Taxing Blockchain Forks
27 Pages Posted: 8 Nov 2019
Date Written: October 25, 2019
The tax treatment of cryptocurrency forks presents four unique challenges: parent/child designation, taxpayer access to the new token, assessment of fair market value, and assessment of comparable contemporaneous fair market values. We provide empirical evidence that each of these issues is a hurdle in determining whether income has been realized, or in apportioning the basis. We consider three existing approaches for assets acquired without a purchase. We conclude that the least problematic approach (adopted by Japan) is giving zero tax basis to the new coin and taxing the proceeds upon a sale, while treating the new coin as realized income (as recently ruled in the US) is the most problematic.
Keywords: taxation, cryptocurrency, fork, split, blockchain, distributed ledger
JEL Classification: H20, H21, H24, H29
Suggested Citation: Suggested Citation