Description: Estate Planning for Passwords and Digital Property
The IRS has released Revenue Ruling 2019-24 on virtual currency tax issues. Specifically, this ruling addresses income tax consequences of a “hard fork” of a virtual currency. This new Revenue Ruling 2019-24 is the first new IRS guidance on virtual currency tax issues since the IRS released Notice 2014-21 .
As background, IRS Notice 2014-21 stated that virtual currency is treated as property—not as currency—for federal tax purposes. So, a taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency. But, the fair market value of virtual currency that is mined by a taxpayer is included in that taxpayer’s gross income.
This new Revenue Ruling 2019-24 first explains that cryptocurrency is a type of virtual currency that uses cryptography to store the virtual currency transactions on a distributed ledger. From time to time, the rules that are used to validate cryptocurrency transactions are changed. Sometimes the rules are changed to address a security issue, and sometimes the rules are changed to add new features or functionality. When the rules are changed so that new transactions (or old transactions) can’t be validated