cryptocurrency, bitcoin, ethereum, crypto
"If a token forks in the woods...how should it be taxed?"
The taxation of forks is a vexing, unresolved issue right now.
Consider for example, that a forked cryptocurrency is like a stock split (which is taxed one way) or a stock dividend (which is taxed another way). Or maybe it should be taxed like interest, and treated as a "capital" asset.
The American Bar Association ("ABA") recently called on the Internal Revenue System ("IRS") to provide guidance on the issue.
Specifically, the ABA has asked the IRS to provide a temporary safe harbor while they sort out just what the heck a fork is.
The ABA proposed that the harbor treats forks as taxable events, and that the owner gets a basis of zero. This effectively means the owner is taxed on the full amount of the newly forked digital assets. Additionally, under these rules, the holding period starts at the time of the fork. This matters because once a "capital" asset is held for a year, it gets a much more favorable tax rate.
So you could say that the ABA's proposal isn't exactly friendly to fork recipients. But since there's no guidance whatsoever on how to actually account for forks, it may be better for crypto holders to be able to comply with a tax law (even if it's unfavorable) than be potentially non-compliant depending on whatever the IRS later decides.