[lacker]

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 seems very unintuitive to tax a hard fork. It is like taxing a stock split. Your asset hasn't really changed, it is just now represented in a different way.

Another weird thing about these taxes is that they assume that one of the forks is the "real asset" and the other fork is the "new asset". In practice, it seems like a lot of times a fork happens along with a lot of argument about which side of the fork is the "real" one.

Well, I guess the IRS does not see cryptocurrency the same way as my intuition would.

[arcticbull]

> 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 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.

[baobabKoodaa]

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.)

[arcticbull]

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.

[pliao39]

Hoping on the analogy train (knowing full well that all our analogies will be somewhat imperfect because this tech is unprecedented). I don't think it's like a stock split or a dividend.

I think a hard fork is most like a company breaking itself apart (like eBay/PayPal into, well, eBay and PayPal). In the case of eBay/PayPal, each holder of the eBay stock also got PayPal stock 1:1, just like in a hard fork.

I did some quick research into this and found that the issuance of PayPal stock was NOT a taxable event: https://www.sec.gov/Archives/edgar/data/1633917/000119312515...

The relevant quote: "The separation will provide current eBay stockholders with equity ownership in both eBay and PayPal. We expect that the distribution of PayPal common stock will be tax-free, for U.S. federal income tax purposes, to eBay stockholders."

The reason this is similar to a hard fork is that, in theory, the two chains will splinter their hash power, their usage, and at the time, no REAL value is being transferred/created because of the fork (in theory).

There is, of course, the abstract concept that I'm calling "anti-synergy": when two groups are suffering being together and there is more global value in the world when they're apart.

[baobabKoodaa]

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_ 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.

*Sibling comment is also correct. A hard fork may create value by separating two entities which can thrive separately better than they can together. Similar to how a company that is shelling out dividends may be more valuable than a company which hoards cash.

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.

[belltaco]

>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 no* reason hard fork should create value.

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

>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

[baobabKoodaa]

> >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.

[smallnamespace]

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, merger arbitrage funds make a living on these price jumps in equities.

As a meta comment, it's probably unwise to make such sweeping negative claims in a field as varied and immature as economics/finance. You'll always find broad exceptions, since the definitions are all made up by humans out of convenience.

[baobabKoodaa]

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

[biggestdecision]

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.

[evrydayhustling]

Yes, it even created a new type of shadyfork strategy: you can punish any crypto asset holders by creating a hard fork, then booking trades that establish a high market value for the new asset.

In fact, the way this rule is written, it's not even clear that you have to copy the whole block chain. You could issue a new currency to any address and cause them a taxable event.

I suspect this rule wouldn't hold up in court.

[evrydayhustling]

An even better analogy is a spin off, where a new entity is created out of the value previously contained in the original. (In theory, the value of a potential hard fork should be priced in before the fork happens and drop out after - and this happens in practice.)

The funny thing is that these are generally non-taxable if no cash changes hands: https://investinganswers.com/dictionary/t/tax-free-spinoff

[tehlike]

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

[arcticbull]

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).

[nothanks1]

All well and good for you to say that now. But we also can't rewind, there's no safe harbor, and the IRS doesn't appear to be collecting my marginal rate of income tax in the denominated coin. So if I've got a bag of BTG and BSV that's not been sold, I owe a lot for a scam that I didn't unload.

I couldn't disagree with you more about this being fair. it creates a market hazard (dumping), and it fails to recognize the conjoined-value at time of fork. Were the futures value treated as the cost-basis of the new coin, that would be fair.

Moreover, this is a clever way for the IRS to learn your complete BTC holdings AND to seek stricter legal precedents against you.

All in all, this is very bad for crypto

[sokoloff]

You can still suffer if the fork forces you to realize a gain as short term capital gain (higher tax rate than long term capital gain).

I expect this ruling to be challenged and ultimately settled in Tax Court. (I have zero investments in crypto, so no dog in the fight, but this seems patently unjust to me.)

[zone411]

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

[arcticbull]

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.

[pliao39]

Ah, yes, this is good nuance, but I would like to argue that there are intangibles that can be replicated across Gap's future spinouts. There will be aspects of the culture, certain processes, relationships, and perhaps even software, that will be instantly DUPLICATED the moment the company splits!

And remember, the value of a chain is not simply its code. In fact, you can argue that the code is NOT important AT ALL to the value of a chain, for the very reason that it is entirely open. The chain's valuation comes from the network - and arguably the most important of those (at least in the short term) - the users who transact on the chain, and the miners whose hash power push the chain forward, will splinter.

When a chain splits, the miners must make a decision on what percentage of their finite hash power should be allocated to each fork.

I'm actually of the belief that this analogy is VERY good.

[klodolph]

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, whether through an airdrop (a distribution of cryptocurrency to multiple taxpayers’ distributed ledger addresses) or some other kind of transfer, you don’t have taxable income.

https://www.irs.gov/individuals/international-taxpayers/freq...

So with e.g. Bitcoin / Bitcoin Cash fork you would be doing ordinary capital gains, not income. You don’t have “new cryptocurrency”, you have the same cryptocurrency, but on two ledgers because of the fork.

[lacker]

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 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.

[panarky]

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 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?

[lacker]

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.

[arcticbull]

> 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?

Let's say for simplicity sake that all this happened within the same calendar year. Here's where you're at.

You bought 1 ETC for $200 and now it's worth $5. That's a $195 unrealized capital loss.

Let's say you acquired your ETH from the fork and it was trading at $5 when you got it. You now have 1 ETH that has a cost basis of $5. This represents a $5 realized capital gain, and a $190 unrealized capital gain.

If you disposed of everything within the same year, it would be a complete wash, as your $195 capital loss would offset your $(190 + 5) capital gain.

If you carried your positions into the next tax year, you'd have to pay taxes on the $5 your ETH was worth when the fork happened at the end of year 1. Then in year 2, you have a $195 unrealized capital loss and a $190 unrealized capital gain. This would yield a $5 net capital loss, which you could use to offset other capital gains or carry forward into future years, deductible $3000 per year for the rest of your life.

In reality what happened though is that both ETH went up and ETC went up because a fork of a currency is just a copy-paste, as they have no intrinsic value and their performance afterwards is frequently totally uncorrelated other than in the way the whole crypto "market" is correlated to BTC.

[modeless]

> 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.

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.

[arcticbull]

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 addressed in A24 of the FAQ.

[zjs]

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 cryptocurrency exchange and does not have a published value, then the fair market value of the cryptocurrency received is equal to the fair market value of the property or services exchanged for the cryptocurrency when the transaction occurs.

If there is not [yet] a published value at the time of the airdrop, A27 seems to suggest that "the fair market value of the cryptocurrency received is equal to the fair market value of the property or services exchanged for the cryptocurrency when the transaction occurs". If you received the cryptocurrency in exchange for nothing, I'd conclude that the fair market value was $0.

(IANAL, IANYL, YMMV, etc.)

[dodobirdlord]

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...

[nullc]

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 total lack of guidance on setting the cost basis of the resulting assets! Also the language of the ruling comes very close to directly contradicting this interpretation: "Situation 1: A did not receive units of the new cryptocurrency, Crypto N, from the hard fork;".

The former interpretation is frustrated by the absurd result that users of eth, bcash, or other centrally administered frequently hardforking cryptocurrencies would owe income tax multiple times over for every one of those coins they own... even though the original systems have largely (but not completely) been ignored, and aren't valued as much. So what, are users of those systems supposed to have over and over against recognized ordinary income for nearly the total value of their holdings and sold the original coins and taken a capital loss on them (which they couldn't deduct against their ordinary income, except in a limited way)?

[wmf]

...total lack of guidance on setting the cost basis of the resulting assets...

"A24. If you receive cryptocurrency from an airdrop following a hard fork, your basis in that cryptocurrency is equal to the amount you included in income on your Federal income tax return. The amount included in income is the fair market value of the cryptocurrency when you received it. You have received the cryptocurrency when you can transfer, sell, exchange, or otherwise dispose of it, which is generally the date and time the airdrop is recorded on the distributed ledger. See Rev. Rul. 2019-24. For more information on basis, see Publication 551, Basis of Assets." (I realize the FAQ may not be legally binding, but there it is.)

[nullc]

Sorry, You've misunderstood my comment.

Some people, like the person I was responding to, are looking at Situation 1 in the ruling as saying that when a fork happens and there are two cryptocurrencies and you didn't receive any additional "new" cryptocurrency (just two, now independently spendable, copies of cryptocurrency you already had) that taxes aren't owed.

They adopt this reading in part because the only other interpretation of Situation 1 is that it's talking about an irrelevant and uninteresting case.

They imagine that you only owe taxes if in addition to the coins copied by the fork you also receive additional "air drop" units, Situation 2's 'owned 50, airdropped 25' contributes to that interpretation.

They think in situation 1 you have 50 coins of M and 50 coins of N and owe no taxes, and in situation 2 you have 50 coins of R and 75 coins of S and owe taxes on 25 S.

I think this interpretation doesn't work well, both because it's totally silent on the cost basis of the copied coins and because of the text at the top of page 5.

As a separate problem with this ruling, if you do adopt the view that when a fork comes into existence you "received" coins, there is usually no fair market value at that time because the coins were not tradable in any way until later. In some cases seen so far one side of the fork or another doesn't become effectively tradable for months, we may eventually see examples where a market doesn't form for years.

[In a few cases there is potentially a FMV at fork time, e.g. when there were liquid futures markets ahead of the fork (has only happened even arguably once, AFAIK), or when many market participants decided to give the new asset the old asset's ticker.]

[gamblor956]

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 transactions in that fork and established a value.

[nullc]

> 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 Code, the taxpayer’s basis in the property received is determined by reference to the amount included in gross income, which is the fair market value of the property when the property is received.

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?

[jkepler]

That 'guidance' isn't clear, as its quite frequent that when a hard fork occurs, there's speculation on the value of the new chain before the split, and high volatility after the split. In a number of cases, there aren't actually functional markets allowing price discovery for the new chain; thus the IRS hasn't yet given any guidance on establishing a new chain's cost basis.

[klodolph]

> 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 forks, that’s not income. “Hard fork without airdrop.”

I am not sure what else “hard fork without airdrop” could possibly mean.

Agreed that the cost basis for these coins is unclear.

[gamblor956]

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

[klodolph]

Which ledger’s coins have the zero cost basis?

[gamblor956]

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

[dragonwriter]

> 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 ledger entries retaining their original basis value.

[nullc]

I agree that is a logically consistent position and wouldn't be entirely absurd. But I can't extract that position from their ruling.

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?

[gamblor956]

That is exactly how it should turn out.

The hard fork was ethereum's failure as a result of the technical inability to roll back the transactions the proper way (i.e., by just undoing the redactions themselves) and the tax law shouldn't be changed just for that.

[jkepler]

Your interpretation makes sense to me. However, the problem is that the IRS didn't actually state that in their limited guidance.

[dragonwriter]

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.

[nullc]

How do you square your interpretation with the text at the top of page 5?

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.

[wmf]

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.

[beaner]

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.

[X6S1x6Okd1st]

the IRS sees it differently.

[stale2002]

No, it does not.

The IRS specifically refers to when you recieves the tokens, on chain, in a transaction.

If there is no additional data, in the blockchain, then it is not an airdrop, according to the IRS.

[nullc]

Can you explain what the first couple lines about situation 1 on page 5 mean, according to your interpretation?

[bilbo0s]

Yeah. I'd encourage everyone to check with tax attorneys to be sure because klodolph's interpretation seems a bit suspect at first blush. Check with an attorney, or preferably two, just to be sure because the consequences for getting this wrong are nontrivial.

[chatmasta]

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.

[freeAgent]

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.

[wglb]

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.

[freeAgent]

The first $250-500k of capital gains on houses is tax-free when you sell your house. I would argue that the IRS should treat cryptocurrency like other foreign currencies where the first $200 of capital gains is not taxed: https://www.irs.gov/publications/p525#en_US_2018_publink1000...

That would just put cryptocurrency on similar footing as any other currency.

[Hydraulix989]

It would be considered a 1031 Like-Kind exchange though.

[rsclient]

Take a look at how fishing works -- it's also got tons of weird nuance about who get what and how to tax it. We techies sometimes forget that other aspects of life are complicated.

[hdfbdtbcdg]

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.

[tuesdayrain]

In my opinion it doesn't make sense to pay taxes on a fork until you sell it and realize the gains. Otherwise do you pay taxes a second time when you do sell it?

[jron]

I agree. The IRS should simply mandate that forked coins have a purchase price of 0 USD. When sold, the tax event occurs and the seller simply pays the short term or long term realized gain.

[gamblor956]

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.

[mths]

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.

[gamblor956]

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.

[wmf]

You would pay tax a second time, but only on the difference between the fork price and the price you sold for. They're not trying to double-tax you on the same money.

[scarejunba]

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.

[onlyrealcuzzo]

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.

[nullc]

Can you relate your position back to the text of the ruling? Particularly where it references Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955)?

The standard they are appearing to apply is "undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion".

[gamblor956]

From the example just above, the scam coin is neither realized nor does the recipient have complete dominion.

[nullc]

Realized seems dicey indeed, I can't figure out how 'realized' applies to any fork unless the coins are moved.

Complete dominion, OTOH is easy to address. E.g. instead of mailing them the keys, I pull the public keys out of their website's SSL cert. They now have complete dominion.

[gamblor956]

Your victims can choose not to accept receipt of the coins you send them.

Also, if the coin is not transactable it has no value.

[_7fvc]

I think IRS can work out the hard fork situation by letting individual declare which side he/she considers airdrop. There's no tax due right away. You declare it once at the time you sell. Once you decide, you can't change that election.