IRS Releases First Guidance Regarding Cryptocurrency Since 2014

On October 9, the IRS released Revenue Ruling 2019-24, which offers the agency’s first cryptocurrency guidance since 2014.

As described in our most recent cryptocurrency article, The IRS Turns its Focus to Cryptocurrency, cryptocurrency is a form of virtual cash that allows payment to be sent online from one individual to another, while circumventing traditional financial institutions. In its brief history, cryptocurrency has largely evaded direct regulation.

The most recent cryptocurrency guidance from the IRS, Revenue Ruling 2019-24, discusses a specific cryptocurrency occurrence called a “hard fork.” This is when a particular cryptocurrency “undergoes a protocol change resulting in a permanent diversion from the legacy or existing distributed ledger.” The cryptocurrency has effectively broken from the public ledger on which it was once tracked, and future transactions are now tracked on a new ledger.

When a “hard fork” occurs, those broken-off units of cryptocurrency are in some cases “air-dropped,” or delivered, to users’ online cryptocurrency “wallets.” However, in some instances such as when the “wallet” is managed by a cryptocurrency exchange that does not yet recognize the new cryptocurrency, a delay occurs. A common example of this delay is when funds are “pending” in a bank account after deposit. The funds are ultimately ours, but we do not have the ability to access the funds or move them around yet. Once the cryptocurrency exchange recognizes the new units of cryptocurrency, they will be accessible to the user. Under Rev. Rul. 2019-24, it is at this point that the taxpayer “has receipt” of the cryptocurrency, and, more importantly, realizes income.

According to the Revenue Ruling, “hard-forked” and “airdropped” cryptocurrency is taxable upon receipt, but also receives a new “basis” of the currency’s fair market value at the time of receipt.

As discussed in our most recent cryptocurrency article, “warning letters” sent to taxpayers in July effectively stated that cryptocurrency should be treated as a capital asset. This would mean that cryptocurrency is taxable when sold.

Further IRS guidance will be necessary for taxpayers to have a clearer picture of how to properly treat cryptocurrency for taxation purposes.

We will continue to stay current on this topic. Please contact us if you have any questions.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2021 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
CARES Act, Tax BY Austin Nace
Disappointing News for Employers: Employee Retention Credit Ends Before Fourth Quarter of 2021
Build Back Better Tax Legislation Update – International Tax Changes
Welcome News for the Trucking Industry - Clarification of 100% Meals and Entertainment Deduction for Per Diems
Higher Estate Tax Exemption Amount for 2022
Michael Jackson vs. Kenny Pickett
Tax Reform 2021 - Build Back Better: Proposed Changes to Section 199A Qualified Business Income Deduction
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.