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While the Securities and Exchange Commission is serving as gatekeeper for any legitimate cryptocurrency-related exchange-traded fund (ETF) to hit a major exchange, another government entity, the Internal Revenue Service (IRS) is keeping busy after it issued its first tax guidance for cryptocurrency assets in five years.
Per a Coindesk report, the latest tax guidance covers, in particular, the topics of “tax liabilities created by cryptocurrency forks; the acceptable methods for valuing cryptocurrency received as income; and how to calculate taxable gains when selling cryptocurrencies.”
Cryptocurrency experts who operate in the space don’t see the new tax guidance laws as overly complex.
“Anyone who understands the tax code shouldn’t find anything in here shocking or new. If you understand capital gains and how property is taxed, this is just a plain English iteration of those concepts,” said Katya Fisher, a cryptocurrency attorney at Greenspoon Marder in New York.
With regard to newly issued cryptocurrencies created from a fork of an existing blockchain:
“If your cryptocurrency went through a hard fork, but you did not receive any new cryptocurrency, whether through an airdrop (a distribution of cryptocurrency to multiple taxpayers’ distributed ledger addresses) or some other kind of transfer, you don’t have taxable income,” the tax documentation said.
One issue, according to crypto experts, that needs clarity is the treatment of airdrops—the blockchain distribution of free cryptocurrency to community members. The free offering serves as a promotional tool for the cryptocurrency project, but how is this treated from a tax standpoint?
Guidance For Crypto
“Receipt is defined by ‘dominion and control’ … so it’s ability to transfer, sell, exchange or dispose of the asset according to this guidance,” said Drew Hinkes, a lawyer with Carlton Fields and the general counsel to Athena Blockchain. “The fear is that someone maliciously airdrops and tags you with a giant liability. But [this]fear is a bit oversold because you would only be liable for new income based on the fair market value of the asset when received, and most folks don’t start out with a high valuation.”
With regard to the cost basis, the IRS says the following:
“(1) the date and time each unit was acquired, (2) your basis and the fair market value of each unit at the time it was acquired, (3) the date and time each unit was sold, exchanged, or otherwise disposed of, and (4) the fair market value of each unit when sold, exchanged, or disposed of, and the amount of money or the value of property received for each unit.”
This article originally appeared on ETFTrends.com
