Sounds like you're admitting to sending massive illegal payments to each MoC...
- OrgNet 7y ago
  > I’m donating my million coins to charity ...and will be deducting the value of the donation ...unless of course the IRS says it’s not a real asset...
floatingatoll 7y ago
If you hold pre-fork currency, and there is a hard fork: IF you gain any of the new currency THEN it's income ELSE it's not. To quote the final paragraph, emphasis mine: https://www.irs.gov/pub/irs-drop/rr-19-24.pdf https://www.irs.gov/pub/irs-drop/rr-19-24.pdf HOLDINGS (1) A taxpayer does not have gross income under § 61 as a result of a hard fork of a cryptocurrency the taxpayer owns if the taxpayer does not receive units of a new cryptocurrency. (2) A taxpayer has gross income, ordinary in character, under § 61 as a result of an airdrop of a new cryptocurrency following a hard fork if the taxpayer receives units of new cryptocurrency.
- norswap 7y ago
  Don't you automatically "receive/gain" the new currency upon a hard fork? Or am I misunderstanding these words?
  - zucker42 7y ago
    I would think so too. It makes me question if the IRS understands how decentralized cryptocurrencies work.
  - undefined3840 7y ago
    No. It completely depends on how you hold your crypto. If you are storing it on an exchange it’s completely up to the exchange to credit your wallet, which they don’t necessarily have an obligation to do.
  - nullc 7y ago
    Depends on how you define "receive". Also "new". If currency X is hardforks and there now exist X and X' then in all ordinary cases you have access to both X and X'. But did you receive? Your access is because X' copies/extended X's state when it came into existence. There wasn't any new transfer to you. One part of the text sounds like it's possible to not "receive": "Situation 1: A holds 50 units of Crypto M, a cryptocurrency. On Date 1, the distributed ledger for Crypto M experiences a hard fork, resulting in the creation of CryptoN. Crypto N is not airdropped or otherwise transferred to an account owned or controlled by A." Another part of the text describing the same facts, instead makes it sound like reception is determined by resulting control: "Situation 1: A did not receive units of the new cryptocurrency, Crypto N, from the hard fork; therefore, A does not have an accession to wealth and does not have gross income under § 61 as a result of the hard fork." So, taking both these parts together, it sounds like situation 1 is describing an irrelevant and obvious case. It's technically possible for N to be created and copy currency M but leave out A's coins. Obviously A wouldn't owe any taxes as a result. Duh. This wasn't a case anyone was concerned with. So what if you instead say okay, the coins you got access to via state copying were "received"-- well okay, but now in that case the many times ethereum or bcash were hardforked and the original systems were largely, but not completely, abandoned you'd then owe income tax on essentially the entirety of your holdings. 0_o
aazaa 7y ago
The "airdrop" terminology is interesting to say the least. The closest thing I can see to a definition is in 26 CFR 1.61-1: > An airdrop is a means of distributing units of a cryptocurrency to the distributed ledger addresses of multiple taxpayers. A hard fork followed by an airdrop results in the distribution of units of the new cryptocurrency to addresses containing the legacy cryptocurrency. However, a hard fork is not always followed by an airdrop. https://www.irs.gov/pub/irs-drop/rr-19-24.pdf https://www.irs.gov/pub/irs-drop/rr-19-24.pdf Consider the Bitcoin/Bitcoin Cash hard fork of 2017. No "distributed ledger addresses" received an airdrop distribution. What happened instead is that the tokens previously valid on a single network (Bitcoin) became valid on a new network (Bitcoin Cash). There was no "distribution" and as such there was no airdrop according to the IRS definition. On the first block of the Bitcoin Cash split, there was no "recording" of cryptocurrency receipt on the "distributed ledger." There was just a block containing some unrelated (for most users) Bitcoin Cash transactions. Either the IRS doesn't understand the basis of a hard fork, or it's specifically singling out hard forks coupled to "airdrops" as having received income. Likewise Situation 1, from the same document: > Situation 1: A holds 50 units of Crypto M, a cryptocurrency. On Date 1, the distributed ledger for Crypto M experiences a hard fork, resulting in the creation of Crypto N. Crypto N is not airdropped or otherwise transferred to an account owned or controlled by A. > ... > A did not receive units of the new cryptocurrency, Crypto N, from the hard fork; therefore, A does not have an accession to wealth and does not have gross income under § 61 as a result of the hard fork. The use of the word "account" is also problematic, as it implies a custodial relationship with a financial institution, which has nothing to do with Bitcoin itself. Filling in the blanks: A holds 50 BTC. On Date 1, BTC experiences a hard fork, resulting in the creation of Bitcoin Cash. Bitcoin Cash is not airdropped or otherwise transferred to an account owned or controlled by A. A did not receive units of the new cryptocurrency, Bitcoin Cash, from the hard fork; therefore A does not have an accession to wealth and does not have gross income under § 61 as a result of the hard fork. Stay tuned because these rules are going to be refined - a lot.
- jrockway 7y ago
  I think I got a Stellar "air drop" through Keybase. I don't even want their fake money, but now I have to do extra paperwork to deal with it. I am surprised that McDonalds can offer you 50 cents off a burger without having to file a 1099.
lacker 7y ago
So if you get a new coin from a hard fork, you owe taxes on the fair market value of that new coin you get. This seems pretty dangerous - if the fair market value is high on the first day of trading, but declines a lot, you could get taxed on value that you never realized. It seems like this will incentivize people to sell off new tokens immediately, in order to pay the taxes they incurred during the fork. To me it seems very unintuitive to tax a hard fork. It is like taxing a stock split. Your asset hasn't really changed, it is just now represented in a different way. Another weird thing about these taxes is that they assume that one of the forks is the "real asset" and the other fork is the "new asset". In practice, it seems like a lot of times a fork happens along with a lot of argument about which side of the fork is the "real" one. Well, I guess the IRS does not see cryptocurrency the same way as my intuition would.
- klodolph 7y ago
  From the FAQ: > A21. A hard fork occurs when a cryptocurrency undergoes a protocol change resulting in a permanent diversion from the legacy distributed ledger. This may result in the creation of a new cryptocurrency on a new distributed ledger in addition to the legacy cryptocurrency on the legacy distributed ledger. If your cryptocurrency went through a hard fork, but you did not receive any new cryptocurrency, whether through an airdrop (a distribution of cryptocurrency to multiple taxpayers’ distributed ledger addresses) or some other kind of transfer, you don’t have taxable income. https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions https://www.irs.gov/individuals/international-taxpayers/freq... So with e.g. Bitcoin / Bitcoin Cash fork you would be doing ordinary capital gains, not income. You don’t have “new cryptocurrency”, you have the same cryptocurrency, but on two ledgers because of the fork.
  - nullc 7y ago
    The text of the ruling is incredibly unclear. You could read the ruling as saying that if you have coins on both the old system and the new system that you recieved an 'air drop' and owe taxes. Or you could attempt to read it as saying that you only received an 'air drop' if there was a "transfer" and not merely state copying. The latter interpretation is more reasonable in effect but seriously frustrated by the total lack of guidance on setting the cost basis of the resulting assets! Also the language of the ruling comes very close to directly contradicting this interpretation: "Situation 1: A did not receive units of the new cryptocurrency, Crypto N, from the hard fork;". The former interpretation is frustrated by the absurd result that users of eth, bcash, or other centrally administered frequently hardforking cryptocurrencies would owe income tax multiple times over for every one of those coins they own... even though the original systems have largely (but not completely) been ignored, and aren't valued as much. So what, are users of those systems supposed to have over and over against recognized ordinary income for nearly the total value of their holdings and sold the original coins and taken a capital loss on them (which they couldn't deduct against their ordinary income, except in a limited way)?
shiado 7y ago
Without a legal definition of cryptocurrency ownership there is no way to interpret this guidance. I may assert that I own the private key which can transact on the Bitcoin blockchain but also assert that I do not own the exact same private key on the Shitcoin 1234 blockchain. A very crude and simple analogy would be like assuming people with the same bank pin are the same person.
- prolixus 7y ago
  The guidance does have a defintion of ownership: "Under § 61, all gains or undeniable accessions to wealth, clearly realized, over which a taxpayer has complete dominion, are included in gross income." If you are the sole possessor of a private key which grants control of a cryptocurrency address then you have complete dominion over the crypto at that address. Under situation 2 of the guidance: "B has dominion and control of Crypto S at the time of the airdrop, when it is recorded on the distributed ledger, because B immediately has the ability to dispose of Crypto S." Taken in the most taxpayer hostile interpretation that means that if the ledger is duplicated you have income because you have the ability to dispose of the forked coin with your private key even if you have no desire to touch it in any way.
  - nullc 7y ago
    That language comes from https://en.wikisource.org/wiki/Commissioner_of_Internal_Revenue_v._Glenshaw_Glass_Company/Opinion_of_the_Court https://en.wikisource.org/wiki/Commissioner_of_Internal_Reve... ... and unfortunately that particular case seems to be of no help clarifying many of the relevant issues. > even if you have no desire to touch it in any way. Not just desire, in most cases people don't even know about most of the cryptocurrency forks!
  - ssalka 7y ago
    What about the (unlikely) case that a wallet is shared between 2 or more individuals? Could I then "share" my private key with a trusted person (e.g. a parent) and claim _not_ to have complete dominion over the gains, thus no gross income?
  - shiado 7y ago
chanfest22 7y ago
Here's a summary of the key updates in the new guidance in ELI5 terms: https://www.cointracker.io/blog/new-irs-cryptocurrency-tax-guidance https://www.cointracker.io/blog/new-irs-cryptocurrency-tax-g...
ocdtrekkie 7y ago
So perhaps someone can help me here: When Keybase sent everyone with an account a bunch of Stellar Lumens did they gift everyone with an obligation to file more tax forms? EDIT: To answer my own question, this FAQ states: "No. If you receive virtual currency as a bona fide gift, you will not recognize income until you sell, exchange, or otherwise dispose of that virtual currency." Presumably I only have to worry about my lumens if I cash them out or pay someone with them.
revel 7y ago
A huge day for digital assets. The big highlights for me are: * fair date accounting for when you take custody of a private-key / access to a wallet holding an asset (air dropped, hard forked or traditionally acquired). * specific identification is allowed for cost basis accounting! Not sure if this is new but this is a massive game changer for me.
aesthethiccs 7y ago
Oh the same irs that is undefunded to persue billionaire tax avoidance but seems to be quite capable of attempting to tax all cryptocurrency use for us citizens.... yeah this seems like complete bullshit.
- kube-system 7y ago
  What makes you think billionaires aren't trying to use cryptocurrencies to their advantage?
algaeontoast 7y ago
Why does anyone in tech still pretend there’s any real value left in blockchain tech? The crypto industry is stymied, time to move on and let “real” fintech take the reins...
zjs 7y ago
I think this is the first time that the IRS has explicitly stated that specific identification is a valid accounting method for virtual currency: Q36. I own multiple units of one kind of virtual currency, some of which were acquired at different times and have different basis amounts. If I sell, exchange, or otherwise dispose of some units of that virtual currency, can I choose which units are deemed sold, exchanged, or otherwise disposed of? A36. Yes. You may choose which units of virtual currency are deemed to be sold, exchanged, or otherwise disposed of if you can specifically identify which unit or units of virtual currency are involved in the transaction and substantiate your basis in those units. Q37. How do I identify a specific unit of virtual currency? A37. You may identify a specific unit of virtual currency either by documenting the specific unit’s unique digital identifier such as a private key, public key, and address, or by records showing the transaction information for all units of a specific virtual currency, such as Bitcoin, held in a single account, wallet, or address. This information must show (1) the date and time each unit was acquired, (2) your basis and the fair market value of each unit at the time it was acquired, (3) the date and time each unit was sold, exchanged, or otherwise disposed of, and (4) the fair market value of each unit when sold, exchanged, or disposed of, and the amount of money or the value of property received for each unit. Note, however, that they also clarify that this is not the default accounting method: Q38. How do I account for a sale, exchange, or other disposition of units of virtual currency if I do not specifically identify the units? A38. If you do not identify specific units of virtual currency, the units are deemed to have been sold, exchanged, or otherwise disposed of in chronological order beginning with the earliest unit of the virtual currency you purchased or acquired; that is, on a first in, first out (FIFO) basis.
flippinburgers 7y ago
So does this retroactively apply to existing assets? BCH?
wiidude32 7y ago
Here's a breakdown on the most important info in the new guidance: https://www.cryptotrader.tax/blog/new-irs-cryptocurrency-tax-guidance https://www.cryptotrader.tax/blog/new-irs-cryptocurrency-tax...
morgan77 7y ago
I have been suffering from (LUPUS) disease for the last 10 years and had constant pain, especially in my knees. During the first year,I had faith in God that i would be healed someday.This disease started circulate all over my body and i have been taking treatment from my doctor, few weeks ago i came on search on the internet if i could get any information concerning the prevention of this disease, on my search i saw a testimony of someone who has been healed from (LUPUS) by this Man Dr Abiolo and she also gave the email address of this man and advise we should contact him any sickness that he would be of help, so i wrote to Dr Abiolo telling him about my (LUPUS) he told me not to worry that i was going to be cured!! hmm i never believed it,, well after all the procedures and remedy given to me by this man few weeks later i started experiencing changes all over me as the DR assured me that i have cured,after some time i went to my doctor to confirmed if i have be finally healed behold it was TRUE, So friends my advise is if you have such sickness or any other at all you can email Dr Abiolo on (abiolotemple@gmail.com) sir i am indeed grateful for the help i will forever recommend you to my friends!!! with your lovely Email Address( abiolotemple@gmail.com) or you can also call him on this number +2347012232686Dr Abiolo also cure the following(1) EX BACK(2) HIV/AIDS (3) ALS / LUPUS DISEASE CURE (4) DICK ENLARGEMENT(5) HEPATITIS B(6) ALOPECIA(7) CANCER(8) DIABETES(9) HERPES CURE(10) CURE OF ANY KIND OF DISEASES (11) IMPOTENCE,(12) BARENESS/INFERTILITY(13) DIARRHE / H PYLORI CURE(14) ASTHMA(15) HPV CURE/HSV-1(16) FIBROID CURE....contact him now email abiolotemple@gmail.com or WhatsApp +2347012232686... he is ever ready!!!
hillmorgan77 7y ago
I have been suffering from (LUPUS) disease for the last 10 years and had constant pain, especially in my knees. During the first year,I had faith in God that i would be healed someday.This disease started circulate all over my body and i have been taking treatment from my doctor, few weeks ago i came on search on the internet if i could get any information concerning the prevention of this disease, on my search i saw a testimony of someone who has been healed from (LUPUS) by this Man Dr Abiolo and she also gave the email address of this man and advise we should contact him any sickness that he would be of help, so i wrote to Dr Abiolo telling him about my (LUPUS) he told me not to worry that i was going to be cured!! hmm i never believed it,, well after all the procedures and remedy given to me by this man few weeks later i started experiencing changes all over me as the DR assured me that i have cured,after some time i went to my doctor to confirmed if i have be finally healed behold it was TRUE, So friends my advise is if you have such sickness or any other at all you can email Dr Abiolo on (abiolotemple@gmail.com) sir i am indeed grateful for the help i will forever recommend you to my friends!!! with your lovely Email Address( abiolotemple@gmail.com) or you can also call him on this number +2347012232686Dr Abiolo also cure the following(1) EX BACK(2) HIV/AIDS (3) ALS / LUPUS DISEASE CURE (4) DICK ENLARGEMENT(5) HEPATITIS B(6) ALOPECIA(7) CANCER(8) DIABETES(9) HERPES CURE(10) CURE OF ANY KIND OF DISEASES (11) IMPOTENCE,(12) BARENESS/INFERTILITY(13) DIARRHE / H PYLORI CURE(14) ASTHMA(15) HPV CURE/HSV-1(16) FIBROID CURE....contact him now email abiolotemple@gmail.com or WhatsApp +2347012232686... he is ever ready!!!

168 points by sunils34 7y ago

rwmurrayVT 7y ago

tl;dr if you take possession of any 'new' crypto holdings after a hard fork you now have new tax liability !

oiasdjfoiasd 7y ago
lol ain't nobody paying tax on crypto

jerkstate 7y ago

What does this mean if I have coins on an exchange when they fork and the exchange decides not to support the new coin? Is that theft?

gamblor956 7y ago
This just addresses the tax consequences. Theft is something else. The ruling is basically saying that if your exchange didn't support the fork, you didn't receive any crypto, so there's no taxable income. But if your exchange did support the fork, you have taxable income once those crypto show up in your exchange account and you can transact with them.
- Legogris 7y ago
  Isn't it rather that you have taxable capital gains once you choose to transact those assets?
  - nullc 7y ago
    That might be a reasonable position to take: it would nicely avoid the issue that you might not know or be able to know about the fork, that the value at the instant of creation is exceptionally unclear, and it would nicely avoid the issue that you might not meaningfully have access to the coins. The ruling appears to say nothing like that and nothing that would particularly support that interpretation.
jefftk 7y ago
> A taxpayer does not have receipt of cryptocurrency when the airdrop is recorded on the distributed ledger if the taxpayer is not able to exercise dominion and control over the cryptocurrency. For example, a taxpayer does not have dominion and control if the address to which the cryptocurrency is airdropped is contained in a wallet managed through a cryptocurrency exchange and the cryptocurrency exchange does not support the newly-created cryptocurrency such that the airdropped cryptocurrency is not immediately credited to the taxpayer’s account at the cryptocurrency exchange. If the taxpayer later acquires the ability to transfer, sell, exchange, or otherwise dispose of the cryptocurrency, the taxpayer is treated as receiving the cryptocurrency at that time. So you would not owe tax until they supported it (if at some point they do). Whether it's theft isn't a matter for the tax agency.

modeless 7y ago

Finally! Guidance on airdrops and forks was sorely needed. The guidance seems mostly in line with expectations, but I find one bit confusing. The IRS is drawing a distinction between a hard fork with an airdrop and a hard fork without an airdrop. I don't understand the concept of a hard fork without an airdrop. If the new chain doesn't at least maintain the balances of all existing accounts using the new chain's token, then IMO it's not a fork at all but simply the launch of a new cryptocurrency. Can someone give an example of the kind of hard fork with no airdrop the IRS is talking about?

draaglom 7y ago
People are speculating this is for e.g. when your coins are at an exchange; the currency hard forks; and the exchange does not (yet) implement the fork so you can't access the coins.
- modeless 7y ago
  No, that's handled separately. You're not in possession of the coins if you can't access them, and you aren't taxed on them until you gain possession.
gamblor956 7y ago
This guidance specifically applies to forks where you receive the forked coins through an exchange because you held pre-fork coins in the exchange. If you receive the new coins directly, this guidance does not apply to you.
Scoundreller 7y ago
Quite refreshing to see. Canada’s CRA publishes some crypto guidance, but delicately avoided any discussion about forks and airdrops, which is the only thing that’s unlike any other asset that someone buys and sells that goes up or down in value. Clarifying the parts that are already clear wasn’t too valuable. Maybe useful for a consumer that thinks “I can trade all day and never pay tax”, but nothing actionable for any accountant.
nullc 7y ago

nsfyn55 7y ago

>A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer. What does this mean for crypto players that exchanged a lot of crypto, realized gains, then lost their wallet? Are they still on the hook for taxes on the gains even though they can't access the wallet anymore?

koolba 7y ago
How is that different then realizing gains for stock, converting it to cash, then losing the cash?
wbl 7y ago
Yes. But they also incurred a loss of the wallet that may be used to offset. IANAL and the tax code makes Shadowrun look simple.
deleted 7y ago
[deleted]
tathougies 7y ago
If you lost access to cash, perhaps you can claim it as a tax deduction, since you can claim lost or stolen cash, I think.

cft 7y ago

I think it's the decision to treat it as property (and not its scalability) that killed the use of crypto in the US as payment mechanism, and limited its use only to store of value, speculation, and illicit payments.

tathougies 7y ago
They were supposed to treat cryptocurrency as not property? How would that work?
- lostmsu 7y ago
  Same as dollar. E.g. you are not taxed, if dollar aporeciates.
  - wmf 7y ago
    Note that treating cryptocurrency as a "foreign" currency would not be magic; you still have to pay capital gains on any transaction over $200 AFAIK. But the IRS decided it's property so you still have to calculate capital gains on pizza and alpaca socks.
  - deleted 7y ago
    [deleted]
  - tathougies 7y ago
    But that would put bitcoin above every other currency. As far as the United States is concerned, one dollar is one dollar and dollar is the unit of currency. Whether you own bitcoin, Mexican Pesos, Canadian dollars, etc, holding another currency as an American citizen means you are subject to appreciation of that currency when compared against the dollar, which is the unit of currency in which the IRS collects tax. You are right you are not taxed (in nominal terms) if your dollar appreciates. That is because payment to the IRS is rendered in dollars, and dollars only. If your dollar increases, well so does the amount you lose when you give that dollar to the IRS.
    - 7y ago

kauffj 7y ago

In honor of the IRS fork guidance I’m announcing BBV — Bitcoin Bruce’s Vision. It’s a Bitcoin fork that gives me an extra 1 million coins. I’ll sell one sat to you for $300. Also: I’m sending a 12 word seed phrase poem to each member of Congress right before the fork. https://twitter.com/brucefenton/status/1181981988221329413 https://twitter.com/brucefenton/status/1181981988221329413

aakilfernandes 7y ago
Might even be profitable! https://money.cnn.com/2010/03/02/pf/taxes/rat_out_tax_cheat/ https://money.cnn.com/2010/03/02/pf/taxes/rat_out_tax_cheat/
rtkwe 7y ago
Sounds like you're admitting to sending massive illegal payments to each MoC...
OrgNet 7y ago
> I’m donating my million coins to charity ...and will be deducting the value of the donation ...unless of course the IRS says it’s not a real asset...

floatingatoll 7y ago

If you hold pre-fork currency, and there is a hard fork: IF you gain any of the new currency THEN it's income ELSE it's not. To quote the final paragraph, emphasis mine: https://www.irs.gov/pub/irs-drop/rr-19-24.pdf https://www.irs.gov/pub/irs-drop/rr-19-24.pdf HOLDINGS (1) A taxpayer does not have gross income under § 61 as a result of a hard fork of a cryptocurrency the taxpayer owns if the taxpayer does not receive units of a new cryptocurrency. (2) A taxpayer has gross income, ordinary in character, under § 61 as a result of an airdrop of a new cryptocurrency following a hard fork if the taxpayer receives units of new cryptocurrency.

norswap 7y ago
Don't you automatically "receive/gain" the new currency upon a hard fork? Or am I misunderstanding these words?
- zucker42 7y ago
  I would think so too. It makes me question if the IRS understands how decentralized cryptocurrencies work.
- undefined3840 7y ago
  No. It completely depends on how you hold your crypto. If you are storing it on an exchange it’s completely up to the exchange to credit your wallet, which they don’t necessarily have an obligation to do.
- nullc 7y ago
  Depends on how you define "receive". Also "new". If currency X is hardforks and there now exist X and X' then in all ordinary cases you have access to both X and X'. But did you receive? Your access is because X' copies/extended X's state when it came into existence. There wasn't any new transfer to you. One part of the text sounds like it's possible to not "receive": "Situation 1: A holds 50 units of Crypto M, a cryptocurrency. On Date 1, the distributed ledger for Crypto M experiences a hard fork, resulting in the creation of CryptoN. Crypto N is not airdropped or otherwise transferred to an account owned or controlled by A." Another part of the text describing the same facts, instead makes it sound like reception is determined by resulting control: "Situation 1: A did not receive units of the new cryptocurrency, Crypto N, from the hard fork; therefore, A does not have an accession to wealth and does not have gross income under § 61 as a result of the hard fork." So, taking both these parts together, it sounds like situation 1 is describing an irrelevant and obvious case. It's technically possible for N to be created and copy currency M but leave out A's coins. Obviously A wouldn't owe any taxes as a result. Duh. This wasn't a case anyone was concerned with. So what if you instead say okay, the coins you got access to via state copying were "received"-- well okay, but now in that case the many times ethereum or bcash were hardforked and the original systems were largely, but not completely, abandoned you'd then owe income tax on essentially the entirety of your holdings. 0_o

aazaa 7y ago

The "airdrop" terminology is interesting to say the least. The closest thing I can see to a definition is in 26 CFR 1.61-1: > An airdrop is a means of distributing units of a cryptocurrency to the distributed ledger addresses of multiple taxpayers. A hard fork followed by an airdrop results in the distribution of units of the new cryptocurrency to addresses containing the legacy cryptocurrency. However, a hard fork is not always followed by an airdrop. https://www.irs.gov/pub/irs-drop/rr-19-24.pdf https://www.irs.gov/pub/irs-drop/rr-19-24.pdf Consider the Bitcoin/Bitcoin Cash hard fork of 2017. No "distributed ledger addresses" received an airdrop distribution. What happened instead is that the tokens previously valid on a single network (Bitcoin) became valid on a new network (Bitcoin Cash). There was no "distribution" and as such there was no airdrop according to the IRS definition. On the first block of the Bitcoin Cash split, there was no "recording" of cryptocurrency receipt on the "distributed ledger." There was just a block containing some unrelated (for most users) Bitcoin Cash transactions. Either the IRS doesn't understand the basis of a hard fork, or it's specifically singling out hard forks coupled to "airdrops" as having received income. Likewise Situation 1, from the same document: > Situation 1: A holds 50 units of Crypto M, a cryptocurrency. On Date 1, the distributed ledger for Crypto M experiences a hard fork, resulting in the creation of Crypto N. Crypto N is not airdropped or otherwise transferred to an account owned or controlled by A. > ... > A did not receive units of the new cryptocurrency, Crypto N, from the hard fork; therefore, A does not have an accession to wealth and does not have gross income under § 61 as a result of the hard fork. The use of the word "account" is also problematic, as it implies a custodial relationship with a financial institution, which has nothing to do with Bitcoin itself. Filling in the blanks: A holds 50 BTC. On Date 1, BTC experiences a hard fork, resulting in the creation of Bitcoin Cash. Bitcoin Cash is not airdropped or otherwise transferred to an account owned or controlled by A. A did not receive units of the new cryptocurrency, Bitcoin Cash, from the hard fork; therefore A does not have an accession to wealth and does not have gross income under § 61 as a result of the hard fork. Stay tuned because these rules are going to be refined - a lot.

jrockway 7y ago
I think I got a Stellar "air drop" through Keybase. I don't even want their fake money, but now I have to do extra paperwork to deal with it. I am surprised that McDonalds can offer you 50 cents off a burger without having to file a 1099.

lacker 7y ago

So if you get a new coin from a hard fork, you owe taxes on the fair market value of that new coin you get. This seems pretty dangerous - if the fair market value is high on the first day of trading, but declines a lot, you could get taxed on value that you never realized. It seems like this will incentivize people to sell off new tokens immediately, in order to pay the taxes they incurred during the fork. To me it seems very unintuitive to tax a hard fork. It is like taxing a stock split. Your asset hasn't really changed, it is just now represented in a different way. Another weird thing about these taxes is that they assume that one of the forks is the "real asset" and the other fork is the "new asset". In practice, it seems like a lot of times a fork happens along with a lot of argument about which side of the fork is the "real" one. Well, I guess the IRS does not see cryptocurrency the same way as my intuition would.

klodolph 7y ago
From the FAQ: > A21. A hard fork occurs when a cryptocurrency undergoes a protocol change resulting in a permanent diversion from the legacy distributed ledger. This may result in the creation of a new cryptocurrency on a new distributed ledger in addition to the legacy cryptocurrency on the legacy distributed ledger. If your cryptocurrency went through a hard fork, but you did not receive any new cryptocurrency, whether through an airdrop (a distribution of cryptocurrency to multiple taxpayers’ distributed ledger addresses) or some other kind of transfer, you don’t have taxable income. https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions https://www.irs.gov/individuals/international-taxpayers/freq... So with e.g. Bitcoin / Bitcoin Cash fork you would be doing ordinary capital gains, not income. You don’t have “new cryptocurrency”, you have the same cryptocurrency, but on two ledgers because of the fork.
- nullc 7y ago
  The text of the ruling is incredibly unclear. You could read the ruling as saying that if you have coins on both the old system and the new system that you recieved an 'air drop' and owe taxes. Or you could attempt to read it as saying that you only received an 'air drop' if there was a "transfer" and not merely state copying. The latter interpretation is more reasonable in effect but seriously frustrated by the total lack of guidance on setting the cost basis of the resulting assets! Also the language of the ruling comes very close to directly contradicting this interpretation: "Situation 1: A did not receive units of the new cryptocurrency, Crypto N, from the hard fork;". The former interpretation is frustrated by the absurd result that users of eth, bcash, or other centrally administered frequently hardforking cryptocurrencies would owe income tax multiple times over for every one of those coins they own... even though the original systems have largely (but not completely) been ignored, and aren't valued as much. So what, are users of those systems supposed to have over and over against recognized ordinary income for nearly the total value of their holdings and sold the original coins and taken a capital loss on them (which they couldn't deduct against their ordinary income, except in a limited way)?

shiado 7y ago

Without a legal definition of cryptocurrency ownership there is no way to interpret this guidance. I may assert that I own the private key which can transact on the Bitcoin blockchain but also assert that I do not own the exact same private key on the Shitcoin 1234 blockchain. A very crude and simple analogy would be like assuming people with the same bank pin are the same person.

prolixus 7y ago
The guidance does have a defintion of ownership: "Under § 61, all gains or undeniable accessions to wealth, clearly realized, over which a taxpayer has complete dominion, are included in gross income." If you are the sole possessor of a private key which grants control of a cryptocurrency address then you have complete dominion over the crypto at that address. Under situation 2 of the guidance: "B has dominion and control of Crypto S at the time of the airdrop, when it is recorded on the distributed ledger, because B immediately has the ability to dispose of Crypto S." Taken in the most taxpayer hostile interpretation that means that if the ledger is duplicated you have income because you have the ability to dispose of the forked coin with your private key even if you have no desire to touch it in any way.
- nullc 7y ago
  That language comes from https://en.wikisource.org/wiki/Commissioner_of_Internal_Revenue_v._Glenshaw_Glass_Company/Opinion_of_the_Court https://en.wikisource.org/wiki/Commissioner_of_Internal_Reve... ... and unfortunately that particular case seems to be of no help clarifying many of the relevant issues. > even if you have no desire to touch it in any way. Not just desire, in most cases people don't even know about most of the cryptocurrency forks!
- ssalka 7y ago
  What about the (unlikely) case that a wallet is shared between 2 or more individuals? Could I then "share" my private key with a trusted person (e.g. a parent) and claim _not_ to have complete dominion over the gains, thus no gross income?
- shiado 7y ago

chanfest22 7y ago

Here's a summary of the key updates in the new guidance in ELI5 terms: https://www.cointracker.io/blog/new-irs-cryptocurrency-tax-guidance https://www.cointracker.io/blog/new-irs-cryptocurrency-tax-g...

ocdtrekkie 7y ago

So perhaps someone can help me here: When Keybase sent everyone with an account a bunch of Stellar Lumens did they gift everyone with an obligation to file more tax forms? EDIT: To answer my own question, this FAQ states: "No. If you receive virtual currency as a bona fide gift, you will not recognize income until you sell, exchange, or otherwise dispose of that virtual currency." Presumably I only have to worry about my lumens if I cash them out or pay someone with them.

revel 7y ago

A huge day for digital assets. The big highlights for me are: * fair date accounting for when you take custody of a private-key / access to a wallet holding an asset (air dropped, hard forked or traditionally acquired). * specific identification is allowed for cost basis accounting! Not sure if this is new but this is a massive game changer for me.

aesthethiccs 7y ago

Oh the same irs that is undefunded to persue billionaire tax avoidance but seems to be quite capable of attempting to tax all cryptocurrency use for us citizens.... yeah this seems like complete bullshit.

kube-system 7y ago
What makes you think billionaires aren't trying to use cryptocurrencies to their advantage?

algaeontoast 7y ago

Why does anyone in tech still pretend there’s any real value left in blockchain tech? The crypto industry is stymied, time to move on and let “real” fintech take the reins...

zjs 7y ago

I think this is the first time that the IRS has explicitly stated that specific identification is a valid accounting method for virtual currency: Q36. I own multiple units of one kind of virtual currency, some of which were acquired at different times and have different basis amounts. If I sell, exchange, or otherwise dispose of some units of that virtual currency, can I choose which units are deemed sold, exchanged, or otherwise disposed of? A36. Yes. You may choose which units of virtual currency are deemed to be sold, exchanged, or otherwise disposed of if you can specifically identify which unit or units of virtual currency are involved in the transaction and substantiate your basis in those units. Q37. How do I identify a specific unit of virtual currency? A37. You may identify a specific unit of virtual currency either by documenting the specific unit’s unique digital identifier such as a private key, public key, and address, or by records showing the transaction information for all units of a specific virtual currency, such as Bitcoin, held in a single account, wallet, or address. This information must show (1) the date and time each unit was acquired, (2) your basis and the fair market value of each unit at the time it was acquired, (3) the date and time each unit was sold, exchanged, or otherwise disposed of, and (4) the fair market value of each unit when sold, exchanged, or disposed of, and the amount of money or the value of property received for each unit. Note, however, that they also clarify that this is not the default accounting method: Q38. How do I account for a sale, exchange, or other disposition of units of virtual currency if I do not specifically identify the units? A38. If you do not identify specific units of virtual currency, the units are deemed to have been sold, exchanged, or otherwise disposed of in chronological order beginning with the earliest unit of the virtual currency you purchased or acquired; that is, on a first in, first out (FIFO) basis.

flippinburgers 7y ago

So does this retroactively apply to existing assets? BCH?

wiidude32 7y ago

Here's a breakdown on the most important info in the new guidance: https://www.cryptotrader.tax/blog/new-irs-cryptocurrency-tax-guidance https://www.cryptotrader.tax/blog/new-irs-cryptocurrency-tax...

morgan77 7y ago

I have been suffering from (LUPUS) disease for the last 10 years and had constant pain, especially in my knees. During the first year,I had faith in God that i would be healed someday.This disease started circulate all over my body and i have been taking treatment from my doctor, few weeks ago i came on search on the internet if i could get any information concerning the prevention of this disease, on my search i saw a testimony of someone who has been healed from (LUPUS) by this Man Dr Abiolo and she also gave the email address of this man and advise we should contact him any sickness that he would be of help, so i wrote to Dr Abiolo telling him about my (LUPUS) he told me not to worry that i was going to be cured!! hmm i never believed it,, well after all the procedures and remedy given to me by this man few weeks later i started experiencing changes all over me as the DR assured me that i have cured,after some time i went to my doctor to confirmed if i have be finally healed behold it was TRUE, So friends my advise is if you have such sickness or any other at all you can email Dr Abiolo on (abiolotemple@gmail.com) sir i am indeed grateful for the help i will forever recommend you to my friends!!! with your lovely Email Address( abiolotemple@gmail.com) or you can also call him on this number +2347012232686Dr Abiolo also cure the following(1) EX BACK(2) HIV/AIDS (3) ALS / LUPUS DISEASE CURE (4) DICK ENLARGEMENT(5) HEPATITIS B(6) ALOPECIA(7) CANCER(8) DIABETES(9) HERPES CURE(10) CURE OF ANY KIND OF DISEASES (11) IMPOTENCE,(12) BARENESS/INFERTILITY(13) DIARRHE / H PYLORI CURE(14) ASTHMA(15) HPV CURE/HSV-1(16) FIBROID CURE....contact him now email abiolotemple@gmail.com or WhatsApp +2347012232686... he is ever ready!!!

hillmorgan77 7y ago