The IRS Just Issued Its First Cryptocurrency Tax Guidance in 5 Years

As CoinDesk reported, “The U.S. Internal Revenue Service (IRS) has published its first guidance in five years for calculating taxes owed on cryptocurrency holdings.

“Industry members have been eagerly awaiting the update since May 2019, when IRS Commissioner Charles Rettig said the agency was working on providing fresh guidance. The agency’s 2014 guidance left many questions unanswered, and the crypto market has grown more complex in the years since.

“As expected, the guidance notice released Wednesday addresses: the tax liabilities created by cryptocurrency forks; the acceptable methods for valuing cryptocurrency received as income; and how to calculate taxable gains when selling cryptocurrencies…

“…Resolving a long-standing question, the guidance says new cryptocurrencies created from a fork of an existing blockchain should be treated as ‘an ordinary income equal to the fair market value of the new cryptocurrency when it is received.’

“In other words, tax liabilities will apply when the new cryptocurrencies are recorded on a blockchain – if a taxpayer actually has control over the coins and can spend them.

“The document reads:

“’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.’

“James Mastracchio, a partner at Eversheds Sutherland, told CoinDesk that this applies when there is a distinctly different cryptocurrency as a result of the hard fork.

“The IRS language might create more confusion, said Jerry Brito, executive director at Coin Center.

“’While the new guidance offers some much-needed clarity on certain questions related to calculating basis, gains, and losses, it seems confused about the nature of hard forks and airdrops,’ Brito told CoinDesk, adding:

“’One unfortunate consequence of this guidance is that third parties can now create tax reporting obligations for you by simply forking a network whose coins you own, or foisting on you an unwanted airdrop.’

“Individuals would be assessed income when they receive the asset, Hinkes said.”

Continue to read the full story at CoinDesk.

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