Understanding IRS Guidelines on Cryptocurrency Airdrops and Hard Forks

The Bright Side of IRS Guidance

On October 9, 2019, the IRS decided to shine a light on the complexities of cryptocurrency taxes with Revenue Ruling 2019-24. This announcement hasn’t just turned the heads of tax professionals; it’s like giving a neon sign to cryptocurrency holders saying, “Hey, we’re paying attention!” IRS Commissioner Chuck Rettig commented, “The new guidance will help taxpayers and tax professionals better understand how longstanding tax principles apply in this rapidly changing environment.” Yeah, let’s hope nobody gets a big tax surprise on April 15!

Decoding Airdrops vs. Hard Forks

Let’s tackle the elephant in the virtual room: What’s the difference between a hard fork and an airdrop? According to Lokay Cohen of Bittax, it’s important to note that not every hard fork is the same as an airdrop. If you receive new digital currency due to a hard fork, you may need to report that as gross income. Who knew that digital coins could come with such tricky tax obligations?

Tax Reporting: The Scooby-Doo Mystery

The new regulations build upon the earlier Notice 2014-21, where the IRS proclaimed virtual currency as property for tax purposes. This statement raises eyebrows and more than a few questions. For taxpayers holding cryptocurrencies as capital assets, understanding these guidelines can be as tricky as finding a ghost in a haunted house. So make sure to keep those records, folks! You might need them sooner than you think.

Love Letters from the IRS

In an unusual twist of fate (or should we say, fate of crypto?), earlier this year the IRS embarked on a mailing spree, sending out clarifications on tax filing requirements to about 10,000 crypto holders. Some folks received love letters asking them to amend their filings, while others were given the not-so-pleasant reminder to pay back taxes, interest, and penalties. Talk about an awkward conversation over dinner!

Beware of Scammers!

Unfortunately, where there’s money (even virtual), there are scammers, and the crypto world is no different. Following the IRS’s letter campaign, some unethical individuals took advantage of the situation, sending counterfeit letters threatening arrest for unpaid taxes. Remember, folks, if someone claims that failing to pay immediately could land you in the slammer, hang up. It’s probably a scam, not an IRS agent practicing their drama skills!