IRS ‘Forks up’ New Cryptocurrency Guidance

According to new IRS guidance in Revenue Ruling 2019-24, a taxpayer has ordinary gross income under tax code Section 61 as a result of a hard fork followed by an airdrop of new cryptocurrency. The IRS has previously issued guidance in 2014 in which it characterized convertible virtual currencies as “property” for U.S. tax purposes, with attendant tax consequences on disposal.

Cryptocurrency is a virtual currency that utilizes a decentralized recording system, known as a distributed ledger, to digitally record and store transactions. The term “hard fork” refers to the event of a cryptocurrency splitting off from an existing distributed ledger. While this split may result in new cryptocurrency on a new distributed ledger, it is not a certainty. The IRS has indicated it intends to treat only a hard fork followed by an airdrop (i.e., distribution) of new cryptocurrency as income to the taxpayer.

In Revenue Ruling 2019-24, the IRS cites to the Supreme Court case of Commissioner…