The United States Internal Revenue Service issued new guidance today in the form of a Revenue Ruling that addresses the tax implications of a cryptocurrency "hard fork" to the owner of the existing cryptocurrency.
Revenue Ruling 2019-24 asks two questions at the outset that it then seeks to answer in the text of a six page analysis:
(1) 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?
(2) 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?
According to the guidance, the answer to the first question is "no", given the fact that the the taxpayer did not "receive" the cryptocurrency and so does not have "an accession to wealth" and attributable gross income. The answer to the second question is "yes" where the taxpayer did in fact "receive" the cryptocurrency. This guidance raises many questions that are not clearly answered, including what it actually means to "receive" cryptocurrency. It also may create a risk of tax liability for "phantom income" on cryptocurrency neither actually received or easily liquidated.
This is a breaking story and we will update our analysis as we further review this guidance.