Bitcoin

Bitcoin Cash Creates New Tax Headache For Investors

Bitcoin Cash, the result of a recent split off of the digital currency, gave bitcoin owners an equal amount of Bitcoin Cash and Bitcoin, creating a new tax headache at a time when the Internal Revenue Service is providing little guidance.

According to a report in the Wall Street Journal citing tax experts, the Internal Revenue Service has not issued any guidance on how to treat Bitcoin Cash and whether there are tax implications this year. What’s more, the paper noted the IRS declined to comment when asked about the issue and hasn’t made any clarifications regarding tax issues and digital currencies since guidance back in 2014 that was limited.

Jim Calvin, a buy-side tax specialist at Deloitte, told the Wall Street Journal that he thinks the receipt of Bitcoin Cash could be a taxable event for this year and as a result would be treated as ordinary income. The amount of ordinary income isn’t clear, the report said. It could be calculated based either  on the value of Bitcoin Cash when  it was issued or when investors were able to trade it, which didn’t happen immediately after it  was issued. The report noted the tax rate on Bitcoin Cash could be has much as 39.6 percent. It’s not clear if a 3.8 percent net investment income tax would also be applicable. On the other spectrum, the IRS could determine that the receipt of Bitcoin Cash isn’t a taxable event because it was a so-called property division. In that instance, no tax would be due until the Bitcoin Cash is sold or transferred, reported the Wall Street Journal. “Investors need clear guidance from the IRS so they’ll know what they owe and when,” Calvin said in the report. Though the IRS isn’t giving guidance about Bitcoin Cash, it isn’t ignoring cryptocurrency completely. The agency is spending its time going after those people who use cryptocurrency to get around paying taxes.

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