Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

IRS issues additional guidance on tax treatment for cryptocurrency

irs.gov

Post reply on HN
Print view View original

101–110 of 151 posts

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#101

Post by jron »

tuesdayrain wrote: post #95
lacker wrote: post #17

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 s…

In my opinion it doesn't make sense to pay taxes on a fork until you sell it and realize the gains. Otherwise do you pay taxes a second time when you do sell it?

I agree. The IRS should simply mandate that forked coins have a purchase price of 0 USD. When sold, the tax event occurs and the seller simply pays the short term or long term realized gain.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#102

Post by stale2002 »

nullc wrote: post #97
stale2002 wrote: post #91

Earlier quoted context omitted.

No, it does not. The IRS specifically refers to when you recieves the tokens, on chain, in a transaction. If there is no additional data, in the blockchain, then it is not an airdrop, according to the IRS.

Can you explain what the first couple lines about situation 1 on page 5 mean, according to your interpretation?

Sure, In situation 1 is says the following:

"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."

So I interpret the line "Crypto N is not airdropped or otherwise transferred", too mean that there are no additional transactions that are recorded on the new blockchain N to give people additional coins, but previous state is maintained, as maintaining state is not a transfer.

An airdrop would have to be an actual state change, "recorded on the distributed ledger", that says "These people now receive 200 coins". In the case of a normal hardfork, there is no transfer that is "recorded on the distributed ledger".

I interpret that as meaning some sort of additional transaction, on the blockchain.

If you notice, in situation 2, the key line to look at is as follows:

"The airdrop of Crypto S is recorded on the distributed ledger on Date 2 at Time 1 ".

It specifically says that something must be recorded on the ledger.

The reason why situation 2 needs to be called out, specifically, would be in the case of a developer, hard forking a coin, and giving themselves a developer dividend, for example. It would make sense why the additional transactions, that are "recorded on the distributed ledger" would need to be taxed, as it is referring to additional coins being airdropped.

Edit:

Ah, you were also referring to this line here:

" A did not receive units of the new cryptocurrency, Crypto N, from the hard fork"

I'd interpret this the same way. The user did not receive any units of the cryptocurrency. They had it all along. It would take an actual state transfer for them to "receive" it.

It sounds weird to say, but basically, they had these coins already.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#103

Post by panarky »

abduhl wrote: post #76
panarky wrote: post #69

Earlier quoted context omitted.

Why is cryptocurrency treated differently from stocks? I bought 100 shares of GOOG worth $1000 each, or $100,000 total. The next day, the stock split and now I own 100 shares of GOOG worth $501 each and 100 shares of GOOGL worth $499 each, or $100,000 total. Under the stock scenario I don't owe any tax on the new GOOGL shares, but if it was cryptocurrency then suddenly I have to come up with a pile of cash for taxes?

You have described a spin off or a change in asset of some kind, not a stock split. A stock split is when the same underlying asset is revalued due to issuance of new shares. It has the same ticker generally. For a stock split you would owe no additional taxes due to the split itself. For a spin off, my understanding is that you owe additional taxes on the extra value obtained from the split. Take the pre spin off ma…

It was a 2-for-1 stock split in 2014 that created a new class of stock.

No taxes were payable on the split, because no new value was created.

The existing value was literally split between the new shares and the existing shares.

https://www.marketwatch.com/story/google-investors-are-about...

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#104

Post by cft »

tathougies wrote: post #77
lostmsu wrote: post #44

Earlier quoted context omitted.

Same as dollar. E.g. you are not taxed, if dollar aporeciates.

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. Y…

Not above any foreign currency. Transactions below $200 would be exempt from capital gains. When they made that decision, the implication was that it cannot be used for liquid payments, i.e. be a "currency".

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#105

Post by gamblor956 »

nullc wrote: post #49
wmf wrote: post #30

Earlier quoted context omitted.

...total lack of guidance on setting the cost basis of the resulting assets... "A24. If you receive cryptocurrency from an airdrop following a hard fork, your basis in that cryptocurrency is equal to the amount you included in income on your Federal income tax return. The amount included in income is the fair market value of the cryptocurrency when you received it. You have received the cryptocurrency when you can tr…

Sorry, You've misunderstood my comment. Some people, like the person I was responding to, are looking at Situation 1 in the ruling as saying that when a fork happens and there are two cryptocurrencies and you didn't receive any additional "new" cryptocurrency (just two, now independently spendable, copies of cryptocurrency you already had) that taxes aren't owed. They adopt this reading in part because the only other…

Your misreading the ruling. It considers the forked coins to be new coins. However they're not income until actually received in your exchange account.

The cost basis of the new coins is $0 because you paid nothing to acquire them. If they have value when received for some reason, they take on the value you claim as income in your tax return. This may be possible if for example other exchanges have already enabled transactions in that fork and established a value.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#106

Post by gamblor956 »

klodolph wrote: post #28
nullc wrote: post #22

Earlier quoted context omitted.

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 tota…

> 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. The text is fairly clear on this point, that a hard fork may or may not be followed by an airdrop, because it has a separate entry for “hard fork followed by airdrop” and “hard fork not followed by airdrop”. So if you have a hard fork, and your old coins are now on two…

Cost basis is very clear. It's zero, because there is no cost to acquiring the forked coins.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#107

Post by pliao39 »

arcticbull wrote: post #86
baobabKoodaa wrote: post #80

Earlier quoted context omitted.

A dividend is not "new value" or "unrelated to your ownership stake". If you hold stock worth $100 and you get a $2 dividend, value of the stock drops to $98. Just like a stock split, or a cryptocurrency hard fork: before the event you had some assets worth $100 and after the event you have some assets worth $100. (Plus some -- mostly random -- fluctuation in asset prices.)

You are correct it’s not new value per se, I was sort of glossing over that. A dividend is in fact unrelated to your ownership stake. Before a dividend and after a dividend, you continue to own the same percentage of the underlying entity. You could use the dividend to in fact increase your beneficial ownership stake by re-investing it in the security. What has changed is the market value of your shares -- and to you…

Hoping on the analogy train (knowing full well that all our analogies will be somewhat imperfect because this tech is unprecedented). I don't think it's like a stock split or a dividend.

I think a hard fork is most like a company breaking itself apart (like eBay/PayPal into, well, eBay and PayPal). In the case of eBay/PayPal, each holder of the eBay stock also got PayPal stock 1:1, just like in a hard fork.

I did some quick research into this and found that the issuance of PayPal stock was NOT a taxable event: https://www.sec.gov/Archives/edgar/data/1633917/000119312515...

The relevant quote: "The separation will provide current eBay stockholders with equity ownership in both eBay and PayPal. We expect that the distribution of PayPal common stock will be tax-free, for U.S. federal income tax purposes, to eBay stockholders."

The reason this is similar to a hard fork is that, in theory, the two chains will splinter their hash power, their usage, and at the time, no REAL value is being transferred/created because of the fork (in theory).

There is, of course, the abstract concept that I'm calling "anti-synergy": when two groups are suffering being together and there is more global value in the world when they're apart.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#108

Post by gamblor956 »

nullc wrote: post #54
dragonwriter wrote: post #27

Earlier quoted context omitted.

> The latter interpretation is frustrated by the total lack of guidance on setting the cost basis of the resulting assets! IMO, the most reasonable interpretation without a specific basis-splitting rule, given that the IRS divides a hard fork into a legacy ledger a and a new ledger would be that the basis value for the new ledger entries (being that they are created by the fork at no cost) is zero, with the legacy le…

I agree that is a logically consistent position and wouldn't be entirely absurd. But I can't extract that position from their ruling. It's also not one free of unexpected negative consequences in the case where the new system doesn't have a low value. Consider, a number of altcoins with more centralized administration have frequently hardforked and the ticker symbol and most of the value went to the new system while…

That is exactly how it should turn out.

The hard fork was ethereum's failure as a result of the technical inability to roll back the transactions the proper way (i.e., by just undoing the redactions themselves) and the tax law shouldn't be changed just for that.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#109

Post by ThrustVectoring »

norswap wrote: post #20
floatingatoll wrote: post #13

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 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?

No. You have one asset that is sellable in part in two different manners. It's exactly as if you bought a two-piece action figure as one lot and then sold the pieces separately.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#110

Post by gamblor956 »

nullc wrote: post #56
dragonwriter wrote: post #48

Earlier quoted context omitted.

I think it's the most reasonable reading of the guidance, but I would agree that it would be vastly superior if this (or some other treatment) was made quite explicit. Guidance should do a better job of guiding.

How do you square your interpretation with the text at the top of page 5? It appears to be saying in situation 1 you have no N-coins at all. By exclusion, situation 2 would apply if you have the new coins and it clearly states taxes are owned on the market value in that case.

Not sure I understand your confusion. If you don't receive the forked coins (situation 1) you don't have income. It doesn't matter why you didn't get any of the forked coins.
Post reply on HN