The IRS has released new tax guidance on cryptocurrency. Rev. Rul. 2019-24 covers forks and airdrops. The gist is both count as gross income when you claim or receive them.
More specifically, the rule seems to this:
You receive the cryptocurrency, and thus have to account for the fair market value of the cryptocurrency as gross income, at the moment you acquire the ability to transfer, sell, exchange, or otherwise dispose of of a forked or airdropped coin.
Basically this means that if you get forked or airdropped coins on an exchange, the new coins count as income the moment you can transfer, sell, exchange, or otherwise dispose of the coin.
This potentially also implies that if you don’t use your private keys to access a fork, you don’t have gross income, but if you do, then you do. However, since airdrops are immediately dropped, and don’t need to be claimed, you always realize gross income with airdrops.
On the surface this all mostly makes sense, but actually it still raises some problems and questions (as eluded to above).
One problem is this, if a an exchange credits you with a forked coin you have no way to liquidate, but do have the ability to transfer, you suddenly have gross income that you can’t take profit or loss on.
Another problem is this, it also creates a loophole where you can wait to claim any fork of a coin you own the private keys for until you are ready to cash out, thus avoiding triggering the gross income rule until you are ready (or if it doesn’t, it forces you to account for forks you would never want to claim like the many random Bitcoin forks, many of which arguably aren’t safe to claim and are hard to give a true value to due to the limited places they trade).
Another problem is there is a question of what happens when the old chain immediately loses value, for example like with a major hard fork that updates the network and requires everyone to switch chains?
Lastly, for an example of a problem, it creates a problem on networks like Ethereum’s where you can have tokens dropped in your wallet without your consent which you have no way to dispose of or may not even know about (as with many wallets you have to reveal tokens by inputing their contract ID).
So while this does provide clarity in general, which is good, it still makes leaves a lot of confusion out there (confusion that wasn’t present when the rule was assumed to be that the tax basis
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