For example bitcoin cash was forked August 1, 2017 but coinbase didn't implement it until December 19, 2017.
I think that belief is mistaken. (1) Suppose Bitcoin has a contentious fork into two chains, say BitcoinA and BitcoinB. The supporters of each chain claim that their chain is the "true" Bitcoin. Before the split, you had 1 btc worth $10k, and after the fork, you have 1 btcA worth $5k and 1 btcB worth $5k. Which of the two chains do you owe taxes on? (2) Even if a hard-forked chain is treated as a new asset instead of a split of an old asset, it shouldn't be taxed until the user actually exercises control over it. In order to control funds on a new hard fork, generally the user must take the risky action of installing new (potentially malicious) software and importing their private keys --- this would seem to be a "substantial limitation or restriction" under 26 CFR 1.451-2(a).
Taxation in general is not a happy event, but it is consistent in this case.
Wasn't the whole point of bitcoin that it was auditable? IF you know and want to use a fork for something, you can figure out the exact price fork has happened.
IF you don't know, you have plausible deniability.
But what is bitcoin except a database plus some math equations? By "owning" bitcoin, you have a cryptographic key which lets you do certain operations on the database. At what point does this all get abstracted far enough from real money that it becomes ludicrous to tax it?
Obviously, the US government and most cryptocurrency users have widely differing opinions on that.
This is also the exact reason why it's taxed the way its taxed. There's no way government is gonna let you build wealth without paying taxes.
Private key is surely a database password that lets you do certain operations, but that exact feature make it an asset. As long as you can buy "things" that has value with it, it's a capital you need to pay taxes on.
It's hard, but it's what it is.
But you're right, the reality is that many are using it as an investment instead, so now, I suppose, it's being regulated like one. Unfortunately, at the same time that we solve some of the problems making usage as a currency impractical (even if one of those solutions is just Bitcoin Core becoming an outdated relic), regulations treating it as an investment will hamper its adoption.
Oh well. I have faith the tech will win in the end.
If i keep it in the brokerage, without withdrawing the cash, why do i pay taxes? That sounds stupid right? Then the next thing you know, people sell each other stocks in exchange for goods.
"Plumbing service stock" on a broker, if you buy it, you get legal right to have plumbing service at your house free of charge. This way you can keep everything in brokerages. Of course there are flaws with the argument, but saying "crypto to crypto isn't taxable" ignores the fact that USD taxation happens based on USD.
PS: while i said usd, i mistakenly wrote USDT, which was very ironic haha.
If people were attempting to propose improvements via forking and this were true, would that not create rather dire tax liabilities?
Say you bought into bitcoin 'original', and then it forks into bitcoin 'improved' as well. Loads of people agree that the improved version is much better and switch to it, leaving the original near worthless.
But then if this interpretation of tax rules were true you'd be left paying cap gains on the full value of the improved version, rather than the difference between original and improved at sale time. Ouch.
Really the law's going to have to adapt here if people are ever going to use crypto as an actual currency. Owing capital gains every time you order a latte is nuts.
PS: Trading cars with someone counts as 2 sales, assuming the titles change hands.