At-A-Glance
- The IRS has given its first ruling on cryptocurrency taxes since its 2014 guidance, answering long-standing questions about how hard forks should be reported.
- Following some regulators’ vocal concerns about the forthcoming Libra token, Mark Zuckerberg will testify before Congress later this month.
- UNICEF has launched a cryptocurrency fund to provide children around the world with open-source technology, making it the first United Nations Organization to do so.
- The Chairman of the CFTC has declared Ethereum as a commodity.
IRS finally weighs in on cryptocurrency taxes
San Francisco Chronicle
After five years of silence, the Internal Revenue Service has finally issued its first official ruling on cryptocurrency taxes. The ruling answers some long-held questions about how to responsibly handle hard forks and airdrops in which new forms of cryptocurrency break off from old ones, which can affect holders’ token value. In short: users do not have taxable income as a result of a hard fork unless they receive new cryptocurrency.
The IRS had previously issued “guidance” on crypto taxes back in 2014, which essentially stated that virtual currency should be treated like any other property. In other words, a Bitcoin windfall would have to be included when reporting one’s income, just as stocks or real estate would.
However, the original statement left many questions unanswered. With the IRS cracking down on crypto holders not properly reporting their digital currency income, the need for more official guidelines was necessary.
The revenue ruling answered two questions not addressed in its earlier guidance: Does a taxpayer have income as a result of a hard fork of a cryptocurrency if the taxpayer does not receive units of a new cryptocurrency? And does a taxpayer have income as a result of an airdrop of a new cryptocurrency following a hard fork if the taxpayer receives units of new cryptocurrency?
The IRS said a hard fork occurs “when a cryptocurrency on a distributed ledger undergoes a protocol change resulting in a permanent diversion from the legacy or existing distributed ledger. A hard fork may result in the creation of a new cryptocurrency” in addition to the old currency. The ledger, such as blockchain, is where transactions using digital currency are recorded.
An airdrop, it continued, “is a means of distributing units of a cryptocurrency to the distributed ledger addresses of multiple taxpayers.” In other words, “the airdrop is a giveaway of digital currency to people that have accounts that qualify” for the distribution, said Paul Beecy, a partner with Grant Thornton in Boston.
The IRS said a “hard fork followed by an airdrop results in the distribution of units of the new cryptocurrency to addresses containing the legacy cryptocurrency.” However, “a hard fork is not always followed by an airdrop.”
Mark Zuckerberg to testify before Congress on Facebook’s libra cryptocurrency
CNBC
In the few months since Facebook’s Libra cryptocurrency was announced, the not-yet-released token has come under scrutiny from United States regulators and politicians. To address these concerns, Facebook CEO Mark Zuckerberg will testify before the House Financial Services Committee on October 23.
Committee Chairwoman Maxine Waters has been vocal about Libra, expressing concerns about the lack of commitment from some key members of the cryptocurrency’s team. Adding to the turmoil is the fact that international regulars have also expressed concern about the lack of information about how Libra will operate. This has caused some of the token’s early backers to falter; Paypal dropped out of the project entirely.
Zuckerberg’s agreement to testify with lawmakers marks a shift. In a recording of a July staff meeting obtained by The Verge, Zuckerberg told employees he has refused to testify in front of some foreign governments because “it just doesn’t really make sense for me to go to hearings in every single country that wants to have me show up.”
Zuckerberg’s meetings with lawmakers focused on the future of internet regulation, which poses a threat to Facebook’s core business. His willingness to meet representatives on their turf showed, as he has previously expressed, that he accepts regulation is coming and wants to be part of the conversation.
The testimony could also play an important role in the multiple antitrust investigations Facebook is currently facing. The company is under review by investigators at the Federal Trade Commission, a coalition of state attorneys general and the House Judiciary Committee for its competitive practices.
Unicef Launches Cryptocurrency Fund
Unicef
Unicef, an international fund created by the United Nations in the wake of World War II to provide food and healthcare to children around the world, has announced that it will now hold and disperse donations make in cryptocurrency. In a press release, the organization stated that the UNICEF Cryptocurrency Fund with accept Bitcoin and Ether, making in the first UN organization to do so.
The structure of the Cryptocurrency Fund ensures that contributions will be held in the same from donation to disbursement. In other words, if someone donated a certain about of Bitcoin to the fund, it will also be granted out as the same number of Bitcoin tokens. In the release, UNICEF Executive Director Henrietta Fore stated, “If digital economies and currencies have the potential to shape the lives of coming generations, it is important that we explore the opportunities they offer. That’s why the creation of our Cryptocurrency Fund is a significant and welcome step forward in humanitarian and development work.”
The Ethereum Foundation has already pledged an early donation, which is earmarked to benefit three grantees of the UNICEF Innovation Fund. UNICEF plans to use future donations to fund open-source technology for the benefit of young people around the world.
“The Ethereum Foundation is excited to demonstrate the power of what Ethereum and blockchain technology can do for communities around the world. Together with UNICEF, we’re taking action with the Cryptofund to improve access to basic needs, rights, and resources,” said Aya Miyaguchi, Executive Director of the Ethereum Foundation. “We aim to support the research and development of the Ethereum platform, and to grow the community of those that benefit from a technology that will better countless lives and industries in the years to come. We’d like to thank UNICEF and the UNICEF family of national committees for their leadership as we create real progress together.”
The Ethereum Foundation will make its initial donation through the French National Committee for UNICEF.
UNICEF national committees of USA, Australia and New Zealand also accept cryptocurrency.
The launch of the UNICEF Cryptocurrency Fund is part of UNICEF’s ongoing work with blockchain technology. UNICEF co-leads the UN Innovation Network with WFP. The network is responsible for researching the potential and pitfalls of blockchain and other emerging technologies.
CFTC Chairman Confirms Ether Cryptocurrency Is a Commodity
Coindesk
The U.S. Commodity Trading Futures Commission has ruled that Ethereum, the world’s second-largest cryptocurrency after Bitcoin, is officially a commodity. Chairman Heath Tarbert made the confirmation while speaking at the Yahoo! Finance All Markets Summit this week, stating, “We’ve been very clear on Bitcoin: Bitcoin is a commodity. We haven’t said anything about Ether — until now. It is my view as chairman of the CFTC that Ether is a commodity.”
The difference between commodity and security determines how an item is regulated and what commission oversees its regulations. While BTC and Ether have been ruled commodities, that doesn’t mean future tokens will get the same classification automatically; Tarbert said that all new cryptocurrencies will need to be evaluated individually.
“It stands to reason that similar assets should be treated similarly. If the underlying asset, the original digital asset, hasn’t been determined to be a security and is therefore a commodity, most likely the forked asset will be the same,” he said. “Unless the fork itself raises some securities law issues under that classic Howey Test.”
Tarbert further addressed the Facebook-led Libra project, saying the major federal regulators are looking at the planned stablecoin and it has yet to be determined whether it falls into the security classification.
“Is it a security, first and foremost. And if it isn’t a security, it is most likely a commodity,” he said.
That’s the roundup for October 12th, 2019. Check in next week for the latest news of cryptocurrency innovation and regulation around the world!
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