The dispute arose after the agency found that only 802 people had declared gains or losses related to bitcoin on their 2015 tax returns. Paying at distribution is the safest route. According to Robert Crea and Elizabeth Crouse, who are experts on digital currency at the law firm K&L Gates, the IRS is likely to treat an air drop as ordinary income. The rival currency came into existence when a group of miners (the people who deploy mass amounts of computer power to extract “coins”) created a different version of the bitcoin software. ” The answer to the “what’s it worth” question may also provide an unpleasant surprise. It turns out Bitcoin Cash is probably neither of these things. If the latter, then no one owes Uncle Sam anything how to turn your bitcoin into cash. “It’s something newâit doesnât fit neatly into a dividend or stock split or even mining,” says Crea. But one entity that’s remained strangely silent about the whole thing is the IRS. November 16, 2017 Bitcoin owners received a surprise this August when a parallel version of the currency, known as Bitcoin Cash, was distributed to every existing bitcoin owner on a one-to-one basis. David Schweikert (R-AZ), which would clear up some of the tax uncertainty. The forked version of bitcoin also replicated the original blockchain’s distribution of wealth: Anyone who had five bitcoins on the original chain, for instance, is entitled to five units of the new currency, Bitcoin Cash. “But doing that and not paying income tax now could bite you if the IRS treats this as ordinary income.
“When the Bitcoin Cash shows up in someone’s account, that’s probably a taxable event. “A lot of people will assume the value is a capital gain and can pay when trade it out,” says Perry Wodin. Bitcoin is familiar to many people as a decentralized digital currency whose value, in the last year, has soared more than seven-fold to above $7,000. Or they could do nothing and risk future trouble with the IRS. ” For many ordinary bitcoin investors, this conundrum becomes harder still because Coinbase, the most popular U. Is an air drop akin to corporate dividend, which are taxed at lower rates. This is part of Fortuneâs new initiative, The Ledger, a trusted news source at the intersection of tech and finance. “We think itâs obvious that the correct policy should be that no tax is due unless and until a taxpayer exercises control and dominion over airdropped or forked new tokens. Many bitcoin owners likely think they can pay the taxman based on the value of their Bitcoin Cash when they sell it, but that may not be the case. Bitcoin Cash arrived quite literally as free money. This story was updated at 12:45pm ET to clarify comments made by Elizabeth Crouse how to turn your bitcoin into cash. ” The creation of Bitcoin Cash, which has been criticized as a dangerous trick by some longtime bitcoin supporters, also poses tricky tax questions for those who receive it. Meanwhile, the IRS remains embroiled in a closely-watched court fight with Coinbase over its demand for the agency to turn over its customer records.
This places bitcoin owners in the unenviable position of paying a tax bill this spring on Bitcoin Cash, which is even more volatile than the original currency, and whose value could one day collapse to nearly nothing at all. Waiting for word from the IRS Lawyers and accountants are buzzing about the tax issues springing up around Bitcoin Cash and other new air-dropped currencies. When the IRS finally offered a response, it was only to reiterate that the rules are set out in its 2014 bulletin.Ethereum Classic.. In multiple phone calls and emails, Fortune tried to get the agency to comment on the tax treatment of air drops as well as that for newly-mined digital currency, where the rules are likewise ambiguous. If that’s the case, there is an argument that the value is zero (if you consider the very moment of its inception), but the answer could also be “hundreds of dollars” based on its value in the market that same day. That bulletin, however, offers little guidance beyond stating that digital currency is considered to be property. This led to a “fork” of bitcoin’s blockchain ledgerâbasically a duplicate set of transaction records, which then diverged following the creation of Bitcoin Cash in August. The CEO of Node 40, which makes tax compliance software designed for digital currency, says the company’s in-house accountants think a liability might already exist. Right now, there is a sliver of hope in the form of a bill, proposed by Rep. cryptocurrency exchange, has yet to distribute the Bitcoin Cash to its customers. .DigixDAO.Vertcoin. TenX.