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What are the tax implications of Bitcoin’s big fork?

A new report [PDF] from Deloitte may have some answers.

On August 1, 2017, Bitcoin block 478558 was mined. At that moment, the Bitcoin network split into two similar but incompatible versions: the original Bitcoin and a new network called “Bitcoin Cash.” Every existing holder of Bitcoin private keys now had control of tokens on both networks that could be moved and traded independently of each other. It turned out that the new Bitcoin Cash tokens have considerable value too. So what are the tax implications of this? The report lays out some ideas:

The Bitcoin chain-split has no obvious analogy for federal income tax purposes; however, whether or not it is a realization event, the chain-split has basis effects. While the conclusion may not be certain, the following can be said: There was no exchange of bitcoin for bitcoin cash; and, the receipt of bitcoin cash was a consequence of holding bitcoin.

An owner of bitcoin is entitled to bitcoin cash merely on the basis of his ownership. As a result, he may be treated as realizing ordinary income to the extent of the value of bitcoin cash. The value is normally determined on the date of actual or constructive receipt. Bitcoin cash was actively trading over-the-counter within hours of the chain-split. If it was a realization event, then the basis of bitcoin cash would be equal to the ordinary income actually recognized, and gain or loss on the disposition of bitcoin cash would be determined using that basis. Alternatively, it might be argued that the chain-split was similar to a property division. In that case, the basis in each bitcoin would be allocated between it and the related bitcoin cash.

The full report is a deep dive into the taxation of virtual currencies. You can access it here [PDF].