What is Hard Fork?
A blockchain protocol change creating a new cryptocurrency, which may be a taxable event when you receive new coins.
Definition
A hard fork occurs when a blockchain undergoes a protocol change that is not backward-compatible, resulting in two separate blockchains. If you hold cryptocurrency that undergoes a hard fork and receive new coins on the new chain, the IRS considers this a taxable event. Per IRS Revenue Ruling 2019-24, you have ordinary income equal to the fair market value of the new cryptocurrency at the time you gain dominion and control over it.
Who Needs to Know This?
Cryptocurrency holders who receive new coins as a result of a blockchain hard fork, including US expats holding crypto abroad.
Key Deadline
Reported as income on annual tax return for the year the new coins are received
Potential Penalties
Standard accuracy-related penalties for failure to report
Related Forms
Common Mistakes to Avoid
- 1Not realizing hard fork income is taxable when received
- 2Using incorrect valuation for the new coins at time of receipt
- 3Not tracking the cost basis of coins received from hard forks
- 4Confusing hard forks with soft forks (soft forks are not taxable)
Related Terms
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