close
Share with your friends

Rev. Rul. 2019-24: Tax treatment of transactions involving cryptocurrency

Tax treatment of transactions involving cryptocurrency

The IRS today released an advance version of Rev. Rul. 2019-24 concerning the tax treatment of certain virtual currency transactions—or “cryptocurrency.”

1000

Related content

Rev. Rul. 2019-24 [PDF 74 KB] addresses two issues involving virtual currency:

  • Does a taxpayer realize gross income as a result of a “hard fork” of a cryptocurrency the taxpayer owns if the taxpayer does not receive units of a new cryptocurrency? The revenue ruling explains that a hard fork occurs when a cryptocurrency on a distributed ledger undergoes a protocol change resulting in a permanent diversion from the legacy or existing distributed ledger. A hard fork may result in the creation of a new cryptocurrency on a new distributed ledger in addition to the legacy cryptocurrency on the legacy distributed ledger. Following a hard fork, transactions involving the new cryptocurrency are recorded on the new distributed ledger and transactions involving the legacy cryptocurrency continue to be recorded on the legacy distributed ledger. The revenue ruling concludes that a taxpayer does not have gross income under section 61 as a result of a hard fork of a cryptocurrency the taxpayer owns if the taxpayer does not receive units of a new cryptocurrency.
  • Does a taxpayer realize gross income as a result of an “airdrop” of a new cryptocurrency following a hard fork if the taxpayer receives units of new cryptocurrency? An airdrop is a means of distributing units of a cryptocurrency to the distributed ledger addresses of multiple taxpayers. The revenue ruling concludes that a taxpayer has gross income, ordinary in character, under section 61 as a result of an airdrop of a new cryptocurrency following a hard fork if the taxpayer receives units of new cryptocurrency.

The IRS also provided an updated set of “frequently asked questions” (FAQs) to address virtual currency transactions for taxpayers who hold virtual currency as a capital asset.

A related IRS release—IR-2019-167—explains that the IRS is aware that some taxpayers with virtual currency transactions may have failed to report income and pay the resulting tax or did not report their transactions properly, and that the IRS is actively addressing potential non-compliance in this area through a variety of efforts, ranging from taxpayer education to audits to criminal investigations. For instance, the IRS stated began sending educational letters to more than 10,000 taxpayers who may have reported transactions involving virtual currency incorrectly or not at all. 

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal