The August 1, 2017, hard fork that led to the creation of Bitcoin Cash (BCH) from the original Bitcoin (BTC) blockchain was a pivotal event in cryptocurrency history. While the technical split introduced a new digital asset with larger block sizes and faster transaction processing, it also raised critical questions about tax treatment—particularly for individuals who received BCH as a result of holding BTC at the time of the fork.
This article breaks down the IRS’s official guidance on how such events are treated for U.S. federal income tax purposes, based on Internal Revenue Service Chief Counsel Advice (CCA) Memorandum 202114020, issued on March 22, 2021. We’ll explore what constitutes taxable income, when it’s recognized, and how taxpayers can determine fair market value—all while integrating essential crypto tax compliance principles.
Understanding the Bitcoin Hard Fork of 2017
On August 1, 2017, at block 478,558, the Bitcoin network underwent a hard fork, resulting in two separate blockchains: one continuing as Bitcoin (BTC), and the other launching as Bitcoin Cash (BCH). This split occurred due to disagreements within the community over scalability solutions, particularly block size limits.
From a technical standpoint:
- The last shared block between BTC and BCH was block 478,558.
- After this point, miners following different protocols created divergent chains.
- Holders of BTC at the time of the fork automatically had an equivalent amount of BCH recorded on the new chain—in a 1:1 ratio.
However, having a balance recorded on the blockchain does not automatically mean taxable income has been realized. The key determinant under U.S. tax law is dominion and control.
When Does Receiving Cryptocurrency Trigger Taxable Income?
According to IRS Revenue Ruling 2019-24, a taxpayer realizes gross income under Section 61 of the Internal Revenue Code when they receive new cryptocurrency through a hard fork and have actual or constructive receipt of that asset.
"All undeniable accessions to wealth, clearly realized, over which the taxpayer has complete dominion, are included in gross income."
— Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955)
This means:
- Simply having BCH appear on a blockchain address you own is not enough.
- You must be able to transfer, sell, exchange, or otherwise use the newly received cryptocurrency.
- If a third party (like an exchange) controls access, income is deferred until you gain control.
👉 Discover how to track crypto tax events accurately and stay compliant.
Case Study: Two Taxpayers, Two Different Outcomes
The IRS memorandum outlines two scenarios that illustrate how control determines tax timing.
Scenario 1: Immediate Dominion and Control
Taxpayer A held 1 BTC in a personal wallet with full control over the private key. At the moment of the hard fork (August 1, 2017), A’s address showed both 1 BTC and 1 BCH. Because A could immediately transfer or sell the BCH:
- ✅ Gross income was recognized in 2017
- 💵 Amount = Fair market value of 1 BCH on August 1, 2017, at 9:16 a.m. EDT
- 📊 Fair market value can be determined using data from reputable exchanges or aggregators
This is a clear case of accession to wealth with immediate control—thus triggering taxable income in the year of receipt.
Scenario 2: Delayed Access Through an Exchange
Taxpayer B held 1 BTC via a hosted wallet on a cryptocurrency exchange (referred to as CEX). Although the blockchain reflected 100 units of BCH linked to CEX’s address after the fork, CEX did not support BCH at the time.
As a result:
- ❌ B could not buy, sell, send, or transfer BCH
- ❌ CEX did not update its internal ledger to reflect B’s ownership
- 🔐 True dominion and control were absent
It wasn’t until January 1, 2018, when CEX enabled BCH trading and credited users accordingly, that B gained control.
Therefore:
- ✅ Income recognized in 2018, not 2017
- 💵 Amount = Fair market value of 1 BCH on January 1, 2018, at 1:00 p.m. EDT
- 📊 Value may be based on CEX’s pricing or another reasonable method if data is unavailable
This distinction highlights a crucial principle: economic benefit without control does not equal taxable income.
Key Takeaways for Crypto Tax Compliance
Understanding these rules helps ensure accurate tax reporting and avoids potential penalties. Here are core takeaways:
- 🧾 Income arises upon receipt, but only when you have dominion and control.
- 📅 Timing matters: The tax year depends on when you gained usable access—not just when the fork occurred.
- 💹 Fair market value should be documented using reliable sources like exchange rates or blockchain data platforms.
- 🔗 Hard forks differ from airdrops, though both may trigger income under similar principles (per Rev. Rul. 2019-24).
👉 Stay ahead of crypto tax season with tools that automate cost basis and gain calculations.
Frequently Asked Questions (FAQ)
Q: Is receiving Bitcoin Cash from a hard fork considered taxable income?
Yes. According to IRS Revenue Ruling 2019-24 and Chief Counsel Advice 202114020, receiving new cryptocurrency like BCH after a hard fork results in taxable income if you have dominion and control over it.
Q: What does “dominion and control” mean in crypto taxation?
It means you can freely transfer, sell, spend, or otherwise dispose of the cryptocurrency. If you can’t access or use it—such as when an exchange hasn’t activated support—you don’t yet have control, and no income is recognized.
Q: How do I determine the fair market value of cryptocurrency received?
Use any reasonable method: prices from major exchanges (e.g., Coinbase, Kraken), cryptocurrency data aggregators (like CoinGecko or CoinMarketCap), or time-stamped trade data. Documentation is key for audit readiness.
Q: Does every hard fork lead to taxable income?
No. Only if a new cryptocurrency is created and you receive it with control. Some forks fail or aren’t distributed to users. No asset received = no accession to wealth = no income.
Q: What if I never claimed or sold my forked coins?
Even if unclaimed or unsold, once you have control (e.g., exchange credits your account), income is recognized at that time. Holding doesn’t defer taxation—it only defers capital gains upon future sale.
Q: Are there differences between hard forks and airdrops?
While both can result in new tokens, hard forks stem from protocol changes creating a new chain; airdrops are typically promotional distributions. However, both may trigger income upon receipt with control, per IRS guidance.
Final Thoughts: Plan Ahead for Future Forks
As blockchain ecosystems evolve, more forks—contentious or otherwise—may occur. Whether it's Bitcoin, Ethereum, or another major network, taxpayers must remain vigilant about when they gain control over new assets.
Proper recordkeeping—including timestamps, wallet access logs, exchange announcements, and price data—is essential for accurate crypto tax reporting. Tools that track transaction history across wallets and exchanges can simplify compliance significantly.
👉 Access advanced crypto portfolio tracking tools designed for seamless tax reporting.
By understanding the IRS’s framework around hard forks, accession to wealth, and dominion and control, investors can navigate complex events confidently—and stay fully compliant in the eyes of the law.