Full-text translation + interpretation | New rules of the US Internal Revenue Service: income tax due to forked virtual currency

Following the publication of the virtual currency-related tax guidelines in 2014, the US Internal Revenue Service (IRS) announced new tax guidelines on October 9, 2019, including the 2019-24 tax rules and FAQs.

The taxation rules No. 2019-24 provides answers to the “tax treatment problems arising from the hard fork of virtual currency”. The FAQ is mainly aimed at the tax generated when virtual currency is used as a capital holder for virtual currency transactions. problem.

The chain law team translated the new tax rules and sorted out the main content of the rules.

O1 main content

1. Tax rules:

(1) When the taxpayer has not received the new virtual currency due to the fork, it does not form the “gross income” as stipulated in Chapter 61 of the Internal Revenue Code, and does not need to pay personal income tax;

(2) If the taxpayer has received a new virtual currency that is airdroped to him based on the fork, he has formed the “total income” as defined in Chapter 61 of the Internal Revenue Code and is subject to personal income tax.

2. Other:

(1) Define and distinguish between “virtual currency” and “cryptocurrency”, “cryptocurrency” is a kind of “virtual currency”; (2) when obtaining new virtual currency due to hard fork, the tax base is The fair value of the market when the corresponding virtual currency is obtained; (From the previous case, the ICO is also calculated according to the price of the investment when it is refunded) (3) Encrypted digital currency is a kind of "exchange medium" and is a kind of "record" "Accounting Unit" and a "value storage means" other than the US dollar or foreign currency.


Internal Revenue Service Rules 2019-24

(1) Whether the taxpayer has not received the new virtual currency generated by the fork, whether it has formed the “gross income” as stipulated in Chapter 61 of the Internal Revenue Code.

(2) If the taxpayer has received a new virtual currency that is airdroped to him based on the fork, has he formed the “total income” as defined in Chapter 61 of the Internal Revenue Code.

Strong: Annotation: According to the provisions of the Internal Revenue Code (IRC), total income refers to all income from any source, including (but not limited to) the following benefits: 1. Remuneration for services, such as service fees, commissions, etc.; 2. Total income from operating business; 3. Income from trading in property; 4. Interest; 5. Rent; 6. Copyright fee, patent fee; 7. Dividend, bonus; 8. Maintenance, maintenance; 9. Annuity; 10. Income from life insurance and donation contracts; 11. Pensions, pensions, pensions; 12. Income from debt relief; 13. Shares from total partnership income; 14. Inherited or Income from bequests; 15. interest income from property or trust property


Virtual currency is a digital carrier of value. It is an exchange medium, a unit of account, and a means of storing value other than the dollar or foreign currency. Foreign currencies are coins and banknotes of countries other than the United States. They are designated as fiat currencies and are circulated and are generally used and accepted as exchange media in the issuing country.

A cryptocurrency is a type of virtual currency that uses encryption to protect the security of transactions that are recorded on distributed ledgers such as blockchains. The cryptocurrency is often referred to as a coin or token. Distributed ledger technology uses a separate digital system to record, share, and synchronize transactions, and the details of the transaction are simultaneously recorded in multiple locations without the need for central data storage or management functions.

Hard forks are unique to distributed ledger technology. Hard forks occur when the cryptocurrency protocol on the distributed ledger changes, causing a permanent diversion of the original or existing distributed ledger. . In addition to the cryptocurrency recorded on the original distributed ledger, a hard fork may result in the creation of a new cryptocurrency on the new distributed ledger. After a hard fork, the transaction for the new cryptocurrency will be recorded on the new distributed ledger, and the transaction for the cryptocurrency on the original ledger will continue to be recorded on the original ledger.

Airdrop (also known as "airdrop", which is translated here as "allocation"), is the act of distributing cryptocurrencies to taxpayers with a large number of distributed ledger addresses. After a hard fork, there may be a behavior of assigning a new cryptocurrency to the address holding the original cryptocurrency, but not all hard forks will result in an allocation.

The cryptocurrency that is due to the allocation is usually received on the day of the assignment and the allocation information is recorded on the distributed ledger. However, the taxpayer may have presumed to receive the cryptocurrency before the distribution behavior is recorded to the distributed ledger. On the other hand, when the distribution is recorded on the distributed ledger, if the taxpayer cannot exercise control and control over the cryptocurrency, the taxpayer is equal to not receiving the cryptocurrency. For example, when the virtual currency assigned to the taxpayer is sent to a wallet address controlled by the exchange, and the exchange does not support the newly generated virtual currency, the newly generated virtual currency cannot be immediately deposited into the taxpayer. In the exchange's account, the taxpayer does not control and control the new cryptocurrency allocated. If the subsequent taxpayer obtains the right to transfer, sell, exchange or otherwise dispose of the newly generated cryptocurrency, the taxpayer obtains The date of the right is deemed to be the date on which it receives the newly generated cryptocurrency.


Scenario 1: An A holds 50 cryptocurrencies M. On a certain day (Date 1), N coins are generated because the distributed books of M coins are hard forked, but N coins are not allocated or otherwise issued to A. .

Scenario 2: A B holds 50 cryptocurrencies R, one day (Date 2), and S coins are generated because the distributed books of R coins are hard forked. On the day of the fork, 25 S coins are assigned to B, and B can control them immediately after allocation. At this time, B has 50 R coins and 25 S coins. The distribution of the S currency was recorded in the distributed ledger at a certain time (Time 1) of the day (Date 2). At that time, the market fair value of the 25 S coins was $50. The only reason for B to get the S currency is that B holds the R coin when it is hard forked. After the end of the distribution, the transaction of the S currency is recorded on the new distributed ledger, and the transaction of the R currency is recorded on the original ledger.

Law and analysis

Article 61(a)(3) of the Internal Revenue Code states that, unless otherwise provided by law, gross income refers to all income from any source, including income from property transactions. Under this provision, all apparently realized income or undeniable property fully taxed by the taxpayer is included in the total proceeds. [See Casement Commissioner v. GlenshawGlass Co., 348 US 426, 431 (1955)], unless it is derived from the sale or exchange of capital assets, or applies special rules (eg, Domestic Tax Codes 1222, 1231, 1234A) ).

Article 1011 of the Internal Revenue Code stipulates that when a taxpayer determines the profit or loss of the sale or exchange of property, its adjusted tax basis (translation: the basis of the US federal income tax use, the cost or value of the fixed asset The adjustment, based on the amount of the value-added or depreciation impairment as the basis for taxation, is the cost or other basis set out in Article 1012 and is adjusted in accordance with the provisions of Article 1016. When a taxpayer obtains non-purchased property, unless otherwise specified, the taxation basis of the property is the total income, that is, the market fair value of the property when the property is acquired.

Article 451 of the Internal Revenue Code stipulates that the actual or presumed income of a taxpayer adopting the payment-accounting accounting method is the total income. Taxpayers who adopt an accrual basis should calculate the total return when all rights to acquire property are determined during the tax year.

Analysis of case 1 and case 2 based on the above laws

For Case 1: Since A did not obtain N coins, A did not acquire property at the time of the fork, nor did he have total income.

For Case 2: B received a new property S currency, so taxable income was generated during the tax year in which the S currency was obtained. After allocating and crediting the distributed ledger, B has control and control over the S currency, because B can discriminate against the S currency. The total return of B is $50, because the market fair value of 25 S coins is so much when it is recorded in the distributed ledger. The tax base for the S currency owned by B is $50, and the income has been realized.


(1) If the taxpayer does not acquire the newly generated cryptocurrency at the time of the fork, he does not produce the total income specified in Chapter 61 of the Internal Revenue Code. (2) If the taxpayer obtains a new cryptocurrency based on the allocation of hard forks, in general, it generates total income (payable income tax).

Drafting information of this rule (omitted)

03 Original

Translation: Liu Lang

Source: Chain Method

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