The IRS reached the conclusion that, yes, a taxpayer who received Bitcoin Cash as a result of the August 1, 2017, Bitcoin hard fork has gross income because the taxpayer had an accession to wealth under section 61 of the Code. See Revenue Ruling 2019-24. The date of receipt and fair market value to be included in income will be dependent on when the taxpayer obtained.
IRC Sec. 61(a)(3) provides
that gross income means all income from whatever source derived, including
gains from the sale or exchange of a property. The term "property"
includes services and the right to use property, but it does not include money.
(Code Sec. 1273(b)(5))
Virtual currency is a digital representation
of value that functions as a medium of exchange, a unit of account, and a store
of value other than a representation of the U.S. dollar or a foreign currency.
(FAQ 1, Frequently Asked Questions on Virtual Currency Transactions (3/3/2021))
Cryptocurrency is a type of virtual currency
that utilizes cryptography to secure transactions that are digitally recorded
on a distributed ledger, such as a blockchain. Distributed ledger technology
uses independent digital systems to record, share, and synchronize
transactions, the details of which are recorded in multiple places at the same
time with no central data store or administration functionality. (FAQ 3,
Frequently Asked Questions on Virtual Currency Transactions (3/3/2021))
A "hard fork" occurs when a
cryptocurrency on a distributed ledger undergoes a protocol change resulting in
a permanent diversion from the existing distributed ledger. A hard fork may
result in the creation of a new cryptocurrency on a new distributed ledger in
addition to the legacy cryptocurrency on the legacy distributed ledger.
Following a hard fork, transactions involving the new cryptocurrency are
recorded on the new distributed ledger, and transactions involving the legacy
cryptocurrency continue to be recorded on the legacy distributed ledger. (FAQ
22, Frequently Asked Questions on Virtual Currency Transactions (3/3/2021))
An airdrop is a means of distributing units of a cryptocurrency to the distributed ledger addresses of multiple taxpayers. (FAQ 22, Frequently Asked Questions on Virtual Currency Transactions (3/3/2021))
Have a Virtual Currency Tax Problem?
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