61–70 of 151 posts
EDIT: To answer my own question, this FAQ states: "No. If you receive virtual currency as a bona fide gift, you will not recognize income until you sell, exchange, or otherwise dispose of that virtual currency."
Presumably I only have to worry about my lumens if I cash them out or pay someone with them.
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…
Earlier quoted context omitted.
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…
If so, then there's probably no market for the asset at that instant, so the fair market value is zero?
When Ethereum hard-forked, some miners kept mining the old chain, now affectionately known as Ethereum Classic. Seems like Classic is the original asset and what we now call Ethereum is the new asset.
Let's say I paid $200 for 1 ETH before the fork, and after the fork I own 1 New ETH worth $195 and one 1 Classic ETH worth $5.
Do I now owe tax on $195 even though the total value of New ETH + Classic ETH equals my acquisition cost?
Earlier quoted context omitted.
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…
It's not obvious that your interpretation is right. During the Bitcoin / Bitcoin Cash fork you received new BCH, especially if you "claimed" any UTXOs on the new chain.
If you own bitcoin private keys, you already own coins on an infinite number of hard forks. You're just lacking a client to access them.
The "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 i…
I think I got a Stellar "air drop" through Keybase. I don't even want their fake money, but now I have to do extra paperwork to deal with it. I am surprised that McDonalds can offer you 50 cents off a burger without having to file a 1099.
A discount is not income. If they gave you a $0.50 gift card though, that's taxable income, and they should collect a W-9, and file a 1099 if the total of annual amounts adds up to $600 or more; as a recipient, you're required to include it in your income regardless of if the originator filed a 1099 or not.
Earlier quoted context omitted.
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 hadn't considered the situation where the forked coin is the one that retains most of the value. I think in that situation I would be comfortable arguing to the IRS that the old currency is actually the fork, e.g. ETC vs ETH. The technical and legal definitions of "fork" don't necessarily have to match. I would also be comfortable using the first trading day's close as the market value rather than the instantaneous…
Agreed, but that appears to contradict the plain text of the ruling.
It's also not guaranteed to be unambiguous. Even with ETH/ETC and BTC vs BCH/BSV there are people that argue the forks are the real thing, though I agree that they're crazy. But it isn't hard to imagine a situation where the split were closer to 50/50 (and maybe both sides got different tickers).
It's also possible for it to look like one won but have the situation reverse... E.g. it's not completely implausible that ETH might have won originally, but then a week in the political winds changed, all the hash power moved to ETC leaving ETH useless and then had the ethereum foundation people say the fork was a mistake, and then everyone followed along with giving the old chain back the ticker.
When BSV split off, there were two chains each incompatible with each other and the original rules didn't continue (in that case). Many exchanges listed two assets, transferring any bcash holdings into each equally, "Bitcoin ABC" and "Bitcoin SV". Other exchanges gave ABC the BCH ticket. I think at least one gave BSV the BCH ticker. Over time the ABC side got the BCH ticker everywhere. I imagine if BSV had succeeded in their effort to get more hash power the situation would still be highly inconsistent.
In some cases cryptocurrencies have made additional consensus rule changes to make sure hardforks couldn't be undone, in some cases they haven't. Their understanding of hardforks seems to assume that all hardforks are bilateral, but in many cases they're actually one sided and could be undone.
I agree that your interpretation should be the one adopted when it is unambiguous.
> I would also be comfortable using the first trading day's close as the market value
I would agree if we were talking about orderly or regulated markets. For example, in many bitcoin forks the fork was not meaningfully tradable for a week or more-- and when it became tradable it was only tradable on obscure foreign exchanges whos terms and conditions forbid US residents from using the service. In these illiquid markets the prices have been rather distorted.
FWIW, the interpretation I adopted was that I've just sold fork quickly as soon as I could reasonably move them to a place to sell them, then reconized as income the value I actually received in selling them. ... at least the forks I knew about, but there have likely been other forks that I've never heard of.
There are also likely coins that I could be argued to technically control but which I don't currently know about-- stuff like coins mined in 2012 which are currently lost in corrupted wallet files (or perhaps with forgotten passwords that I'll eventually crack) on old system images that I'll probably find some day, but which I don't know about right now, even after doing a bit of looking.
Consider: for people actually using Bitcoin rather than speculating in an exchange account-- their bitcoin holdings can look a lot more like USD laying around your house than like your S&P 500 ETF in your brokerage account.
Because of these lost cases I think it would be much more reasonable to state that ordinary income is only realized when you demonstrate actual control over the coins, e.g. by moving them. This would have the effect of allowing people to delay the income tax, but they'd do so only with serious risk of value loss and at the cost of delaying the starting date for a capital gains calculation (so it would fail an equivalents test). This would nicely eliminate a lot of the absurd corner cases, including stuff like the winner flip/flop.
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…
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 1 share of AAPL and it issues a dividend, you now have 1 share of AAPL and + $2.00. This $2.00 is totally unrelated to your ownership stake of AAPL (which of course cryptos don't represent anyways), new value, and you will owe taxes on this event. IMO a crypto fork amounts to a taxable distribution.
A capital gain in these circumstances is actually what you want, because it would be offset by a future capital loss. To your point, the original distribution "plants the flag" with respect to the amount it's worth. If the value drops to 1/3 by the end of the first trading day like a typical crypto pump-n-dump, when you then dispose of that asset, your capital loss from the sale offsets the capital gain from the "flag plant" and you only pay taxes on the new value generated.
It's actually quite fair.
> It seems like this will incentivize people to sell off new tokens immediately, in order to pay the taxes they incurred during the fork.
Not necessarily immediately but definitely by the end of the quarter or by the end of the tax year.
Without a legal definition of cryptocurrency ownership there is no way to interpret this guidance. I may assert that I own the private key which can transact on the Bitcoin blockchain but also assert that I do not own the exact same private key on the Shitcoin 1234 blockchain. A very crude and simple analogy would be like assuming people with the same bank pin are the same person.
The guidance does have a defintion of ownership: "Under § 61, all gains or undeniable accessions to wealth, clearly realized, over which a taxpayer has complete dominion, are included in gross income." If you are the sole possessor of a private key which grants control of a cryptocurrency address then you have complete dominion over the crypto at that address. Under situation 2 of the guidance: "B has dominion and co…
> even if you have no desire to touch it in any way.
Not just desire, in most cases people don't even know about most of the cryptocurrency forks!
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…
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?
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…
> 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…