US Lawmakers Ask IRS to Clarify Crypto Tax Rules Around Airdrops, Forks in New Letter

The U.S. taxman's most recent crypto guidance is sowing confusion, according to a letter from eight congressmen published Friday.

According to a letter penned by Representatives Tom Emmer (R-Minn.), Bill Foster (D-Ill.), David Schweikert (R-Ariz.), Darren Soto (D-Fla.), Lance Gooden (R-Texas), French Hill (R-Ark.), Matt Gaetz (R-Fla.) and Warren Davidson (R-Ohio), the Internal Revenue Service's (IRS) latest guidance clarifies some aspects of the tax treatment for cryptocurrencies, but leaves much to be desired.

Several of the congressmen who signed the letter, including Emmer, Soto, Foster and Schweikert, are members of the Congressional Blockchain Caucus, a formal group of lawmakers who advocate for blockchain technology and cryptocurrencies. Friday's letter was first shared by industry think tank Coin Center.

The IRS published guidance around taxing cryptocurrency holdings in October, addressing cost basis and forks, two long-standing questions the crypto community has had.

However, the new guidance raised a number of new questions, particularly around airdrops and unwanted forks. There was also no de minimis exemption for small purchases, such as a cup of coffee.

Friday's letter pointed to these unwanted forks and airdrops as one major area of concern, noting that the current guidance appears to suggest individuals are liable for taxes on any cryptocurrencies they gain as a result of a hard fork or airdrop, regardless of whether or not they're aware they received these cryptocurrencies.

"This creates potentially unwarranted tax liability and administrative burdens for users of these important new technologies and would create inequitable results," the letter said. "We do not expect this is the intended effect of the guidance, and we urge the IRS to clarify the matter."

The letter specifically asks:

• "Does the IRS intend to clarify its airdrop and fork hypotheticals to better match the actual nature of these events within the cryptocurrency ecosystem? When does the IRS anticipate issuing that clarification?"
• "Does the IRS intend to clarify its standard for finding dominion and control over forked assets wherein some level of knowledge and actual affirmative steps taken are necessary to find that the taxpayer has dominion and control?"
• "Does the IRS intend to apply the current guidance or any future guidance retroactively, or will the IRS issue proposed guidance that is subject to notice and comment?"

The letter also said the congressmen are "concerned that the form of the guidance appears to indicate that this is 'established' law."

The congressmen wrote that they hope the IRS continues to treat crypto as a "new and developing" area, and hope the questions listed are answered "as soon as possible."

The IRS has been ramping up its efforts in taxing crypto transactions, writing letters to exchange users warning they may need to restate their earnings and adding a question about cryptocurrency in its Form 1040.

Friday's letter is only the latest in a series sent by lawmakers to the IRS asking the agency to clarify how it is approaching the space.