Crypto Frontline

We continue to see scrutiny when it comes to cryptocurrencies and the IRS had recently come with guidelines on how it plans to tax cryptocurrency-related incomes. Even though such a move was highly expected by market participants who want to be in compliance with the law, the information available on irs.gov does not provide any relief and generates confusion.

In a period when Facebook’s Libra is under heavy regulatory concerns, the US wants to make a step forward and create rules for crypto taxation, so let’s see what are a few of the problems already spotted in the latest guidelines.

IRS and forks = difficult relationship

One of the main concerns highly debated on social media has to do with how the IRS wants to tax forked coins. Right from the start, the definition of a hard fork in the IRS’s vision creates confusion:

A hard fork followed by an airdrop results in the distribution of units of the new cryptocurrency to addresses containing the legacy cryptocurrency.

The institution believes that forked coins are airdropped and not generated on a different blockchain. What’s even worse than that is the basic price taken into account for the tax calculation. Cryptocurrencies had proven to be volatile with some tokens losing more than 90% of their value.

This puts people with forked coins who did not sell immediately after the fork into a difficult position. Based on the IRS guidelines, they will own taxes based on the fork price, even though they sell the tokens at a lower price.

Taxes for crypto payments?

Second of all, the IRS made a suggestion claiming that taxes could be own for crypto payments, as well even though the digital assets may not have a market value. In this case, according to the IRS taxes will be calculated based on the fair market value of goods/services involved in the transaction.

According to cryptovest.com, the IRS has a loophole when it comes to crypto assets received as gifts. In this case, there no tax involved until the assets are sold. How could someone distinguish a payment and a gift on a blockchain is still unknown, which leaves another question mark here, as well.

Although the initiative is good, the IRS should work closely with people familiar with the industry and ask for clarifications in order to come out with a framework that’s not confusing. The blockchain technology continues to be an uncharted terrain for public authorities, which is why they need to work closely with experts.