IRS Reminds Taxpayers About Cryptocurrency Airdrop Tax Obligations
Airdrop Basis Equal to Fair Market Value
The Internal Revenue Service (IRS) today reminded taxpayers that if they receive cryptocurrency from an airdrop following a hard fork, their basis in that cryptocurrency is equal to its fair market value at the time of receipt. This means that when they sell or exchange the cryptocurrency, they will be taxed on any gain they recognize, which is the difference between the sale price and their basis.
Tax Professionals Generally Agree on Airdrop Taxability
Although the IRS has not issued guidance for all types of airdrops, it's generally accepted among tax professionals that airdrops are taxable events. This is because airdrops are considered a form of income, and all income is taxable unless specifically excluded by law.
Conclusion
The IRS's reminder serves as a warning to taxpayers that they cannot escape taxation simply by receiving free cryptocurrency. Airdrops are a taxable event, and taxpayers must report any gains they recognize on their tax returns. Failure to do so could result in penalties and interest charges.
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