Cryptocurrency tax guidelines

The U.S. Internal Revenue Service (IRS) issues new guidance in the form of a Revenue Ruling, which calculates taxes owed on cryptocurrency holdings.

The publication is the IRS’s first guidance in half a decade. The previous one has many unanswered questions as a result of the growth and complexities prevalent in the crypto market. Accordingly, the publication revealed the U.S. government’s position on taxing virtual currency like crypto. Notably, it addresses the tax implications of a cryptocurrency “hard fork” to the owner of the cryptocurrency.

More details

The guidance particularly touched common questions taxpayers and tax practitioners ask about the taxation of a cryptocurrency hard fork. Additionally, there are sets of FAQs clarifying virtual currency transactions like the acceptable methods for valuing cryptocurrency received as income. Also, how to calculate taxable gains when selling cryptocurrencies.

Taking a look at the content of the guidance, the Revenue Ruling 2019-24 asks two questions. Afterward, it provides the answer in a six-page analysis.

Firstly, it asked: “Does a taxpayer have gross income under § 61 of the Internal Revenue Code (Code) as a result of a hard fork of a cryptocurrency the taxpayer owns if the taxpayer does not receive units of a new cryptocurrency?”

The second question was: “Does a taxpayer have gross income under § 61 as a result of an airdrop of a new cryptocurrency following a hard fork if the taxpayer receives units of new cryptocurrency?”

Based on the guidance, the answer to the first question is “No”. This is because the taxpayer didn’t “receive” the cryptocurrency. Thus, he/she doesn’t have accession to wealth and attributable gross income.

Also, the answer to the second question is “Yes”. This is because the taxpayer received the cryptocurrency.

There will be a need to clarify what it means to receive cryptocurrency. Thus, avoiding tax liability on phantom income, which are crypto that are neither received or liquidated.

Responses on the development

IRS Commissioner, Chuck Rettig commented on the guidance. He said: “The IRS is committed to helping taxpayers understand their tax obligations in this emerging area.”

“We want to help taxpayers understand the reporting requirements as well as take steps to ensure fair enforcement of the tax laws for those who don’t follow the rules,” Rettig added.

On twitter, it attracted mixed responses.

@bagpipeman2009 believes it’ll be a difficult path for the IRS. He tweeted: “Lol the IRS just created their own tax nightmare.”

Similarly, @Bohrzor said: “The amount of people that are actually taking IRS crypto guidelines seriously on here is astonishing to me.”

In contrast, @CryptoPodcast1 seems to predict a bullish effect. He said: “I’ll buy a lime green suite after.”

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.