IRS Announces New Tax Payment Guidance on Cryptocurrencies
Since Bitcoin was introduced in 2009, the world has seen a shift in traditional fiat-based financial transactions. The controversial nature of the acceptance of cryptocurrencies is now more tilted to the positive end where the world now deems it fit to establish guidelines to tax cryptocurrency holders.
The first part of this guideline was issued by the IRS in 2014 and on Oct. 9, a new guidance was released to further clarify the government's position on tax relating to cryptocurrencies. This guideline addresses two crucial issues, which are:
- Does a taxpayer have gross income under § 61 of the Internal Revenue Code (Code) as a result of a hard fork of a cryptocurrency the taxpayer owns if the taxpayer does not receive units of a new cryptocurrency?
- Does a taxpayer have gross income under § 61 as a result of an airdrop of a new cryptocurrency following a hard fork if the taxpayer receives units of new cryptocurrency?
The document helped to define the terms “cryptocurrency”, “hard fork” and “airdrop," to make the guidance unambiguous to all parties involved directly or indirectly with cryptocurrency or such as the regulation will affect.
This new guidance released is contingent upon a letter issued to IRS by members of the bipartisan Congressional Blockchain Caucus back in April requesting IRS to issue more rules on the tax consequences of cryptocurrency-related transactions and basic reporting requirements for use.
This new IRS guideline is a welcome development as it reinstates the value and recognition now accorded cryptocurrency assets in today's financial world. Stakeholders and analysts believe that the feasibility in remitting taxes on cryptocurrency-based transactions will further promote the legalization of cryptocurrencies worldwide as this will add to many government's revenue bases.
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