How do I determine my basis in cryptocurrency I received following a hard fork

To determine your basis in cryptocurrency received following a hard fork, you need to include the fair market value of the cryptocurrency at the time you received it in your gross income. This fair market value becomes your basis in the new cryptocurrency.

Here is the detailed legal reasoning and rationale:

1. Gross Income Inclusion: According to Rev. Rul. 2019-24, if you receive new cryptocurrency as a result of an airdrop following a hard fork, you have gross income under § 61 of the Internal Revenue Code. The fair market value of the new cryptocurrency at the time you receive it is included in your gross income.
2. Determining Receipt: You are considered to have received the cryptocurrency when you have dominion and control over it. This means you can transfer, sell, exchange, or otherwise dispose of the cryptocurrency. Generally, this is the date and time the airdrop is recorded on the distributed ledger.
3. Basis Calculation: Your basis in the new cryptocurrency is equal to the amount you included in income on your Federal income tax return. This amount is the fair market value of the cryptocurrency at the time you received it.
4. Example: If you received 25 units of a new cryptocurrency through an airdrop following a hard fork, and the fair market value of those units at the time of receipt was $50, you would include $50 in your gross income. Consequently, your basis in the 25 units of the new cryptocurrency would be $50.
5. Constructive Receipt: If you do not have immediate control over the cryptocurrency (e.g., it is held in a wallet managed by an exchange that does not support the new cryptocurrency), you do not have gross income until you can exercise dominion and control over it. Once you gain control, the fair market value at that time will be included in your gross income and will determine your basis.

In summary, your basis in cryptocurrency received following a hard fork is the fair market value of the cryptocurrency at the time you receive it, which is included in your gross income. This basis is used for future calculations of gain or loss when you dispose of the cryptocurrency.

Sources:
Rev. Rul. 2019-24
Notice 2014-21
Issues in the Taxation of Cryptocurrency
CCA 202114020
Cryptocurrency Customer Compliance
IRS Rules New Cryptocurrency From Hard Forks Is Taxable