The IRS has been broadcasting for several months that cryptocurrency tax guidance was coming soon and even as late as the end of last week IRS officials at an American Bar Association meeting were saying “very soon.” The IRS has finally issued new FAQs and Rev. Rul. 2019-24 providing much-needed crypto tax guidance.

For financial intermediaries, however, no new guidance was provided for third-party information reporting, i.e., whether an exchange or broker facilitating crypto transactions should be reporting crypto trades on a Form 1099-K or Form 1099-B or otherwise. Nevertheless, the new FAQs and revenue ruling did clarify a number of questions that have come up in the realm of crypto investment and trading.

First, the new guidance makes it clear that the IRS sees “hard forks” in cryptocurrencies as taxable events – which had not been clear up to this point. Hard forks occur when there is a change in protocol on a blockchain and the chain splits into two separate distributed ledgers – typically resulting in a holder of a crypto coin receiving a new coin in additional to the holder’s original coin holding. The IRS states that if a taxpayer receives the new coin in a hard fork, the fair market value of the new coin is taxable as ordinary income to the recipient on receipt, provided the recipient has dominion and control over the coin. If a holder doesn’t receive a new coin (and this may happen because a particular exchange or platform doesn’t support the new forked coin), the holder does not have income.

For financial intermediaries assisting with tax cost basis reporting, this rule has significant implications. It means basis from the original coin is not allocated to the new coin. The new coin takes a basis equal to the amount the holder includes in income as a result of the fork.

The new guidance also clarified a number of other questions on basis determinations – including that when a taxpayer sells cryptocurrencies purchased in multiple lots, it can specifically identify the crypto lot sold or follow a FIFO methodology. In addition, the new FAQs discuss fair market valuation of crypto under different circumstances, though valuation questions are likely to remain.

The bottom line for taxpayers trading in crypto: the IRS reminds them that whether they receive a Form 1099, the form type still unconfirmed, or W-2, a taxable crypto transaction remains reportable by the taxpayer.