Hey American folks, check this out.
The key point here is this
Q22. So one of my cryptos went through a hard fork and then I got an airdrop. Do I have to report that as income?
A22. Yup, if there's a hard fork and you get an airdrop afterwards, you’re looking at taxable income for the year you receive that new crypto.
Q23. How do I figure out my income from that crypto after a hard fork?
A23. When you get crypto from an airdrop post hard fork, your ordinary income equals the fair market value of that new crypto at the time you receive it. This is when it’s logged on the blockchain, as long as you have control over it to sell or trade it.
Honestly, it seems like no other tax agencies have laid this out, which is pretty wild. In the UK, you only get taxed when you cash out. But I’m a bit confused about what they mean by a hard fork followed by an airdrop since they seem similar.
Makes me think of people creating hard forks just to hit others with massive tax bills.
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.
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.
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!
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.
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.
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......
Here's an attorney's take on this on Twitter:
Problem is, the disclaimer must be sent to the donor, which is...the blockchain in this case?
I hope the IRS clears this up.
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:
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.
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.
preston as usual is sowing confusion and then telling people to hire a tax attorney---like him.
his "qualified disclaimer" position is pretty unhelpful. these are some of the conditions:
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.
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."
that was my initial reaction, but it's not really that bad.
when a hard fork occurs, no markets exist for the forked asset yet, so the fair market value is zero. that means there is no taxable income at the time of receipt. down the road if you sell, the entire realized sale would be considered a capital gain.
i've thought about that. tbh i don't think it changes the analysis.
okcoin and viabtc had bitcoin cash futures before the fork. bitfinex had chain split tokens too. the thing is, these instruments were contracts---not the forked tokens themselves. price discovery for actual bitcoin cash didn't occur until after it existed, by definition.
futures contracts are pricing in all contingencies---including the fork never even occurring (like segwit2x chain split tokens)---which is fundamentally different than if the forked asset existed.
anyway, i sure hope that's the correct take, because there's no way in hell i'm amending my past returns and paying back taxes based on bitfinex chain split token prices!
Disclaimer: ( I am not a financial advisory or lawyer. I am not a paid spokesman for Bitcoin.tax. I am here just to share my personal opinion, not to give any financial or legal advice. If seeking legal and or financial advice, please consult with your local professional.)
This is a problem, I've been listening to Bitcoin.tax podcast. They frequently update their casts. Each episode is around an 1 hour or so, but it is definitely worth the listen, especially if you happen to reside within the states. The latest guest was "TYSON CROSS" a tax attorney who specializes in Crypto-currencies.He discusses the latest IRS Crypto tax guidance released in October 2019. He clarifies a lot of material.
The links provided below are for a podcast about crypto-currency tax discussion. What is your opinion on these discussions?
To be safe, I wouldn't take any of the discussions on the podcast as actual valid financial or legal advice. But maybe they might be a good listen for research & investigative purposes.
Bitcoin.tax: Official Tax Podcast
https://talk.bitcoin.tax/
Quick Link for Episodes
https://talk.bitcoin.tax/episodes/
Remember to always practice your Due Diligence
"this post was edited, I didn't practice my Due Dilligence!"
Are you willing to supply a TLDR? I'm sure no one will hold you legally liable if they follow the advice you precis.
I think folks who think because a fork is effectively worthless the nanosecond it forks may find the tax man is unreceptive to noodling of that nature.
but that's the most obvious approach if you follow their guidance to the letter. placing value on assets where markets don't exist yet is impossible anyway.
exchanges crediting forked coins---especially cases like bitstamp crediting bitcoin cash months after the fork---are gonna yield taxable income though.
I dunno. It conjures up visions of these Freemen on the Land assholes who nasally intone in court 'I am John of the family Smith ergo you cannot prosecute me' just before a rain of batons turn their skull into mush.
It ain't my problem but I doubt the IRS will leave interpretations like that open. Like I said their wording is crap. I presume it's going to be tuned.
If they wanted to make it ambiguous they would have said "on the day of receipt." Instead, they were pretty clear:
A fork must be recorded on the distributed ledger before markets can determine fair value. That's just a fact. Arguing taxpayers are supposed to use some price from the future as taxable basis basically means the IRS didn't mean what they wrote. That's unlikely since the IRS strives to never violate its own sub-regulatory guidance.
The fact that they specified "date and time" is very good for supporters of the $0 fair market value argument. According to the National Law Review:
The people who really are in trouble are those who received exchange-issued "airdrops" after the fact and didn't report any income. They are doubly screwed because the exchanges have their KYC.