Hard Fork Taxes Explained: IRS Rules for Bitcoin Cash, Ethereum & More

What Is a Hard Fork?

A hard fork occurs when a blockchain permanently diverges into two separate chains, each with its own cryptocurrency. Hard forks happen when a blockchain's protocol rules change and consensus cannot be reached among network participants.

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After a hard fork, if you held the original cryptocurrency, you may become entitled to an equivalent balance on the new chain. However, your ability to access those new coins depends on wallet/exchange support.

 

Notable hard forks:

• Bitcoin Cash (BCH) from Bitcoin (BTC) — August 2017

• Bitcoin SV (BSV) from Bitcoin Cash — November 2018

• Ethereum Classic (ETC) from Ethereum (ETH) — July 2016

• Bitcoin Gold (BTG) from Bitcoin — October 2017

 

IRS Guidance: Revenue Ruling 2019-24

Revenue Ruling 2019-24 provides the IRS's official position on hard fork taxation. The ruling draws a critical distinction:

Hard Fork WITHOUT Receipt of New Coins

"A taxpayer does not have gross income under § 61 as a result of a hard fork of a cryptocurrency the taxpayer owns if the taxpayer does not receive units of a new cryptocurrency."

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Translation: If a blockchain splits but you never receive or gain access to new coins, there is no taxable event.

 

Hard Fork WITH Receipt of New Coins

"If a hard fork is followed by an airdrop and the taxpayer receives new cryptocurrency, the taxpayer has ordinary income... equal to the fair market value of the new cryptocurrency when it is received."

 

Translation: If you receive new coins AND can control them, you have ordinary income equal to their FMV at that time.

 

When Do You Have "Dominion and Control"?

The timing question is crucial because it determines when income is recognized and at what value. The taxable moment is generally when you can actually control the new units—which may differ from the "fork date."

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You have dominion and control when:

• Your exchange credits your account with the forked coins AND you can trade/withdraw them

• Your wallet supports the new chain AND you can send/sell the coins

• You can import your private keys into a wallet that supports the fork

 

You may NOT have dominion and control if:

• Your exchange doesn't support the fork (never credited your account)

• Your wallet doesn't support the new chain

• Technical barriers prevent access (need to run special software, etc.)

• You didn't hold the original coin at the time of the fork

 

Exchange-Specific Timing Example

Different exchanges supported forks at different times. Bitcoin Cash, for example:

• Fork occurred August 1, 2017

• Coinbase didn't credit BCH until January 2018

• If your BTC was on Coinbase, your taxable event was January 2018 (when you got access), not August 2017

 

This matters significantly because BCH prices were very different at these dates.

 

Cost Basis Rules for Hard Forks

Under the IRS approach in Rev. Rul. 2019-24:

For the new forked coins:

• Cost basis = FMV at the time you obtained dominion and control

• This is the same amount you report as ordinary income

• Holding period starts from the date of receipt (not original purchase date)

 

For your original coins:

• Original basis is unchanged

• Unlike stock splits, you do NOT allocate basis between old and new coins

• Holding period continues uninterrupted

 

Example: Bitcoin Cash Fork

Scenario: You bought 1 BTC for $5,000 in 2016. The Bitcoin Cash fork occurred in August 2017, but your exchange didn't credit BCH until January 2018 when BCH was trading at $2,500.

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• Original BTC: Retains $5,000 cost basis; holding period continues from 2016

• New BCH: $2,500 ordinary income in 2018; cost basis = $2,500; holding period starts January 2018

 

What Happens When You Sell Forked Coins?

Selling or exchanging the forked coins is a separate taxable event:

• Calculate capital gain or loss = Proceeds − Cost Basis

• Cost basis is the FMV you reported as income at receipt

• Short-term if held ≤ 1 year from receipt

• Long-term if held > 1 year from receipt

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Report on Form 8949 and Schedule D.

 

Reporting Hard Fork Income

At Receipt (Ordinary Income)

• Schedule 1, Line 8z ("Other Income"): Report FMV as ordinary income

• Include description like "Bitcoin Cash received from hard fork"

• Report in the year you obtained dominion and control (not fork date if different)

 

At Later Sale (Capital Gain/Loss)

• Form 8949: Report sale with proceeds and cost basis

• Schedule D: Summary of capital gains/losses

• Holding period starts from date you gained dominion and control

 

What If You Never Claimed Fork Coins?

If you were entitled to forked coins but never obtained dominion and control:

• You likely have no taxable income from that fork

• If you later claim them, that's when income recognition occurs

• FMV at the time you finally gain access determines your income and basis

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Caution: If coins were automatically credited to your exchange account and you could have sold them, you may owe tax even if you ignored them.

 

When Professional Review Is Appropriate

Professional review is commonly appropriate if:

• You held significant amounts of BTC/ETH through major forks

• You never reported fork income in prior years

• You're unsure when you obtained dominion and control

• You have forked coins on multiple exchanges with different timing

• You want to claim old fork coins now

• The amounts involved are material (>$10,000)

 

Schedule a consultation to review your fork history and ensure proper reporting.