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Cryptocurrency has attracted extraordinary attention as one of the greatest financial innovations in recent years. Equally noticeable are the increasingly frequent cryptocurrency events, such as hard forks. Put simply, a cryptocurrency hard fork happens when a single cryptocurrency splits in two, which results in original coin owners receiving free forked coins. Such hard forks have resulted in billions of dollars distributed to U.S. taxpayers. Despite ongoing regulatory efforts, to date, the Internal Revenue Service (IRS) has yet to take a clear position on the tax treatment of cryptocurrency hard forks. The lack of useful guidance when filing tax returns has left taxpayers genuinely confused in the past few years. To fill this regulatory gap, this Note proposes a framework for cryptocurrency hard fork taxation. It explains the underlying technology of cryptocurrency hard forks, examines the recommended guidelines from the American Bar Association and the Association of International Certified Professional Accountants on cryptocurrency hard fork taxation, and references the current practices in Japan and the United Kingdom to lay a solid foundation for the proposed framework. Ultimately, this Note proposes a two-pronged tax on cryptocurrency hard forks. The first tax is levied on the profit made from the receipt of forked coins, and the second tax is levied on the profit made from the disposition of forked coins. A concrete proposal is provided for the applicable coin valuation, tax basis, holding period, and tax rate for the two prongs. Aiming to propose a tax treatment that is closest to the nature of cryptocurrency hard forks, this proposal considers various practical concerns, such as the inefficiency of the cryptocurrency market, the indirect possession of forked coins through third-party exchanges, and the fluctuating trading prices of forked coins when determining the valuation, tax basis, and holding period. This proposal not only provides clarity for taxpayers in filing

Free money, but not tax-free: a proposal for the tax treatment of cryptocurrency hard forks