I received some new cryptocurrency (BSV) following a hard fork in 2019. Per the IRS, this is considered reportable taxable income, even though I have not sold, traded it, etc.

[laughingman2324]

How would I enter this info correctly in TurboTax?

[ColeenD3]

Reporting cryptocurrency is similar to reporting a stock sale. You'll need to report your cryptocurrency if you sold, exchanged, spent or converted it. When it comes to hard forks and airdrops, you only have taxable income if it results new cryptocurrency.

You have to do this for every trade you made. If you bought coins at different prices or sold partial amounts, then you have to keep track and record the difference of what you sold. Cryptocurrency exchanges are not required to provide a 1099-B or summary tax statement for cryptocurrency transactions.

You'll receive a 1099-K if you made over 200 cryptocurrency transactions or your proceeds exceeded $20,000. You don't need to enter all the details from this 1099-K in TurboTax. Enter all your sales and trade info to accurately capture all your cryptocurrency transactions and keep the 1099-K for your records.

It’s your responsibility to keep records of your transactions. The most common way to do this is to download your order or trading history from your exchange’s website. You may need to do this a few times throughout the year due to limits on how far back you can get information.

Once you have your figures:

1. Open or continue your return.
2. Select Federal from the left menu, and Wages & Income from the menu near the top.
3. Scroll down and select Show more next to Investment Income.
4. Select Start or Revisit next to Cryptocurrency.
5. Follow the instructions and we'll calculate the gain or loss from the sale.

There's an upload limit of 2,000 cryptocurrency transactions in TurboTax. If you have more than that, you’ll need a transaction aggregator. We’ll walk you through that in the cryptocurrency section.

[laughingman2324]

Hi @ColeenD3,

Thank you for the reply.  Just to clarify, the taxable event I am referring to is specifically for the new cryptocurrency I received as a result of a hard fork.  Since I haven’t sold or traded this currency (it is sitting in my wallet), do I still enter this transaction under the “Cryptocurrency” category for Wages and Income?  Do I put the Cost Basis as $0 (since it was ‘free’) and the Proceeds as the fair market value (FMV) at the time the transaction was recorded?

Or is there somewhere else to enter this as regular income (per the IRS)?

[ColeenD3 · Accepted solution]

It depends on your circumstances.

Hard Fork, Airdrop and Revenue Ruling 2019-24

Revenue Ruling 2019-24 addresses whether a taxpayer has gross income under Section 61 of the Internal Revenue Code of 1986 (the Code)2 as a result of two types of transactions: the occurrence of a hard fork (i.e., when a cryptocurrency undergoes a change that may result in the creation of a new cryptocurrency in addition to the legacy cryptocurrency) and an airdrop (i.e., when a taxpayer receives new units of cryptocurrency following a hard fork).

The Revenue Ruling addresses only transactions involving a cryptocurrency, a type of virtual currency that uses cryptography to secure transactions that are digitally recorded on a distributed ledger.

The IRS ruled on two separate fact patterns and both conclusions hinged on whether the taxpayer in the particular case “received” the newly created cryptocurrency for U.S. federal income tax purposes. The IRS explained that although the receipt of cryptocurrency from an airdrop generally occurs when it is recorded on the new distributed ledger, “receipt” for U.S. federal income tax purposes does not occur unless the taxpayer is able to exercise complete dominion and control over the new cryptocurrency.

For example, the IRS stated that a taxpayer does not have dominion and control if the address to which the new cryptocurrency is airdropped is in a wallet managed through a cryptocurrency exchange that does not support the newly created cryptocurrency. In that example, the IRS stated that the taxpayer is treated as receiving the new cryptocurrency for U.S. federal income tax purposes only when the taxpayer acquires the ability to transfer, sell, exchange or otherwise dispose of the new cryptocurrency.

In the first fact pattern, a taxpayer owned a cryptocurrency that experienced a hard fork, resulting in the creation of a new cryptocurrency that was not airdropped or otherwise transferred to the taxpayer’s account. In this case, the IRS ruled that because the taxpayer did not receive the new cryptocurrency and did not have accession to wealth, the taxpayer did not have gross income as a result of the hard fork.

[laughingman2324]

Hi @ColeenD3,

Thank you again for the reply, that was very useful information.

In my particular case, the new BSV coins were airdropped to a Coinbase wallet, and the exchange states that: “This asset is not supported by Coinbase” (Send only).  Per the IRS findings, I do not “exercise complete dominion and control over the new cryptocurrency” and would not consider this a taxable event.

[skylar282]

Looking at section 2.1 Determine if you owe crypto taxes - Airdrops and tax implications
coinbase.com/bitcoin-taxes#doyouowe

It says crypto is taxable if it is credited to your wallet and any exchange supports selling it.
Coinbase supports sending BSV, so anyone can send it to an exchange that supports selling it.