IRS issues additional guidance on tax treatment for cryptocurrency
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Re: IRS issues additional guidance on tax treatment for cryptocurrency
#2tl;dr if you take possession of any 'new' crypto holdings after a hard fork you now have new tax liability !
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#3What 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?
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#4What 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?
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.
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#5Finally! 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?
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#6Finally! 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 toke…
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.
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#7Finally! 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 toke…
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.
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#8>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?
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#9>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?
How is that different then realizing gains for stock, converting it to cash, then losing the cash?
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#10>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?
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.