We’ve been waiting for years, and it’s finally there! The IRS has just announced that, for the first time since 2014, it is providing new guidance for tax and accounting professionals who handle virtual currency.
(1) 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?
(2) 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?
What are the answers? Well, according to Revenue Ruling 2019-24, if the taxpayer did not receive new units of cryptocurrency after a hard fork, then no, they do not have gross income. As for the second question, yes, if a taxpayer had cryptocurrencies that went through a hard fork followed by an airdrop, and they received new units of a cryptocurrency, then there is a gross income, and that is taxable.
“The IRS is committed to helping taxpayers understand their tax obligations in this emerging area,” said IRS Commissioner Chuck Rettig. "The new guidance will help taxpayers and tax professionals better understand how longstanding tax principles apply in this rapidly changing environment. 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.”
IRS Notice 2019-24 will supplement Notice 2014-21, and the IRS has also stated that it is soliciting public input on additional guidance in this area. While there are still many questions about the taxation of cryptocurrency in the United States, such as what it means to “receive” cryptocurrency, this new guidance is a step in the right direction.