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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

#71

Post by arcticbull »

tehlike wrote: post #70
arcticbull wrote: post #67

Earlier 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…

The problem is you might technically incur a lot of loss which you will have to carry on for unforeseeable future.

Indeed, as you would incurring a capital loss in any other asset class.

As such, you should recognize that loss in the same tax year as the fork occurred, which is why I believe the selling pressure would be towards the tail end of the tax year whether the price goes up (to cover taxes on the distribution) or down (to recognize and true up losses). If you did that in the same tax year as the fork, you'd never have to carry forward the losses. Both the gain and the loss occur in the same year and cancel out (i.e. you'd never lose more than you gained from the fork).

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#72

Post by X6S1x6Okd1st »

beaner wrote: post #64
wmf wrote: post #23

Earlier quoted context omitted.

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.

You didn't receive anything new. You already had the keys. There was simply a new client created to let you access these alternative coins. 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 IRS sees it differently.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#73

Post by ssalka »

prolixus wrote: post #50
shiado wrote: post #38

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…

What about the (unlikely) case that a wallet is shared between 2 or more individuals? Could I then "share" my private key with a trusted person (e.g. a parent) and claim _not_ to have complete dominion over the gains, thus no gross income?

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#74

Post by revel »

A huge day for digital assets. The big highlights for me are:

* fair date accounting for when you take custody of a private-key / access to a wallet holding an asset (air dropped, hard forked or traditionally acquired).

* specific identification is allowed for cost basis accounting! Not sure if this is new but this is a massive game changer for me.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#75

Post by lacker »

panarky wrote: post #63
lacker wrote: post #52

Earlier quoted context omitted.

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…

What exactly is the taxable event? When the source code for the fork is first published? When the first block is mined on the new chain? 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 Ether…

What exactly is the taxable event?

The taxable event is when the coin appears in your Coinbase account.

Oh, you have your own wallet? Well, the IRS wasn't really thinking about that case.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#76

Post by abduhl »

panarky wrote: post #69
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…

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 market value as the combined asset value then compare it to the added value of the two assets after the spin off. If the post spin off value is more then you are taxed on the realized gain.

Switching assets is taxed normally by sale price and new purchase price.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#77

Post by tathougies »

lostmsu wrote: post #44
tathougies wrote: post #37

Earlier quoted context omitted.

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.

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.

You are right you are not taxed (in nominal terms) if your dollar appreciates. That is because payment to the IRS is rendered in dollars, and dollars only. If your dollar increases, well so does the amount you lose when you give that dollar to the IRS.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#78

Post by [deleted] »

lacker wrote: post #75
panarky wrote: post #63

Earlier quoted context omitted.

What exactly is the taxable event? When the source code for the fork is first published? When the first block is mined on the new chain? 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 Ether…

What exactly is the taxable event? The taxable event is when the coin appears in your Coinbase account. Oh, you have your own wallet? Well, the IRS wasn't really thinking about that case.

[deleted]

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#79

Post by freeAgent »

chatmasta wrote: post #57
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…

It’s pretty crazy that we’ve even gotten to the point where there is an FAQ about “hard forks” on the IRS website. 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.

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 compliance. This tax treatment is overly burdensome and stifles legal cryptocurrency usage and adoption in the US.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#80

Post by baobabKoodaa »

arcticbull wrote: post #67
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…

> 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…

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.)
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