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IRS issues additional guidance on tax treatment for cryptocurrency
121–130 of 151 posts
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#122Earlier quoted context omitted.
Can you relate your position back to the text of the ruling? Particularly where it references Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955)? The standard they are appearing to apply is "undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion".
From the example just above, the scam coin is neither realized nor does the recipient have complete dominion.
Realized seems dicey indeed, I can't figure out how 'realized' applies to any fork unless the coins are moved.
Complete dominion, OTOH is easy to address. E.g. instead of mailing them the keys, I pull the public keys out of their website's SSL cert. They now have complete dominion.
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#123Earlier quoted context omitted.
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.
I was reading the top of page 5 as "the user doesn't have any crypto N after the hardfork". I understand your reading now.
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#124Earlier quoted context omitted.
I think the tax treatment of cryptocurrency is nonsensical if one views and attempts to use it as a currency rather than an investment. There is no exclusion of small transactions from capital gains reporting requirements like there is for foreign fiat currencies. That means that actual currency users must track and report cost basis and gains on every single transaction, no matter how small, in order to remain in co…
Keep in mind that if you swap houses that you bought as an investment, there is still the possibility of a tax liability. Barter is not excluded from taxation.
It would be considered a 1031 Like-Kind exchange though.
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#125Earlier quoted context omitted.
You are reading it wrong. There does not need to be a transaction on any ledger for the receipt of the forked coins to be income. What makes them income is that you received the forked coins, whether that fork is a true fork or just a new ledger that is otherwise identical to the old one. The IRS doesn't care about those technical details. Situation 1 would apply if for example you choose not to receive the forked co…
It specifically calls out "record on the ledger", though. I don't know what it would even mean to have a "hard fork" which does not maintain the previous state of the blockchain. Like, would that be talking about lite-coin, and arguing that it is technically a "hard fork" of Bitcoin? Or would it be a "hard fork" which sets everyones balance to 0, but still maintains the old blocks from the fork? (For some unknown rea…
> I don't know what it would even mean to have a "hard fork" which does not maintain the previous state of the blockchain.
Some of these things have edited the prior state... heck even the purpose of the eth/etc hardfork was taking coins from the 'dao hacker' and assigning them to the ethereum foundation. There was some "united bitcoin" where you had to transact during some particular window to get granted coins, etc.
I agree that the case where there is a fork and where you don't get coins is degenerate-- plus the tax treatment in that case is obvious.
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#126Earlier quoted context omitted.
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 tr…
> However they're not income until actually received in your exchange account.
What exchange account? -- yes, many (IMO foolish) users keep coins in exchanges, many don't. :)
I'd love to read it the way you're reading it.
> The cost basis of the new coins is $0 because you paid nothing to acquire them.
The document states:
> When a taxpayer receives property that is not purchased, unless otherwise provided in the Code, the taxpayer’s basis in the property received is determined by reference to the amount included in gross income, which is the fair market value of the property when the property is received.
So I guess you'd take the position that if you got access to the coins at the instant of the fork, when there is no FMV yet, then you'd report $0 income and have a $0 cost basis. Otherwise, if your access was delayed and there was a FMV, you'd treat that as income and it would become your cost basis?
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#127So 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…
> It is like taxing a stock split. Your asset hasn't really changed, it is just now represented in a different way. It's not like taxing a stock split. In a 1:2 stock split, you go from having 1 share of AAPL worth $100 to 2 shares of AAPL worth $50 each for a total of $100. It's the same ticker, and represents beneficial ownership of the same fraction of Apple, Inc. A better analogy might be a dividend. If you hold…
An even better analogy is a spin off, where a new entity is created out of the value previously contained in the original. (In theory, the value of a potential hard fork should be priced in before the fork happens and drop out after - and this happens in practice.)
The funny thing is that these are generally non-taxable if no cash changes hands: https://investinganswers.com/dictionary/t/tax-free-spinoff
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#128So 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?
You would pay tax a second time, but only on the difference between the fork price and the price you sold for. They're not trying to double-tax you on the same money.
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#129Earlier quoted context omitted.
> It is like taxing a stock split. Your asset hasn't really changed, it is just now represented in a different way. It's not like taxing a stock split. In a 1:2 stock split, you go from having 1 share of AAPL worth $100 to 2 shares of AAPL worth $50 each for a total of $100. It's the same ticker, and represents beneficial ownership of the same fraction of Apple, Inc. A better analogy might be a dividend. If you hold…
I worry that this amounts to a requirement from the IRS to engage with many shady cryptocurrency forks. Entering your BTC wallet details into ShadyCoin's wallet app probably isn't a good idea, even if 1 ShadyCoin is apparently worth a bajillion dollars.
Yes, it even created a new type of shadyfork strategy: you can punish any crypto asset holders by creating a hard fork, then booking trades that establish a high market value for the new asset.
In fact, the way this rule is written, it's not even clear that you have to copy the whole block chain. You could issue a new currency to any address and cause them a taxable event.
I suspect this rule wouldn't hold up in court.
Re: IRS issues additional guidance on tax treatment for cryptocurrency
#130Oh 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.
What makes you think billionaires aren't trying to use cryptocurrencies to their advantage?