Virtual Currency Trades and Forks

The IRS has compiled a list of several Frequently Asked Questions surrounding virtual currency. It is important to understand how to determine the value crypto currency that is received through a trading platform or has been forked.

Q. I received cryptocurrency through a platform for trading cryptocurrency; that is, through a cryptocurrency exchange.  How do I determine the cryptocurrency’s fair market value at the time of receipt?

A: If you receive cryptocurrency in a transaction facilitated by a cryptocurrency exchange, the value of the cryptocurrency is the amount that is recorded by the cryptocurrency exchange for that transaction in U.S. dollars.  If the transaction is facilitated by a centralized or decentralized cryptocurrency exchange but is not recorded on a distributed ledger or is otherwise an off-chain transaction, then the fair market value is the amount the cryptocurrency was trading for on the exchange at the date and time the transaction would have been recorded on the ledger if it had been an on-chain transaction.

Q: I received cryptocurrency in a peer-to-peer transaction or some other type of transaction that did not involve a cryptocurrency exchange.  How do I determine the cryptocurrency’s fair market value at the time of receipt?

A: If you receive cryptocurrency in a peer-to-peer transaction or some other transaction not facilitated by a cryptocurrency exchange, the fair market value of the cryptocurrency is determined as of the date and time the transaction is recorded on the distributed ledger, or would have been recorded on the ledger if it had been an on-chain transaction.  The IRS will accept as evidence of fair market value the value as determined by a cryptocurrency or blockchain explorer that analyzes worldwide indices of a cryptocurrency and calculates the value of the cryptocurrency at an exact date and time.  If you do not use an explorer value, you must establish that the value you used is an accurate representation of the cryptocurrency’s fair market value.

Q: I received cryptocurrency that does not have a published value in exchange for property or services.  How do I determine the cryptocurrency’s fair market value?

A: When you receive cryptocurrency in exchange for property or services, and that cryptocurrency is not traded on any cryptocurrency exchange and does not have a published value, then the fair market value of the cryptocurrency received is equal to the fair market value of the property or services exchanged for the cryptocurrency when the transaction occurs.