A blockchain hard fork creates a new cryptocurrency from an existing one. If you held Bitcoin when Bitcoin Cash forked in 2017, you received BCH tokens without taking any action. The IRS treats that receipt as ordinary income at fair market value — meaning you owe tax on tokens you never asked for, never bought, and may not have wanted.
Revenue Ruling 2019-24
The IRS addressed hard forks in Revenue Ruling 2019-24, which states that a taxpayer has ordinary income when they receive cryptocurrency from an airdrop following a hard fork, measured at fair market value on the date they gain dominion and control. This applies regardless of whether the taxpayer took any action to receive the forked tokens — if the tokens appeared in your wallet and you could access them, you had income.
Dominion and Control
The critical question is when you gained dominion and control over the forked tokens. If your exchange supported the fork immediately, you had income on the fork date. If your exchange did not support the fork for months, you had income when the exchange made the tokens available. If you held keys in a self-custody wallet but did not know how to access the forked chain, the analysis becomes more complex — and the IRS has not provided clear guidance.
Valuation at Fork
Forked tokens often have volatile prices in the first hours and days. The fair market value at the time of receipt determines your income — but "the time of receipt" may be ambiguous, and price data in the first hours of a new chain can be unreliable. Using the closing price on the first full day of trading on a major exchange is a defensible approach.
Cost Basis After Fork
Your cost basis in forked tokens equals the income you recognized — the fair market value at receipt. If you received BCH worth $500 at the time of the fork and later sold it for $300, you have a $200 capital loss. If you sold at $800, you have a $300 capital gain. The income recognition at receipt sets the basis for future transactions.
Resolution
If you received forked tokens and did not report the income, correction is straightforward but requires accurate historical pricing. Attorney Darrin T. Mish handles the filing and resolution. Free consultation.