Surely the Government Will Make the Issue Less Complicated
U.S. regulations on the topic of cryptocurrency has mostly been murky at best. While Bitcoin and cryptocurrencies are legal in the USA, unclear regulations makes it very rough and confusing at times.
The Securities and Exchange Commission (SEC) considers most cryptocurrencies to be securities. The Financial Crimes Enforcement Network (FinCEN) doesn't consider cryptocurrencies to be a form of legal tender (i.e. money) but considers exchanges as money transmitters. The Commodities Futures Trading Commission (CFTC) considers Bitcoin a commodity. Last but not least, the Internal Revenue Service (IRS) sees cryptocurrency as a form of taxable commodity, akin to real estate.
Recently the IRS has released an expanded guideline on Bitcoin & cryptocurrencies. This is the first they've done so in 5 years.
The IRS, Bitcoin, & Cryptocurrency Taxation
While most of the guidelines are pretty straight forward, some have raised eyebrows.
For the majority of the guidelines, the IRS emphasizes the necessity of paying taxes on cryptocurrency profits. It also outlines on which scenario taxes are due.
What truly shocked many is Q&A 22-24.
Apparently, taxes are owed on hard forks which includes an airdrop. Seeing that there have been more Bitcoin forks that can be counted and even more flops, this ruling is a strange one. In addition to that, even relatively successful forks such as Bitcoin Cash or Ethereum Classic, have devaluated in comparison to their price on release.
It seems that the IRS needs an expert who truly understands Bitcoin & cryptocurrencies.
The Cryptocurrency Community Reacts
As expected, many well known figures in the cryptocurrency community have voiced their distaste of the recent guidelines.
Today's IRS guidance is a hot mess.â 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
While many have raised a fair point or two, it is doubtful that the IRS will make any changes anytime soon. One should keep in mind that it took the IRS 5 years to expand their guidelines.
Written by Jonathan Ganor
Writer & cryptocurrency aficionado