The American Bar Association (ABA) Unit of Taxation has officially asked the US Internal Revenue Service (IRS) to generate a secure harbor for investment gains obtained from cryptocurrency hard forks.
In the drafted letter, by Unit Chair Karen Hawkins, the ABA noted that numerous major expansions have ensued in the crypto asset space since 2014 when the IRS first provided assistance on how the agency handles cryptocurrency investments for federal tax dedications.
Principal among the Section’s worries is a necessity of clear guidance on how investors should report gains connected to hard forks, which instigate a blockchain to divide into more than one type and provide current coin-holders with assets on both chains.
Coins that are currently worth $1,064 each.
As US tax returns are due in less than a month, the Section suggested that the IRS accept a “temporary rule, in the form of a safe harbor” for taxpayers who received assets from hard forks.
Concurring to the Section’s suggested language, the hard fork would be composed of a taxable event, but the original worth of the forked coins would be $0.
Consequently, pay taxes would not have to be paid by investors on the market value of the coins unless they later sold or otherwise disposed of them, at which point they would be taxed at full market value as capital gains, not ordinary income.
Although maybe not a perfect solution, the Section contended that this treatment, at a minimum for the tax year 2017, represented the most rational tactic for both the IRS and taxpayers.
“This temporary rule has the benefit of encouraging consistency among taxpayers with respect to 2017 Hard Forks, avoiding difficult timing and valuation issues and providing information to the Service regarding holders of the original and forked cryptocurrencies,” Hawkins concluded.