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.
IRS issues additional guidance on tax treatment for cryptocurrency
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Re: IRS issues additional guidance on tax treatment for cryptocurrency
#12In 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.
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#13If 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
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.
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#14In 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
Might even be profitable!
https://money.cnn.com/2010/03/02/pf/taxes/rat_out_tax_cheat/
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#15What 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.
Isn't it rather that you have taxable capital gains once you choose to transact those assets?
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#16The "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
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.
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#17So 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.
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#18So 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 s…
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/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.
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#19tl;dr if you take possession of any 'new' crypto holdings after a hard fork you now have new tax liability !
lol ain't nobody paying tax on crypto
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#20If 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 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 taxpay…
Don't you automatically "receive/gain" the new currency upon a hard fork? Or am I misunderstanding these words?