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And if you realize it I imagine your strike price was $0, so its full profit. IANAL tho.

(This thought experiment may be completely wrong, I'm unfamiliar with US tax law)

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.

I think there's an implication in your thought process that the 'bitcoin original' value, which you bought into, goes to $0. This would constitute a capital loss, and you would have gains up from $0 on the secondary blockchain ('bitcoin improved'). This would seem reasonable to me, as it's essentially a wash. The only thing that would muddy the whole thing up is the holding period for short term and long term capital gains.

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