By now everyone knows that with the guidelines that the Internal Revenue Service (IRS) issued in 2014, cryptocurrencies are subject to capital gains taxes within the U.S.
However, even with the tax reform that somewhat cleared the implementation on like-kind exchanges for cryptocurrencies, a few important points pertaining to taxes on this particular industry still remain unexplored, and it was reemphasized by a recent development.
The American Bar Association tells irs to look into hard forks and their taxes
In a letter written by the American Bar Association (ABA) Section of Taxation, Section Chair Karen Hawkins shed light on a lack of clarity on the instances of hard forks and how they affect a cryptocurrency holder.
After clarifying how hard forks work and how the cryptocurrencies originating from them are then distributed amongst the holders of the original coin, Hawkins mentioned that there need to be clear guidelines in place in terms of:
- Time of realization for the hard forked coin.
- The deemed value for the hard forked coin.
- The considered holding period resulting after the hard fork.
- How “safe harbor” rules can be introduced for users affected by the hard fork and how they should be implemented.
- How the need to update the suggested rules should be welcomed by all parties.
After providing suggestions on the aforementioned points, Hawkins and her associates from the ABA mentioned that the points suggested by them are only an initial proposal, and further discussions on them should be held, if need be, in order to develop regulations that help the holders of the cryptocurrencies that resulted from these hard forks.
It remains to be seen how the IRS would react to these suggestions and if they will be implemented properly in the near future.
The three most pressing points from the suggestions are quoted below.
Taxpayers who owned a coin that was subject to a Hard Fork in 2017 would be treated as having realized the forked coin resulting from the Hard Fork in a taxable event.
The deemed value of the forked coin at the time of the realization event would be zero, which would also be the taxpayer’s basis in the forked coin.
The holding period in the forked coin would start on the day of the Hard Fork.
Complete details on the rules can be seen here.
American Bar Association Crypto Taxes
The move by the American Bar Association and crypto taxes is necessary in the growing blockchain based environment as different events like hard forks do constitute value increases for individuals and could be classified in many way. Creating clarity on the matter is of utmost importance if the cryptocurrency industry is to progress further. Incidents like the one that individuals witnessed with Coinbase and the IRS requesting information should not occur on a regular basis.
Crypto taxes have been quite an issue for many a party ranging from regulators to exchanges and traders. Some countries have taken a more lenient stance and approach to the matter of taxes on ICO’s, blockchain based projects and bitcoin buys and sells like Japan and Belarus.
While other countries in Europe have proposed their own different taxation rules.