IRS Resolves long-standing Tax Guidance Issue Concerning Cryptocurrency TaxesOctober 10, 2019
The IRS Tax Guidance now states that those who have been holding cryptocurrencies which have gone through a hard fork without getting a new cryptocurrency and others who have gained cryptocurrencies either through airdrops or any other kinds of transfer will not be counted as having a taxable income.
While from the tax collector’s standpoint, the answer is right, the guidance notice only addresses forks, and this is not a beautiful thing.
The good thing is that the cryptocurrencies which come from the fork are supposed to be treated as an ordinary income, which is equal to a fair market value of the cryptocurrency that is received.
This is the much-needed clarity making it to the taxpayers. However, one of the risks reported in this guidance per Brito: “One unfortunate thing in this guidance is about third parties creating tax reporting obligations for you by simply forking a network whose coins you own, or foisting on you an unwanted airdrop.”
Fear is mounting concerning malicious airdrops. Regardless, the current cryptocurrency holders have a road map of their tax ideals.
The IRS has issued details about calculating the fair market value of the income, which they have obtained from mining, sale of goods, and services.
Clarity on this is essential because not all of them buy at the same price and sell at the same price. The crypto price index will be used in cases where the crypto has been purchased from an exchange. Per IRS, “a cryptocurrency or blockchain explorer that analyzes worldwide indices of a cryptocurrency and calculates the value of the cryptocurrency at an exact date and time.”
The document should; however, provide the following details: “(1) the date and time when each unit was purchased (2) The basis and fair market value of each cryptocurrency unit when it was purchased (3) the date and time when each unit was sold, exchanged, or disposed (4) the fair market value of each cryptocurrency unit when it has been sold, exchanged, or disposed, and the amount of money or the value of property obtained for each unit.”
The first in and first out policy is permitted in the new guidance. From a tax planning perspective is someone has got the first unit of crypto at the rate of $5,000 and the second unit of crypto for $1,000, depending upon whether they are willing to report capital gains or capital loss, they can specify the details of the unit sold as first in and first out.
The IRS has stated explicitly that they will be creating an exemption on transactions that are below a particular threshold.