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Members of Congress push IRS for tax clarity on crypto airdrops, forks

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Eight members of the U.S. House of Representatives have sent a letter to the commissioner of the Internal Revenue Service, asking for the agency to expand and clarify its guidance around token airdrops and blockchain network forks.  

The letter – drafted by Reps. Tom Emmer, Bill Foster, David Schweikert, Darren Soto, Lance Gooden, French Hill, Matt Gaetz and Warren Davidson – is dated December 20 and expresses concern over the current level of guidance around these issues. It follows a previous letter, issued in April, that pushed the U.S. tax authority to improve its informational offerings to taxpayers about their crypto-related obligations. In July, Emmer filed a bill that seeks to create a "safe harbor" for taxpayers whose assets are forked.

"We wrote in April of this year urging the issuance of guidance for taxpayers who use cryptocurrencies and we are pleased to see that you have issued guidance and addressed many questions we posed. We are, however, concerned that this recent guidance creates many new questions related to the topics it seeks to address, namely forks and airdrops. Moreover, the guidance appears inequitable as it comes almost two years after the Bitcoin and Bitcoin Cash fork and three years after the Ethereum fork."

Specifically, the group called into question an approach that "creates potentially unwarranted tax liability and administrative burdens for users of these important new technologies, and would create inequitable results."

The letter also calls on the IRS to examine the broader ecosystem of crypto-related products and services, including futures, crypto-tied retirement accounts and interest-generating crypto deposits.

"The IRS needs to provide guidance to taxpayers as to how income related to all crypto transactions will be treated for tax purposes."

The group also faulted the agency for failing "to provide any clarity for withholding and tax information purposes," and cautioned about any approach that would treat existing information as "established law."

"We would hope that the IRS recognizes this area as new and developing and will allow for reasonable interpretations in advance of the issuance of the most recent guidance. While we commend the IRS for attempting to issue guidance, we suggest increased work with the industry in the future." 

In terms of specific questions, the letter asks the following:

  • Does the IRS intend to clarify its airdrop and fork hypotheticals to better match the actual nature of these events within the cryptocurrency ecosystem? When does the IRS anticipate issuing that clarification?
  • Does the IRS intend to clarify its standard for finding dominion and control over forked assets wherein some level of knowledge and actual affirmative steps taken are necessary to find that the taxpayer has dominion and control?
  • Does the IRS intend to apply the current guidance or any future guidance retroactively, or will the IRS issue proposed guidance that is subject to notice and comment?

The full letter, published by Coin Center (which worked with the office of Rep. Emmer on its submission), can be found here.

"Getting cryptocurrency tax policy right is a top priority for us and we are pleased to see Congress stepping in on this critical issue for its users," Neeral Agrawal, Coin Center's director of communications, wrote in a blog post that outlined the letter.

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