IRS Attempts to Clear Up Rules on Crypto Taxes - Fails

IRS Attempts to Clear Up Rules on Crypto Taxes - Fails

For the first time in five years, the Internal Revenue Service (IRS) has issued guidelines for calculating tax liabilities on hard forks however, it does seem that it raises more questions than answers…

The guidelines attempt to explain how tax obligations from chain-splits but the IRS omitted guidance for those who don’t want to receive cryptocurrencies in relation to the hardfork.

The IRS defines tax liabilities as surfacing near enough straight after a cryptocurrency is hard forked. According to the Revenue Service, if a taxpayer has “dominion and control,” meaning the ability to transfer and sell digital currency than they owe in the appropriate tax.

However, with this, a morally grey area is brought up. Communities that are wanting to fork cryptocurrencies can create a tax obligation despite whether the holder of crypto on the old chain agrees or wishes to accept new coins. 

The only situation in which a taxpayer isn’t liable if the receiving platform address doesn’t provide hardfork support.

“A taxpayer does not have dominion and control if the address to which the cryptocurrency is airdropped is contained in a wallet managed through a cryptocurrency exchange and the cryptocurrency exchange does not support the newly-created cryptocurrency”.

Tax dodging then becomes apparent and incentives holders to keep their crypto on the platform rather than their own private keys.

As reported by CCN:

“Coin Center, a non-profit crypto research firm, dedicates itself to clarifying these kinds of policy issues. In response to the IRS, the firm analogized that the new guidance as tantamount to “owing income tax when someone buries a gold bar on your property and doesn’t tell you about it.””

The research company indicates that a tax liability should only occur if a user chooses to transact the new funds.

It will be interesting to see how this situation plays out. For more news on this and other crypto updates, keep it with CryptoDaily!

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