Tax treatment of forked convertible virtual currency

(a)

Exclusion from gross income

Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 139H the following new section:

139I.

Exclusion of convertible virtual currency received in a hard fork

(a)

In general

No amount shall be included in gross income by reason of the receipt of any forked convertible virtual currency.(b)

Forked convertible virtual currency

For purposes of this section—(1)

Forked convertible virtual currency

The term forked convertible virtual currency means, with respect to any taxpayer, any convertible virtual currency to which the taxpayer becomes entitled by reason of a hard fork.(2)

Convertible virtual currency

The term convertible virtual currency means any digital representation of value that—(A)functions as a medium of exchange, a unit of account, or a store of value;(B)does not have legal tender status; and(C)has an ascertainable equivalent value in legal tender or is used as a substitute for legal tender.(3)

Hard fork

The term hard fork means, with respect to any convertible virtual currency, any material change in the shared digital ledger which is used to verify by consensus transactions in such currency if such change results in the maintenance of independent shared digital ledgers with respect to such currency.(4)

Constructive receipt

Receiving forked virtual currency shall include any right to receive (or other constructive of) such virtual currency.

(b)

Safe harbor period for penalties relating to tax treatment of hard-Forked virtual currency

(1)

In general

In the case of a taxpayer who during the applicable period receives forked convertible virtual currency—(A)no penalties or additions to tax under part II of subchapter A of chapter 68 of the Internal Revenue Code of 1986 shall apply with respect to any portion of an underpayment or understatement of tax that is attributable to the taxpayer’s attempt during such period to comply with the tax treatment under such Code of the receipt of such virtual currency (or any disposition of such currency during such period); and(B)no penalties or additions to tax under sections 6651, 6654, 6655, 6656, 6698, and 6699 shall apply for any failure during the applicable period to file a return or report or make a payment of tax to the extent such failure is attributable to filing or payment requirements relating to the receipt of such virtual currency (or any disposition of such currency during such period).(2)

Definitions and special rules

For purposes of this subsection—(A)

Applicable period

The term applicable period means any period beginning before the date of the enactment of this Act and ending on the date the Secretary issues regulations or guidance, or legislation is enacted, that prescribes each of the following:(i)Rules for calculating and allocating the basis of forked convertible virtual currency.(ii)Rules for calculating the fair market value of forked convertible virtual currency at any given time.(iii)Rules for determining the holding period of forked convertible virtual currency.(B)

Other terms

Terms used in this subsection which are also used in section 139I of the Internal Revenue Code of 1986 shall have the same meaning as when used in such section 139I.(c)

Clerical amendment

The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after the item relating to section 139H the following new item:

Sec. 139I. Exclusion of convertible virtual currency received in a hard fork.

(d)

Effective date

The amendments made by this section shall apply to forked convertible virtual currency (as defined in section 139I of the Internal Revenue Code of 1986 as added by this section) received after the date of the enactment of this Act.