While the new information clears up some long-standing accounting questions, it could also expose anyone who owns cryptocurrencies to unpleasant tax situations.
The guidance came in the form of a lengthy ‘Frequently Asked Questions’ document that provided new details on how the agency’s position in 2014, which declared that Bitcoin and other digital assets were property, should be applied in practice.
If you understand capital gains and how property taxes are collected, this is just a repeat of those concepts in English,” says Fisher.
Nonetheless, crypto advocates cautioned that parts of the IRS guidance may have unfair or unexpected consequences.
In a blog post, the Washington DC-based Coin Center stated that the IRS document raised new “tricky” questions, especially around the topic of so-called “airdrops” and “hard forks,” terms that describe a situation where new types of the cryptocurrencies are delivered to a user.
According to the IRS, the occurrence of an airdrop or hard fork triggers a tax liability when someone has “dominance or control” over the new currency. But, as some pointed out on Twitter, some people may never have wanted or requested to receive the cryptocurrency in the first place, but will still have to pay taxes for it.
This could be the case for millions of clients of popular crypto exchanges like Coinbase, which earlier this year distributed a dark derivative currency called Bitcoin SV to every client who owned Bitcoin, triggering a tax liability under new IRS guidelines.
Coin Center claimed that this is a “bad” situation, although not everyone agrees. According to attorney Preston Byrne, “stealth tax” obligations will not arise, because people can always reject unwanted property.
The crypto industry has long called for such exemptions to prevent those who engage in petty transactions, like buying a cup of coffee with Bitcoin, from the tax collector.
According to Fisher, the IRS does not make de minimis exemptions for other types of property, so in the absence of instructions from Congress, it should not be expected to do so for cryptocurrencies. However, it says law-abiding taxpayers need not worry about undeclared $ 5 transactions.
More generally, Fisher says cryptocurrencies are clearly on the IRS’s radar and will continue to be in the future.
