U.S. Rep. Tom Emmer (R-MN) this week offered legislation to provide temporary protection for the tax treatment of hard forks of convertible virtual currency while administrative guidance does not exist.
Rep. Emmer introduced the Safe Harbor for Taxpayers with Forked Assets Act of 2019, H.R. 3650, which would prohibit penalties against taxpayers until the Internal Revenue Service (IRS) released guidance on how taxpayers should report gains or losses in forked digital assets.
According to Fidelity Digital Assets, a fork occurs when the rules of a blockchain are changed — from an upgrade to the features of the blockchain, a bug in the consensus algorithm, or changes to the node software — possibly creating two or more distinct digital assets. Rep. Emmer’s office described forks as splits in digital assets that result in two independent digital ledgers, such as with Bitcoin and Bitcoin Cash.
The IRS issued 2014 guidance that treats digital assets like property, but no guidance has been issued since then regarding several reporting questions, including those for forked digital assets.
If enacted, H.R. 3650 would ensure that taxpayers wouldn’t be penalized for reporting forked digital asset information to the IRS.
Rep. Emmer’s office said H.R. 3650 is a reasonable way to insulate American taxpayers from potential liabilities that are no fault of their own due to a lack of IRS guidance on forks.
“Legislators should be embracing emerging technologies and providing a clear regulatory system that allows them to flourish in the United States,” Rep. Emmer said. “Taxpayers suffering from the uncertainty of tax guidance are being unfairly punished for investing in an emerging technology.”