In addition to the Bitcoin Cash hard fork in August, two more hard forks are scheduled to occur this year. This has left Bitcoiners wondering about the implications of so many hard forks in such a short span of time. Although the United States Internal Revenue Service (IRS) made an announcement in 2014 concerning how existing general tax principles apply to transactions using virtual currency, tax consequences are often left out of the current debate. A press release by the treasury department states:
From a tax perspective, the Bitcoin hard fork means that every Bitcoin holder receives an equivalent amount of the new cryptocurrency for free. This is considered “free money” and is taxable according to the IRS.
In order to determine the taxable income, Fair Market Value (FMV) for the asset must be calculated. To do this, tax agents often look to markets and exchanges to see what the trading price of the asset is. Forbes contributor Tyson Cross makes the point, “Bitcoin Cash had been trading on futures markets for weeks prior to its hard fork in August.” Markets and exchanges serve as only one way to calculate FMV and a central price authority does not exist in this situation. “There is no way to tell whether the IRS will accept the use of futures markets to establish [FMV], or what taxpayers should do if there is no futures market at all,” Cross explains.
The matter of when to start or stop in the valuation determination scheme can get complicated as the prices of cryptocurrencies fluctuate frequently. “Under the doctrine of constructive receipt, an item of income becomes taxable as soon as it is credited to the taxpayer’s account, or otherwise made available to the taxpayer, so that he or she can claim it at any time,” Cross explains. To the IRS, all that matters is that the taxpayer could claim it.
Fisher Investments stresses:
IRS agent David Utzke declared that the number of individuals who bother to report the capital gains from cryptocurrencies have been decreasing. Whatever the case may be, government ambiguity has made one-for-one forks and splits excessively complicated. It has become crucial for Bitcoiners to seek out professional tax advice.
“None of the IRS operating divisions have developed any type of compliance initiatives or guidelines for conducting examinations or investigations specific to tax noncompliance related to virtual currencies.”
From a tax perspective, the Bitcoin hard fork means that every Bitcoin holder receives an equivalent amount of the new cryptocurrency for free. This is considered “free money” and is taxable according to the IRS.
In order to determine the taxable income, Fair Market Value (FMV) for the asset must be calculated. To do this, tax agents often look to markets and exchanges to see what the trading price of the asset is. Forbes contributor Tyson Cross makes the point, “Bitcoin Cash had been trading on futures markets for weeks prior to its hard fork in August.” Markets and exchanges serve as only one way to calculate FMV and a central price authority does not exist in this situation. “There is no way to tell whether the IRS will accept the use of futures markets to establish [FMV], or what taxpayers should do if there is no futures market at all,” Cross explains.
The matter of when to start or stop in the valuation determination scheme can get complicated as the prices of cryptocurrencies fluctuate frequently. “Under the doctrine of constructive receipt, an item of income becomes taxable as soon as it is credited to the taxpayer’s account, or otherwise made available to the taxpayer, so that he or she can claim it at any time,” Cross explains. To the IRS, all that matters is that the taxpayer could claim it.
Fisher Investments stresses:
“One thing the IRS has made clear about cryptocurrencies: It considers bitcoin to be property, not currency. In some ways, this is a feature, not a bug — 60% of profits count as long-term capital gains and 40% as short-term, queuing up possible savings.”
IRS agent David Utzke declared that the number of individuals who bother to report the capital gains from cryptocurrencies have been decreasing. Whatever the case may be, government ambiguity has made one-for-one forks and splits excessively complicated. It has become crucial for Bitcoiners to seek out professional tax advice.