The US Internal Revenue Service (IRS) today issued toward cryptocurrency taxation which provide more clarification in regard to the way these virtual assets are taxed in America.
Since 2014, the so-called ‘Notice 2014-21’ has been the only guidance has published before mailing warning of penalties if they fail to pay tax on crypto transactions.
The IRS has published over 40 Q&As on cryptocurrency tax compliance in a fresh signal of increasing its focus after first being slow to stay abreast of the growing industry.
At the very core, the IRS still deems crypto assets to be property rather than currency for income tax purposes, the same as its regulatory guidance came out five years ago. That means the authority will continue to tax crypto profits and losses like those for stocks, at capital gains rates.
The latest update, however, mainly handles cryptocurrency airdrops/ hard forks and its . Specifically, the IRS explains that if you received free cryptocurrencies through “a hard fork followed by an airdrop” they would generally be taxable as ordinary income valued at the fair market value on the date of receipt.
“When you receive cryptocurrency from an airdrop following a hard fork, you will have ordinary income equal to the fair market value of the new cryptocurrency when it is received, which is when the transaction is recorded on the distributed ledger, provided you have dominion and control over the cryptocurrency so that you can transfer, sell, exchange, or otherwise dispose of the cryptocurrency,” it further states.
Airdrops and tax implications
At a minimum, the IRS has made it clear that for federal income tax purposes, it only recognizes the airdropped/forked coins when the investor be able dispose its holdings. Once the taxpayer acquires the ability to transfer, sell or exchange the cryptocurrency, then he is treated as receiving the cryptocurrency at that time.
The IRS has also addressed how to track the in the context of virtual currencies. When a transaction is facilitated by a cryptocurrency exchange, the value of the taxed deal is the amount that was recorded by the platform in US dollars. Further, the taxpayer’s buy/sell price will determine whether a gain or loss has occurred as well as its duration.
The IRS said it plans to make public criminal tax-evasion cases involving cryptocurrency which opens a new front in the agency’s burgeoning scrutiny of the industry.
In 2017, the IRS won a landmark lawsuit that required on crypto traders who transacted in cryptocurrency from 2013 to 2015. Most recently, the agency sent letters to taxpayers who might have failed to report income and pay the resulting tax from cryptocurrency transactions.
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