Minnesota congressman Tom Emmer announced a bill to protect cryptocurrency and blockchain token users from penalties from improperly paying taxes on forked coins in the face of uncertainty and a lack of guidance from the IRS. The bill was initially announced in May, but has now been formerly introduced.
Congressman Emmer heads up the Congressional Blockchain Caucus, a bipartisan group of members of congress who wish to provide legislative support to the blockchain industry by introducing regulations which cultivate innovation. They favor a “hands-off” regulatory approach, Reps. Schweikert and Soto are also members.
This bill would protect cryptocurrency and token holders from being fined for not paying their tax obligations correctly on coins produced from a blockchain network split, amid the lack of clear guidelines issued by the U.S. tax authorities. Some of the more well known fork coins include Bitcoin Cash, Ethereum Classic and Bitcoin SV.
These are the most publicized fork coins, but there have been many less popular or well known fork coins as well. There were over 20 forks of Bitcoin alone in 2017-18, with an additional 40 or more planned through the end of 2019. It will be interesting to see which fork coins they deem as taxable, and which they do not.
In 2014, the IRS offered vague guidance to treat crypto-assets as property, with each transaction being a taxable event upon which must be paid capital gains tax. This was wildly unrealistic and inappropriate, but understandable due to the poor understanding of crypto-assets by most people in 2014. Since then, many have called for the agency to issue more current, updated guidelines to make the payment of taxes easier to understand for cryptoasset investors.
Congressman Emmer sent a letter to the IRS requesting guidance for forked coins. The IRS responded by saying that guidance was “coming soon”. Since then, there has been no further guidance offered. Classifying forked coins for taxation is not as straight-forward as it seems.
Many cryptoasset investors never claimed their forked coins to begin with, with many having little to no actual value. Moreover, the pseudonymous nature of blockchain technology makes identification and enforcement very difficult. Creating sane and effective tax guidelines won’t be an easy task.