Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

IRS issues additional guidance on tax treatment for cryptocurrency

irs.gov

Post reply on HN
Print view View original

81–90 of 151 posts

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#81

Post by zone411 »

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…

An even better analogy would be a company splitting itself into parts. Gap will do it in 2020 for example.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#82

Post by shiado »

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…

This generates a lot of additional questions. What about a multisig situation? Can I have a buddy withhold a digital signature until I want to transact so that I did not own the crypto up until the transaction? Add in multiple jurisdictions of private key holders and things could get really interesting. Maybe it would be possible to pay no taxes at all! What about exchange coins where the person has no private keys and hence owns no crypto at all? Would they still have to pay taxes on crypto they clearly don't possess? What an absolute mess.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#83

Post by hdfbdtbcdg »

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.

It fits pretty well with how the IRS operates. They don't seem to care how money is made - as long as they get their share.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#84

Post by freeAgent »

tathougies wrote: post #37
cft wrote: post #11

I think it's the decision to treat it as property (and not its scalability) that killed the use of crypto in the US as payment mechanism, and limited its use only to store of value, speculation, and illicit payments.

They were supposed to treat cryptocurrency as not property? How would that work?

They could treat it like a foreign currency: https://www.irs.gov/publications/p525#en_US_2018_publink1000...

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#85

Post by baobabKoodaa »

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…

So, according to the IRS, if you keep your crypto on an exchange, the exchange owns it, since it has complete dominion over the private keys. Taken literally, this would mean you wouldn't have to pay any taxes on it.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#86

Post by arcticbull »

baobabKoodaa wrote: post #80
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…

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.)

You are correct it’s not new value per se, I was sort of glossing over that.

A dividend is in fact unrelated to your ownership stake. Before a dividend and after a dividend, you continue to own the same percentage of the underlying entity. You could use the dividend to in fact increase your beneficial ownership stake by re-investing it in the security. What has changed is the market value of your shares -- and to your point, by the dividend amount.

With a crypto fork, what's happening is someone is creating a new asset out of thin air, by copying an existing chain. When that happens, you now have two "assets" X and Y. The value may not even be correlated in any way. If I forked the BTC chain to create MagicPonziCoin2, it's not going to change the value of BTC whatsoever. This is recording that there's some initial value to the post-fork coin. If the fork affects the original holding, you can recognize your gain or losses by selling. If the post-fork coin changes in value, you can recognize your gain or loss there by selling relative to the value at your acquisition.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#87

Post by arcticbull »

zone411 wrote: post #81
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…

An even better analogy would be a company splitting itself into parts. Gap will do it in 2020 for example.

Maybe, but when Gap splits up some assets go to one, some assets go to the other. When a coin forks, someone just hits copy-paste and lists it on an exchange. No assets are transferred, no value changes hands, because there's no intrinsic value to a crypto asset. A gap split-up yields no intrinsic change in value, just like if I take $100 and put it into 2 piles.

This is more akin to my forking the GitHub repo for MySQL and calling it MySQLCash (MCH, naturally). It doesn't change anything about the original; that only happens if the new asset wages an adoption campaign like BCH/BSV/Bwhatever, in which case the origin story is irrelevant.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#88

Post by wglb »

freeAgent wrote: post #79
chatmasta wrote: post #57

Earlier quoted context omitted.

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 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.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#89

Post by biggestdecision »

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…

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.

Re: IRS issues additional guidance on tax treatment for cryptocurrency

#90

Post by rtkwe »

kauffj wrote: post #12

In honor of the IRS fork guidance I’m announcing BBV — Bitcoin Bruce’s Vision. It’s a Bitcoin fork that gives me an extra 1 million coins. I’ll sell one sat to you for $300. Also: I’m sending a 12 word seed phrase poem to each member of Congress right before the fork. https://twitter.com/brucefenton/status/1181981988221329413

Sounds like you're admitting to sending massive illegal payments to each MoC...
Post reply on HN