IRS Issues Virtual Currency Tax Guidance On Forks And Airdrops

Background

In March 2014, the IRS issued Notice 2014-21 (the “2014 Notice”) providing that virtual currency¹ is treated as property for U.S. federal income tax (“U.S. tax”) purposes. Prior to the issuance of the 2014 Notice, it was not entirely clear that virtual currency would be treated as property rather than as foreign currency.  As a result of the classification of virtual currency as property, gain or loss from the sale or exchange of virtual currency held as a capital asset generally is treated as capital gain or loss.  The remaining portions of the 2014 Notice provide rules that follow logically from the treatment of virtual currency as property, such as requiring a taxpayer who receives virtual currency as payment for goods or services to treat the fair market value of the virtual currency (determined by converting the virtual currency into U.S. dollars at the exchange rate at the relevant time, in a reasonable manner that is consistently applied) as payment