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IRS Releases New Cryptocurrency Guidance

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The IRS has released new guidance on the U.S. tax treatment of cryptocurrency for the first time since 2014. The guidance includes Revenue Ruling 2019-24, which provides guidance on the tax treatment of hard forks. The IRS also released a series of FAQs covering a variety of topics that expand on Notice 2014-21.

Revenue Ruling 2019-24

Revenue Ruling 2019-24 generally concludes on two scenarios involving hard forks. A hard fork occurs when a blockchain undergoes a protocol change resulting in a permanent diversion from the legacy or existing blockchain, which 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. In the first scenario, the cryptocurrency blockchain experiences a hard fork but the taxpayer does not receive units of a new cryptocurrency, and in the second scenario, the taxpayer receives units of new cryptocurrency “as a result of an airdrop of a new cryptocurrency following the hard fork.” The Revenue Ruling concludes that the taxpayer does not have income in the first scenario. However, in the second scenario, the taxpayer has ordinary income because he has experienced an accession to wealth. The income arises at the time of the airdrop because the taxpayer is, at that time, able to exercise dominion and control over the forked cryptocurrency.

The Revenue Ruling’s analysis on this point appears to be based on some misconceptions about how units of a new cryptocurrency are accessed by holders of a pre-fork cryptocurrency, and confusion about the relationship between forks and airdrops. An airdrop is distinct from a hard fork – it is a means of distributing units of a cryptocurrency to the distributed ledger addresses of multiple taxpayers. Because of this apparent confusion, the Revenue Ruling does raise some practical issues:

  • What is meant by the receipt of an airdrop of new currency following the fork? For example, does it apply when a custodial wallet provider permits access to the forked cryptocurrency? If the wallet provider does not permit access to the forked cryptocurrency right away (or at all), does the wallet provider have income?
  • What if the taxpayer directly holds a private key associated with a wallet address on a blockchain that undergoes a hard fork?
  • The value of the forked cryptocurrency may be initially high but quickly plummet in value if it does not gain wide acceptance. The effect of the Revenue Ruling appears to be that the taxpayer will recognize ordinary income with no cash to pay the tax, and then recognize a capital loss on the original cryptocurrency (to the extent the value has shifted to the forked cryptocurrency).
  • In addition, it is not clear whether the guidance applies to airdrops of alt-coins to wallets to attract attention and a wider distribution for such alt-coins. Often such coins are airdropped to wallets whose owners have done nothing to receive them and, in fact, may not even be aware of the airdrop or want the airdropped coin.

Nevertheless, the guidance might be read as saying that a taxpayer will recognize income whenever the taxpayer gains dominion and control over the new cryptocurrency following a hard fork (i.e., the ability to dispose of the new cryptocurrency). Although the guidance does not technically apply to an airdrop without a fork (as neither of the fact scenarios involves such an airdrop), the reasoning would likely make that taxable as well.

FAQs for Investors

The IRS also released a series of FAQs that expand on Notice 2014-21. The FAQs apply only to investors holding cryptocurrency as a capital asset. Some of the significant points include:

  • Cryptocurrencies are generally valued as of the date and time the transaction is recorded on the distributed ledger (for on-chain transactions) or would have been recorded on the distributed ledger (for off-chain transactions). For transactions occurring on a cryptocurrency exchange, the value is the amount recorded by the exchange. For peer-to-peer transactions, the IRS will accept the value as determined by a blockchain explorer that analyzes worldwide indices of a cryptocurrency and calculates the value of the cryptocurrency at an exact date and time. This valuation method seems to require the combination of two different services – that of a blockchain explorer that tracks transactions, and that of an index that calculates value.
  • Taxpayers may specifically identify which units of cryptocurrency are deemed to be sold by documenting the unique digital identifier, such as the private key, public key, and wallet address, or by showing the transaction information for all units of a specific virtual currency held in a specific wallet. If the taxpayer does not specifically identify the unit sold, the units are deemed to be sold on a first-in-first-out (FIFO) basis. The provision of a cost basis assumption is welcome guidance, but the FAQ does not permit other assumptions, such as last-in-first-out (LIFO) or average cost basis. In addition, because specific identification is tied to a wallet and not a transaction identifier, if taxpayers want to use specific identification, they should hold cryptocurrency acquired at different times in different wallets.
  • If a taxpayer donates cryptocurrency to a charity, he or she will not recognize income from the donation and generally will be able to deduct the fair market value of the cryptocurrency if it is held for more than one year.
  • Taxpayers must retain records regarding their cryptocurrency transactions that document receipts, sales, exchanges, or other dispositions of virtual currency and the fair market value of the cryptocurrency.

In the press release that accompanied the guidance, the IRS warned that “[t]axpayers who did not report transactions involving virtual currency or who reported them incorrectly may, when appropriate, be liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.” Because revenue rulings reflect the IRS’s position on how current law applies to a particular set of facts, they apply retroactively. Taxpayers who did not report income from prior hard forks should consider whether to file amended returns if the tax year is still open. This is true, even though many practitioners believed that there were reasonable analogies that would result in hard forks not giving rise to current income (e.g., stock splits, purchasing pregnant livestock, sale of extracted minerals or timber cut from land, division of trust, or sale of portion of larger property).

Source: https://www.steptoeblockchainblog.com/2019/10/irs-releases-new-cryptocurrency-guidance/

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Crypto ban in India rumors loom again

Crypto ban in India rumors is looming in the country again. Unocoin founder says rumors are bad for business. And earlier RBi crypto ban in India was quashed by the court. The potential news of the crypto ban in India to be quashed soon sends forth a wave of unanswered questions across the Indian digital […]

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  • Crypto ban in India rumors is looming in the country again.
  • Unocoin founder says rumors are bad for business.
  • And earlier RBi crypto ban in India was quashed by the court.

The potential news of the crypto ban in India to be quashed soon sends forth a wave of unanswered questions across the Indian digital market and disrupts the crypto field every now and then. With Unocoin, an old player of the crypto market adding hundreds of clients to its network daily, its Co-Founder Sathvik Vishwanath deems the ban merely speculation and news that spreads bi-yearly coinciding with the parliament session uptake.

He furthers that the news does little to the business but overall slows down the growth of the industry. While recently an Indian Bitcoin trader was forced to commit suicide after killing his wife and two children.

Crypto ban in India

Reserve Bank of India, in a bid to diminish crypto trade, had notified financial institutions to not cater to cryptocurrency-based firms and clients, however, the supreme court had canceled the notice confirming the country’s open outlook towards crypto dealings.

Vishwanath highlighted the critical need for acknowledging cryptocurrencies as a digital commodity. The vague classification and lack of information on whether it is a currency, commodity, or asset or equity keep business users confused about what rules apply to it from a taxation point of view.

The absence of clarity and standardized regulations are ongoing issues with the trade and Vishwanath believes it is playing a role in hindering its consistent growth in the region. To work around it many crypto owners have registered their firms abroad as a means to solidify business strength says, Vishwanath.

Recognizing the market potential within the region, Vishwanath informed a monthly $300 – $500 crypto trade constantly being witnessed and predicts a stark increase as more people are educated about this field’s know-hows.

Approximately 0.3 percent of India’s population is said to have knowledge of the digital trade, and Vishwanath sees it’s potential going up 5 percent. The brokerage intends to add more digital products to its lineup as and when the market demands. As per Vishwanath’s experience, 2020 has seen a major shift in focus on digital trade and has witnessed up to 500 customers signing up daily. He predicts strong investment opportunities within the field. 

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TA: Bitcoin Key Indicators Suggest Risk of Extended Downside Correction

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Bitcoin price is down over $500 from the $13,850 swing high against the US Dollar. BTC is showing bearish signs and it could even decline below the $13,000 support.

  • Bitcoin failed to stay above the $13,500 support and declined below $13,200.
  • The price is currently consolidating near $13,200 and the 100 hourly simple moving average.
  • There is a key contracting triangle forming with support near $13,220 on the hourly chart of the BTC/USD pair (data feed from Kraken).
  • The pair is likely to resume its decline below $13,200 and $13,100 in the near term.

Bitcoin Price Starts Downside Correction

Bitcoin price traded to a new monthly high at $13,850 before starting a major downside correction. BTC broke the key $13,500 support level to move into a short-term bearish zone.

The decline gained pace below the $13,200 level and the 100 hourly simple moving average. The price even spiked below the $13,000 level and traded as low as $12,899. Recently, there was a recovery wave above the $13,000 and $13,100 levels.

The price traded above the 23.6% Fib retracement level of the recent decline from the $13,850 high to $12,899 low. Bitcoin is currently consolidating near $13,200 and the 100 hourly simple moving average.

Bitcoin Price

There is also a key contracting triangle forming with support near $13,220 on the hourly chart of the BTC/USD pair. If there is a downside break below the triangle support and $13,200, there is a risk of a fresh decline. The next major support is near the $13,000 level.

If the bulls fail to defend the $13,000 support level, it could open the doors for an extended downside correction towards the $12,600 level or $12,500 in the coming sessions.

Upside Break in BTC?

If bitcoin stays above the $13,200 support level, it could clear the triangle resistance near the $13,315 level. The next key resistance is near the $13,375 level. It is close to the 50% Fib retracement level of the recent decline from the $13,850 high to $12,899 low.

The main hurdle for the bulls is near the $13,500 level, above which the price is likely to restart its rally and it could even revisit the $13,850 high.

Technical indicators:

Hourly MACD – The MACD is likely to move into the bearish zone.

Hourly RSI (Relative Strength Index) – The RSI for BTC/USD is now well below the 50 level.

Major Support Levels – $13,200, followed by $13,000.

Major Resistance Levels – $13,315, $13,375 and $13,500.

Source: https://www.newsbtc.com/analysis/btc/bitcoin-risk-of-extended-downside-correction/

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MicroStrategy CEO Michael Saylor HODLs $230M Worth Of Bitcoin Privately

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Michael Saylor, the founder and CEO of the Nasdaq-listed company MicroStrategy, has revealed that he personally HODLs nearly 18,000 bitcoins.

Additionally, he announced that his company has instituted a new Bitcoin-oriented treasury reserve policy and plans to make further BTC purchases.

Michael Saylor Owns 17,732 Bitcoins

The CEO of MicroStrategy has a somewhat compelling history with Bitcoin. As CryptoPotato reported recently, he said in 2013 that BTC’s days are “numbered.” However, he has completed a one-eighty since then and has been quite bullish on the cryptocurrency in recent months.

The company that he founded more than three decades ago bought a total of 38,250 bitcoins in two batches. This substantial amount represents 0.18% of all bitcoins ever to exist.

Apart from MicroStrategy’s holdings, Saylor disclosed today his own BTC balance.

“Some have asked how much BTC I own. I personally hodl 17,732 BTC, which I bought at $9,882 each on average. I informed MicroStrategy of these holdings before the company decided to buy Bitcoin for itself.” – he tweeted.

To put his Bitcoin holdings into USD perspective, the amount equals $230 million, with BTC’s price trading around $13,000 per coin at the time of this writing.

MicroStrategy’s Bitcoin-Focused Reserve Policy

In a recent interview, Saylor also revealed his company’s Q3 results. Apart from displaying impressive quarterly numbers, MicroStrategy’s CEO announced a compelling new treasury reserve policy that focuses on Bitcoin.

“We have also instituted our new treasury reserve policy, which states that Bitcoin will be the primary treasury reserve asset for the company for capital that exceeds our working capital needs.”

MicroStrategy plans to purchase even more bitcoins as the company generates cash beyond what it needs to run the business of a day-to-day basis.

Millions of (Unrealized) Profit

Having in mind Saylor’s averaged price when he bought his BTC stack, simple math shows that he spent a little over $175 million. As mentioned above, the 17,732 bitcoins now have a value of over $235 million. As such, his profit, should he choose to sell the coins now, would be north of $50 million.

Additionally, a popular cryptocurrency commentator Kevin Rooke brought up similar statistics regarding MicroStrategy’s numbers. He said that the Nasdaq-listed company had earned $78 million in the last three and a half years from their business endeavors. However, if they sell their BTC stack now, their profit will be about $100 million in just two months.

MicroStrategy's Business vs. Bitcoin Profits. Source: Twitter
MicroStrategy’s Business vs. Bitcoin Profits. Source: Twitter

It’s worth noting that to register profit or a financial gain, one has to sell the asset he has previously purchased. Since neither MicroStrategy nor its CEO had actually disclosed selling their Bitcoin holdings, the numbers above provide a hypothetical viewpoint instead of hard numbers.

Featured Image Courtesy of The Business Journals

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Source: https://cryptopotato.com/microstrategy-ceo-michael-saylor-privately-hodls-235m-worth-of-bitcoin/

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