51–60 of 151 posts
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They were supposed to treat cryptocurrency as not property? How would that work?
Same as dollar. E.g. you are not taxed, if dollar aporeciates.
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…
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, whe…
The more I look through this ruling, the more it seems like it is only designed for people who hold their cryptocurrency at an exchange. At an exchange, the exchange officially declares which coin is the "new one" and which coin is the "old one", so that isn't a problem for users. Plus, there's a clear distinction with whether the exchange provided you with a new asset during the fork, or whether the exchange did not provide you with a new asset during the fork.
So if you just use Coinbase, this ruling is perfectly clear. If you control your own wallet, it doesn't make as much sense.
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I expected that airdrops would be ordinary income based on the market value at airdrop time. I expected that stock split rules would not apply to forks (though this may seem obvious, there were many that were arguing the opposite). I was hoping that tokens you can't access due to exchanges not supporting them or whatever don't count as income. Those are all aligned with my expectations. I agree that the rules are stu…
Except in the situation where the HF coin gets the original ticker or the very rare situation that there is a liquid futures market in advance of the fork (has only arguably happened once that I'm aware of) there is no market value at the time of the fork-- the fork happens at an instant, and the asset cannot be traded at or before that instant. A market value might well be established in the hours or days after, but…
I would also be comfortable using the first trading day's close as the market value rather than the instantaneous value at fork time which as you say doesn't exist in most cases. Of course the "close" time is arbitrary but as long as you have a consistent methodology for choosing it you should probably be OK.
In any case, it's clear the IRS didn't think hard enough about the consequences of their guidance here. I hope they clarify more but we are probably in for another long wait. Ideally, Congress would do something to make the rules more reasonable.
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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…
> 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…
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 the old system was largely devalued.
So your policy would end up constantly resetting the holding period for these assets and the tax treatment would also be disadvantaged because it would tend to create short term gains and long term losses essentially out of nowhere.
E.g. You own Ethereum for two years. Then Eth hardforks to undo the execution of the DAO smart contract and return the lost funds eth's administrators. The original Ethereum continues, but the value and ticker symbol follow the new blockchain. A month later you sell all your coins. Did you just create a short term gain of the full value of the coins and a long term loss?
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Your interpretation makes sense to me. However, the problem is that the IRS didn't actually state that in their limited guidance.
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.
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.
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…
You have to give the US government a certain amount of kudos for how it’s handled cryptocurrency so far; it’s been far from perfect, but you can tell they are trying to be accommodating and employ common sense.
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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, whe…
I'm pretty sure the IRS considers BCH to be the new cryptocurrency in that scenario, and considers BTC holders to have "received new cryptocurrency". The more I look through this ruling, the more it seems like it is only designed for people who hold their cryptocurrency at an exchange. At an exchange, the exchange officially declares which coin is the "new one" and which coin is the "old one", so that isn't a problem…
I think you're absolutely right. The guidance only makes sense through this lens. It's unfortunate that the IRS didn't base their reasoning on the technical characteristics of the underlying blockchains. There is a whole lot of ambiguity as a result.
What 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?
So you would not owe tax until they supported it (if at some point they do). Whether it's theft isn't a matter for the tax agency.
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Interesting so if I make a coin, airdrop it to you guys, and enforce only a single sale of one coin for a million dollars to my friend and from him back to me, then leaving the chain untransactable, you're all on the hook for 1 million dollars worth of coin but can't sell it? Fascinating.
No. For the same reason you can't create stock in a company and mail people shares, rack up a bunch of debt, and have random people liable for part of the debt. Just because someone "gives" you something, doesn't mean you accepted it and own it.
The standard they are appearing to apply is "undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion".