[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.

[gamblor956]

Not sure I understand your confusion. If you don't receive the forked coins (situation 1) you don't have income. It doesn't matter why you didn't get any of the forked coins.

[nullc]

I was reading the top of page 5 as "the user doesn't have any crypto N after the hardfork". I understand your reading now.