The IRS first addressed the issue of taxation of digital currency transactions in 2014, declaring that virtual currency should be treated as property for tax purposes.
That classification was a major setback for the adoption of virtual currency because taxpayers were required to track gains and losses in the value of virtual currency each time it was used, hindering adoption for payments for goods and services. The 2014 guidance also left many open questions about the tax treatment of events unique to virtual currencies, such as airdrops and forks.
Five years later in July 2019, the IRS launched a major enforcement effort by issuing more than 10,000 letters to taxpayers who had exchanged virtual currency asking them to review their transactions to determine if they had fully complied with their reporting and filing requirements. Shortly thereafter, in October 2019, the IRS issued additional guidance on the tax treatment of hard forks and airdrops, but again this new effort left many open questions and failed to provide clear and technically precise advice to taxpayers and tax professionals.