Today, the IRS releases long-expected guidance that includes more information on taxpayer obligations. The new document includes information on cryptocurrency transactions; This is an addition to the existing Notice 2014-21.
Thanks to more complete information, participants in the crypto space will be able to clearly understand which operations are taxed and which are not.
The authors of guidance focus on hard forks and airdrops. The document also includes information for those who hold virtual currency as fixed capital.
According to IRS Commissioner Chuck Rettig, the instruction will help taxpayers and tax specialists deal with the money-gathering mechanism for cryptocurrencies in an ever-evolving space. Thus, the regulator intends to provide with transparent reporting requirements.
More Questions Than It Answers
The only question is how well the regulator understands the concept of cryptocurrencies. Thus, the authors of the guidance mix the concepts of airdrops and forks, noting that both concepts often occur at the same time or are otherwise functionally related.
The President and Chief Legal Officer Blockchain Marco Santori draws attention to this in particular. He writes on Twitter that in the case of possession of private keys, their owner must pay taxes on funds that are stored at a particular address.
Thus, it turns out the custodian of these keys must pay tax. Since coins are taxable income. For example, if any cryptocurrency service has private keys for both original coins and branched coins, then it will have to pay a tax, even if they never owned them.
20/ Matt put it better:https://t.co/crABl9mHCi
— Marco Santori (@msantoriESQ) October 9, 2019
Meanwhile, the other interesting fact is that the IRS states there’s no taxable income so long as the forked coin is not airdropped or otherwise transferred to an account owned or controlled by the taxpayer.
Then it becomes unclear why forks should participate in airdrops? And what does airdrop have to do with the fork as a whole?
This issue is still unclear, and possibly, Irs will take this into account and publish another update about crypto.
As you can see, everything is not as good as we would like. And there are still questions to which I would like to get a clear answer. The fact that the regulator makes attempts to make the industry more transparent is good. But the relationship between airdrop and fork, as well as custodian and client remains a more confusing point.
The IRS knows that not everyone reports cryptocurrency revenue. The main goal that the body pursues is to reduce the level of potential non-compliance with requirements in this area. In this regard, the regulator’s employees are constantly working on the creation of educational content and the identification of dishonest individuals.
Recall that in the summer, the IRS sent letters to thousands of taxpayers reminding them of the need to pay fees, and possibly bringing them to justice.
Disclaimer: Our writers invest in cryptocurrencies and it is possible the author of this article has investment in any of the digital currencies discussed. Some times author's presented information may be laced with opinions. Treat articles as mere information and not as financial advice.