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IRS issues additional guidance on tax treatment for cryptocurrency

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Re: IRS issues additional guidance on tax treatment for cryptocurrency

#141

Post by dodobirdlord »

zjs wrote: post #131
arcticbull wrote: post #94

Earlier quoted context omitted.

Nah, it's just up to you to justify the value of the asset when it forks. Frequently that's $0. If it's a meaningful fork, like BTC/BCH/BSV you could easily use the value at listing on the first exchange as the cost basis, as that's what everyone else will do in lieu of a 409(a) type valuation, which of course doesn't exist because crypto doesn't have intrinsic value. It just means more legwork for you. This is also…

I'm not sure if numbering is stable (so perhaps this was A24 at one point), but I find this the most relevant portion of the FAQ: Q27. I received cryptocurrency that does not have a published value in exchange for property or services. How do I determine the cryptocurrency’s fair market value? A27. When you receive cryptocurrency in exchange for property or services, and that cryptocurrency is not traded on any crypt…

What the IRS likes to see in audits that involve questions that don't have clear answers is that you made a good-faith interpretation of the law and applied it consistently. You can even have picked the interpretation that benefits you, that's ok. If you did all of your taxes based on this logic, and subsequently paid capital gains tax on 100% of the value of any forked cryptocurrencies you sold I'd expect that to turn out fine for you even if the IRS ends up disagreeing. The IRS has an entire appeals process because they expect to encounter scenarios where there aren't clear answers.

An old but entertaining example, what's the inheritance tax value of a famous work of art that is illegal to sell because it contains a stuffed bald eagle?

https://www.nytimes.com/2012/07/22/arts/design/a-catch-22-of...

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#142

Post by baobabKoodaa »

smallnamespace wrote: post #139
baobabKoodaa wrote: post #137

Earlier quoted context omitted.

Hard forks can not magically create money out of thin air. If the "new" chain has some value post-fork, that value has been siphoned off the "old" chain (technically neither is "new" or "old" relative to each other, but bear with me for a minute). Suppose the opposite was true. If you could create value out of thin air like that, we could all get rich just by forking cryptos over and over again. I know it _seems like…

Here's a reason: the market was unsure whether the fork would happen until the moment of voting. Let's say the chain is worth $100 unforked and the value of forking is $10. The value might be $105 if the market only thinks forking is 50% likely, and can remain uncertain depending on how much voting information leaks out. If the fork succeeds, value jumps to $110. I'm not making this up out of whole cloth either, merg…

Ah, you're right. The uncertainty surrounding a hard fork can be a rational reason for a price jump after a successful fork.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#143

Post by baobabKoodaa »

belltaco wrote: post #138
baobabKoodaa wrote: post #137

Earlier quoted context omitted.

Hard forks can not magically create money out of thin air. If the "new" chain has some value post-fork, that value has been siphoned off the "old" chain (technically neither is "new" or "old" relative to each other, but bear with me for a minute). Suppose the opposite was true. If you could create value out of thin air like that, we could all get rich just by forking cryptos over and over again. I know it _seems like…

>If the "new" chain has some value post-fork, that value has been siphoned off the "old" chain Not necessarily. I don't see how that follows at all. >Suppose the opposite was true. If you could create value out of thin air like that, we could all get rich just by forking cryptos over and over again. I know it _seems like_ this has been happening in past 2 years. It's an example of irrational market behavior. There is…

> >If the "new" chain has some value post-fork, that value has been siphoned off the "old" chain

> Not necessarily. I don't see how that follows at all.

If you can make infinite money out of thin air by making infinite hard forks, go ahead. No-one's stopping you.

> >Suppose the opposite was true. If you could create value out of thin air like that, we could all get rich just by forking cryptos over and over again. I know it _seems like_ this has been happening in past 2 years. It's an example of irrational market behavior. There is no* reason hard fork should create value.

> How does that matter to the IRS whether market is being irrational or rational?

I didn't say it matters to the IRS.

> >However, in a rational market this information would be incorporated into prices _before_ the hard fork: there is still no rational reason for the total price of assets to magically jump after the event.

> The crypto market is full of hype and irrational actors

We are in agreement here.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#145

Post by klodolph »

gamblor956 wrote: post #106
klodolph wrote: post #28

Earlier quoted context omitted.

> 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.

Which ledger’s coins have the zero cost basis?

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#146

Post by gamblor956 »

mths wrote: post #133
gamblor956 wrote: post #113

Earlier quoted context omitted.

They do have a purchase price of $0. That's exactly why it's taxable income. If you had to pay market value for the forked coins they wouldn't be taxed when you received them.

Quickly, what's X*0? I'm aware that there's situations where a CGT event occurs even without selling your asset, but this shouldn't be one of them.

It's not a capital gains transaction. It's a receipt of income transaction.

You receive crypto worth $X that you paid $0 for. Thus, you have $X in income and owe income taxes on that. If you paid $Y for the crypto, then you had $X-$Y in income (similar to in-the-money stock options). Your cost basis would be $Y in the $X of coins, so if you ever sell them, then your income is $Z (value at time of sale) less $Y in capital gains.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#147

Post by gamblor956 »

klodolph wrote: post #145
gamblor956 wrote: post #106

Earlier quoted context omitted.

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

Which ledger’s coins have the zero cost basis?

The forked/new ones, i.e., the ones you received because of the original crypto held.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#148

Post by gamblor956 »

nullc wrote: post #126
gamblor956 wrote: post #105

Earlier quoted context omitted.

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 Cod…

What exchange account? -- yes, many (IMO foolish) users keep coins in exchanges, many don't. :)

Doesn't matter, only that you use an exchange for the guidance to apply. If you receive the coins directly, this guidance isn't really relevant.

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?

Yes, correct. If the forkcoin is worth $X at the time of receipt, you are taxed on $X income because your cost basis at the time is $0. But because you were taxed on $X, your cost basis is set to $X.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#149

Post by morgan77 »

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Re: IRS issues additional guidance on tax treatment for cryptocurrency

#150

Post by hillmorgan77 »

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