With three hard forks in less than twelve months a real possibility, many bitcoiners are wondering about their implications. Often left out of the debate are tax consequences. The Internal Revenue Service (IRS) hasn’t offered much clarity since its announcements in 2014, and even those were of little help.
Also read: IRS May Consider Bitcoin Cash Fork Taxable Income This Year
Unwanted and Free? They’ll Tax it!
Seemingly having more to do with deductions in tax reporting, Haverly v. U.S., 513 F.2d 224 (7th Cir. 1975) involved an elementary school principal’s reception of unsolicited textbooks. He donated them to the school’s library, and then claimed charitable deduction.
The court held even unwanted gifts of value are still income and must be included as part of calculating its gross. Haverly was cited recently by Forbes contributor Tyson Cross as a tax precedent regarding forks.
Another issue is determining fair market value for the asset.
Mr. Cross makes the point, “Bitcoin Cash had been trading on futures markets for weeks prior to its hard fork in August.” Exchanges and markets are for price discovery, for figuring an asset’s value. There’s not a central price authority. Still, “there is no way to tell whether the IRS will accept the use of futures markets to establish [fair market value], or what taxpayers should do if there is no futures market at all,” he continues.
Prices, of course, fluctuate, and notoriously so for cryptocurrencies. Th
“Under the doctrine of constructive receipt, an item of income becomes taxable as soon as it is credited to the taxpayer’s account or otherwise made available to the taxpayer so that he or she can claim it at any time,” Mr. Cross explains. All that matters to the IRS is that taxpayers “could claim it.”
Ambiguity Leads to Less Compliance
Even the Treasury Department is asking for more definitive guidelines issued by the IRS. A press release scolds, “None of the IRS operating divisions have developed any type of compliance initiatives or guidelines for conducting examinations or investigations specific to tax noncompliance related to virtual currencies.”
Indeed, during its legal fight with popular bitcoin exchange, Coinbase, an IRS agent’s affidavit spoke to the small number of taxpayers trying to comply.
Agent David Utzke declares how “The IRS searched” filings for three years of Form 8949, used to report capital gains, and results show “2013, 807 individuals reported a transaction on Form 8949 using a property description likely related to bitcoin.” Similar numbers of compliance follow the next two years, he lists, with an actual drop in filings the final year, as “802 individuals” bothered to report at all.
Whatever the case, 1-for-1 forks, spinoffs, or splits are made unnecessarily complicated by government ambiguity.
“One thing the IRS has made clear about cryptocurrencies: It considers bitcoin to be property, not currency. In some ways, this is a feature, not a bug — 60% of profits count as long-term capital gains and 40% as short-term, queueing up possible savings,” Fisher Investments stresses.
With more people drawn to bitcoin on price surges alone, it’s equally important they seek out professional tax advice.
How are you dealing with bitcoin and filing taxes? Tell us in the comments below!
Images courtesy of: Pinterest, wallpapers.
At Bitcoin.com there’s a bunch of free helpful services. For instance, check out our Tools page!
The post Bitcoin Hard Forks Mean Tax Complications, IRS Offers Little Help appeared first on Bitcoin News.
via C. Edward Kelso
0 comments:
Post a Comment