One of the least talked about but most significant consequences of the Bitcoin Cash fork will be tax authorities collecting millions from the individuals involved, according to NODE40.
The company, which is behind the crypto taxation reporting software Balance, reckons the IRS will receive a massive windfall if the upcoming fork is anything like the 2017 Bitcoin Cash fork. It and the relevant tax authorities worldwide could be set to collect nearly $100 million in tax in just 48 hours.
Despite the Bitcoin Cash fork of 2017, there is no existing law and no guidance from the IRS that addresses whether receiving a new cryptocurrency from a fork could trigger a taxable event.
“Unlike dividends of publicly traded companies that investors opt-in to, if an individual receives additional cryptocurrencies through a fork, they should not owe taxes on the amount received,” says Sean Ryan Founder of NODE40.
“However, if an individual later disposes of all or part of the forked currency, tax should be owed on 100% of the proceeds as a capital gain.”
The IRS is under increasing pressure to provide updated guidelines on how taxpayers should report profits associated with investing in Bitcoin and other cryptocurrency assets, having not done so since 2014.
“If the recipient chooses to dispose of the forked coins, then and only then should tax be accessed. It should be a gain of 100% of the asset’s value at the date of disposition. This is a critical point that needs to be addressed because the openness of blockchains in general could open the flood gates to unreported income that no one actually considers income,” says Ryan.
“When guidance falls short of addressing specific tax issues, it is important to take a position that has a reasonable chance of standing up to scrutiny if challenged.”
The AICPA 30th May 2018 letter to the IRS Commissioner requesting more guidance recommended forked currencies be assigned a cost basis of zero. “To me, the AICPA’s 400,000+ members make a good point,” concludes Ryan.