The U.S. Internal Revenue Service (IRS) has finally released its guidance for taxing Bitcoin and other cryptocurrencies, Forbes reports. The updated revenue ruling aims to answer many common questions within the nascent industry, including the tax liabilities that pertain to cryptocurrency forks and the calculations of capital gains.
“The IRS is committed to helping taxpayers understand their tax obligations in this emerging area,” said IRS Commissioner Chuck Rettig.
When a certain coin goes through a hard fork, its owners are supposed to pay taxes only when they receive new crypto (meaning, that it has to be recorded on a Blockchain). Otherwise, they don't have any taxable income.
"If a hard fork is followed by an airdrop and you receive new cryptocurrency, you will have taxable income in the taxable year you receive that cryptocurrency."
The IRS has also clarified that your cost basis is the amount of USD spent to acquire cryptocurrency (that includes fees and other costs).
However, Bitcoin Core developer James Lopp still has a lot of questions, calling the new guidance "a hot mess." Particularly, he doesn't understand how to tax the asset if it drops 90 percent in value after selling.
Today's IRS guidance is a hot mess.— Jameson Lopp (@lopp) October 9, 2019
1. What if you have keys but no software from which to spend the asset?
2. What if you never sell or transfer the asset and it drops 90% in value?
3. What's the value if the asset isn't even trading at the time of fork?https://t.co/jJ5SdXU72i pic.twitter.com/SpTOIOKqg0
As reported by U.Today, cryptocurrency investors started receiving letters from the IRS en masse back in August, but some industry insiders complained about a lack of clear answers for those who wanted to fill their taxes.