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IRS, Users Face Unprecedented Tax Implications of the Bitcoin Cash (BCH) Fork

The August 1st Bitcoin Cash hard-fork poses unprecedented tax implications, particularly for U.S. crypto users who remain very much so within a legally ambiguous regulatory atmosphere. But this ambiguity doesn’t mean the Internal Revenue Service (IRS) isn’t doing their due diligence to find out who owes what.

From Bitcoin Cash to Bitcoin Gold to the now-stalled SegWit2x fork, these chain splits have taken the community for a whirl.

Yet few users have been considering the tax implications of these hard-forks, and a reckoning could be on the horizon.

As Perry Woodin, CEO of the crypto tax-accounting providers Node40, puts it:

“People are piling into bitcoin so they can get the free money, but I think very few people are thinking about the tax implications of it. And if they are, they’re probably thinking ‘Well, I can get around it.'”

And so long as the regulatory situation persists in prematurity, users will only continue to fun afoul of the reigning ambiguity. Per Chamber of Digital Commerce general counsel Amy Davine Kim:

“Forks represent just one example of activities on a blockchain that may have tax consequences that, with little guidance from the IRS, are difficult to determine.”

U.S. users have two options for now

Since crypto is considered to be “property” by the IRS, U.S. users appear to have two main accounting options when it comes to Bitcoin Cash:

  • (1) Give your BCH an arbitrary value pegged to the time you received it
    • e.g. consider averaging the worth of BCH futures right before the hard-fork as your cost basis
  • (2) Give your BCH a value of zero 
    • i.e. you’ll pay capital gains tax on the full appreciation of BCH after you spend said BCH

IRS doing their investigative diligence

The IRS made waves two months ago after it became public knowledge that the agency was paying for the services and software of Chainanalysis—a crypto detective firm.

Chainanalysis alleges to have the identities associated with 25% of the Bitcoin wallet addresses that are currently in existence.

Clearly, then, the IRS is flexing their muscles in preparing to enforce the U.S. tax code on crypto holders.

TLDR: The Bitcoin Cash hard-fork poses unprecedented tax implications, especially for users in America. With the IRS looking at crypto more, accounting’s crucial. 

William M. Peaster is a cryptocurrency journalist and copy-editor based out of El Paso, Texas. He's an avid fan of Ethereum, ERC-20 tokens, and smart contracts in general.

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