The US Internal Revenue Service (“IRS”) on October 9, 2019, issued long-anticipated guidance on cryptocurrency transactions and federal tax rules in Revenue Ruling 2019-24, which focuses on “hard forks” and “air drops.” In 2014, the IRS issued a revenue ruling on the capital gains taxation treatment of purchases and sales of cryptocurrency. However, other questions remained regarding the tax treatment of cryptocurrencies.

Since then, the IRS has made efforts to reach out to taxpayers in an effort to obtain more information on cryptocurrency transactions, including issuing a subpoena to a cryptocurrency exchange to determine whether the exchange’s customers were accurately reporting their taxable gains on their virtual currency transactions. Our blog post on the subpoena is here.

Recently, the IRS has sent out letters to identified cryptocurrency users reminding them of their tax obligations and the consequences of noncompliance.

In addition to the revenue ruling, the IRS also issued a set of “Frequently Asked Questions” and a draft of the updated IRS Form 1040, Schedule 1, “Additional Income and Adjustments to Income,” which now includes a question about cryptocurrencies.

Norton Rose Fulbright has prepared a legal update, “IRS releases first cryptocurrency guidance in five years,” discussing Revenue Ruling 2019-24 and providing an explanation of exactly what are hard forks and air drops.

The authors are:

Andrew James Lom, Partner, Norton Rose Fulbright, New York

Todd Schroeder, Partner, Norton Rose Fulbright, Dallas

Susan Linda Ross, Senior Counsel, Norton Rose Fulbright, New York

Rachael Browndorf, Associate, Norton Rose Fulbright, New York

Hersh Verma, Associate, Norton Rose Fulbright, Houston

Norton Rose Fulbright has a useful database of FinTech materials for those who are interested in learning more about the subject.