Crypto airdrop taxable income if unable to sell due to BitLicense?

[icelandroof]

I received cryptocurrency as part of an airdrop in 2021. Because I am a resident of New York, the platform that holds the coins does not let me sell or transfer these coins because of New York's BitLicense requirement. Should I include the fair market value of these coins at the time of the airdrop as taxable income?

Note that if I were a resident of any other US state, then I would be able to sell these coins. I'm only unable to sell because I live in New York.

I didn't receive any tax forms from the platform holding the coins.

[JohnB5677 · Accepted solution]

Yes, you should report this as income. The amount of income you'd report is equal to the fair market value of the new cryptocurrency when it's received,
and you have control over it.  You may debate the time of control, however, it is physically in your account, and technically available to you.

Once you have the USD values, here's how to enter it into TurboTax:

With your return open, go to

1. Federal
2. Wages & Income
3. Less Common Income
4. next to Miscellaneous Income, 1099-A, 1099-C
5. Select Other Reportable Income
6. Answer Yes on Any Other Taxable Income? 
7. Continue through the interview

[icelandroof]

Thanks for that detailed answer, John. I'll go ahead and do that.

It seems unfair that I'm required to pay taxes in USD on an asset that I cannot (by law) convert to USD to pay for those taxes. On the bright side, I'd rather pay taxes on the lower amount, assuming the coins do appreciate in value by the time I am legally permitted to sell them.

[JohnB5677]

I agree,  you will have to pay this initial tax no matter what! 

If not in 2021, you will probably have to pay it in 2022. 

You may have to calculate a higher value if you wait until 2022.

By claiming it in 2021 it will establish a cost basis for you if you decide to sell some of it.