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IRS Clarifies its Confusing ‘Airdrop’ Cryptocurrency Tax Policy

IRS Clarifies its Confusing ‘Airdrop’ Cryptocurrency Tax Policy 101
Source: iStock/NoDerog

America’s top tax authority, the Internal Revenue Service (IRS), has somewhat provided clarification about its recent cryptocurrency tax guidelines. However, their final decision regarding taxing promotional airdrops is yet to be made.

Critics pointed out a range of potential problems with the latest guidelines, issued in October.

Perhaps most glaring among these issues was a section about “airdrops” – which, in the world of cryptocurrencies, is usually used to refer to promotional giveaways or customer rewards.

However, as previously reported, the IRS seems to have used this term to refer to hard forks – situations where a blockchain splits, sometimes meaning that token holders receive holdings in a new cryptocurrency.

Per Bloomberg Tax, Christopher Wrobel, an attorney in the IRS Office of the Associate Chief Counsel (Income Tax and Accounting) confirmed that while hard fork-generated revenues are taxable under the latest rulings, the revenue ruling doesn’t apply to promotional airdrop giveaways. But Wrobel did state that the IRS “hasn’t yet decided” whether such promotional airdrops should be treated as taxable.

And Suzanne Sinno, an attorney in the IRS Office of the Associate Chief Counsel (Income Tax and Accounting), told the same media outlet that like-kind exchange principles have never been applicable to cryptocurrency, in the IRS’ view.

This dashes hopes expressed by a number of tax experts. Some had claimed that people making profits on token sales that they reinvested in other cryptocurrencies would be able to postpone paying taxes, as rules governing like-kind exchanges were not formulated in the United States until 2017.

But the IRS’ latest statement would appear to mean that even pre-2018 crypto-to-crypto exchanges cannot be deferred.

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