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Income tax that you never received? This is possible after the merger of Ethereum

the tax service rules were not ready to update Ethereum. It is unlikely that this will become a fiasco with whom taxpayers faced with Bitcoin fork in 2017, but there are measures that they can take to prepare for any IRS decision.

After long preparations and preparation, the merger of Ethereum was smooth this month. The next test will occur during the tax season. Fights of cryptocurrencies, such as Bitcoin Cash, in the past created a headache for both investors and accountants. Despite the progress achieved, the US Tax Service Rules are still not ready for such an Ethereum update. Nevertheless, it seems that there is an interpretation of the IRS rules, which tax specialists and taxpayers can accept to achieve simplicity and avoid unexpected tax accounts.

as Bitcoin Cash violated the tax returns of 2017

due to disagreements about the size of the block In 2017, fork bitcoin occurred. Everyone who held Bitcoin received an equal amount of new chopped currency, Bitcoin Cash (BCH). But when they received it, some problems arose. For the first time, Bitcoin Cash was released in the fall, but on Coinbase and other large exchanges appeared only in December. By that time, it has grown significantly in price. For tax purposes, receiving free coins is income. Suddenly, for many investors, there was a need to receive income, which they did not expect. Associated with this: get ready for the swarm of incompetent tax agents in 2023 Many cryptocurrency accountants advised customers to declare the cost of Bitcoin Cash at the time of their release, and not when they entered their exchange accounts. Not a single IRS leadership directly said that this is normal - in fact, it contradicts the accounting principle of domination and control - but this seemed the only reasonable way to solve the problem. ETH with the proof of the performance of the work is another "gray zone". As a result of problems with Bitcoin Cash income reports, the tax service issued Revenue Ruling 2019-24 to resolve the issue with blockchain forks. According to this resolution, the forks, as a result of which the existing owners listed a new currency, are a taxable increase in wealth. Despite the fact that most investors are not accustomed to the term "Airdrop", the tax management uses this term to describe the situation when the owner of the existing cryptocurrency receives a new currency as a result of the forks. Potential confusion with Ethereum updates is that the purpose of the fork and the original currency on the basis of the decree alone is unclear. You can easily imagine how the tax service can take a position according to which, after updating the Ether (ETH) tokens (ETH), stored in wallets and on exchanges around the world, are a new coin, and Ethereum Proof -off (Pow), which continues to work in Inherited network is the original. Cryptocurrencies, IRS, taxes, taxes, USA, law, Ethereum 2.0 Although this argument has a logical meaning, this position will also lead to chaos. Each American taxpayer who owned ETH - or assets such as non -functioning tokens (NFTS), based on Ethereum smart contracts, should declare their cost as ordinary income on September 15. Despite the use of old technology, Ethereum Pow is clearly a "new" coin. The investor’s assets have not changed - rather, a consensus mechanism was modernized. In addition, unlike Bitcoin Cash, which arose as a result of the differences in two legitimate sides, Ethereum updated was widely supported, and only mercenary miners opposed it. Similar: Biden hires 87,000 new tax agents - and they will come for you Another example is the situation when EOS has frozen the EOS token based on Ethereum and transferred its holders to the EOS Meinnet. The continuation of the existence of a coin on the EOS network was not considered as subject to taxation, since the rights were simply teleported to another chain with the same ticer symbol. (Crypto -rhinas traders probably did not even notice this). Is the New Coin always a less accepted coin? Is the coin technology or community? The tax administration, most likely, will not decide on this issue before the day of taxes in April, so taxpayers and consultants will have to decide for themselves. But it seems that the choice is obvious.

Additional considerations for investors and developers

taxed updated Ethereum holders may want to wait and see if Ethereum Pow will be accepted before trying to get access to coins. Their adoption is guaranteed by taxable income, leaving no room for the argument that fork is the half-nosed fork/farce/scam, like many derivatives of bitcoin forces in 2017-2018, which had a slightly traded cost on remote exchanges. If the cost of Ethereum Pow falls before the investor sells it, this may mean a tax account exceeding the cost of the asset. (The cost of Bitcoin Cash fell from more than $ 2500 to less than $ 100 in 2018, with the exception of a short -term surge in 2021). On the other hand,The Grayscale Ethereum Trust press release on September 16 indicates that it will require, sell or distribute the income related to the ETH POW coin, so some value may appear at the end of the day. Related: ETH after the merger became obsolete To declare the release of Ethereum Pow, which costs less than 1% of the corresponding amount of Ethereum, some efforts need to be made. Early followers often have an advantage in cryptocurrency, but fork is the case when patience can be prudent. The developers of cryptocurrencies considering the possibility of fork should remember that forks always create a tax headache, the seriousness of which varies depending on the justification and conduct of the fork. If we assume that the tax service will again follow the example of a cryptocurrency tax community, then the Ethereum update will become an example of how to do this correctly. Justin Wilcox is a partner of the Connecticutsky accounting and consulting firm Fionella, Milone & Lasaracina. He founded the cryptocurrency practice of the company in 2018, providing tax and consulting services to organizations of Web3 and crypto -investors. He mines such cryptocurrencies as DOGE (although he still supports the merger of Ethereum). He owns various cryptocurrencies and NFT, including the coins mentioned in this article.

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9/28/2022