I’d like to create a general thread to discuss how to treat scrt token and scrt token staking for tax purposes in the USA.
Would the enigma->scrt burn be considered an airdrop?
Since US holders don’t have access to sell SCRT on binance or any exchange yet, what is the value of the token for tax purposes? Zero? Should scrt tokens be reported with a zero basis on a tax return until a US listing?
How are you planning on reporting scrt burn and staking rewards for tax purposes?
Here is my view, and I’m not a tax guy, and im not even in the US. Disclaimed.
Ill be treating ENG/SCRT as the same coin, so the purchase price of my SCRT from the burn is what I paid for the ENG. An airdrop is when you get something for nothing, where as the ENG/SCRT was actually (with community help) a natural course of the development. It is like when a product rebrands, or changes its decimal, or when Eth becomes Eth 2.0.
As for the price of SCRT, everytime you hit the ‘Claim Reward’ button you are technically triggering a capital gain event on those new coins, if the USD value is $1 at the time of claiming, you made a gain of $1 per scrt, if the value is unclear, they will want ‘fair market value’ in which case, go check the CMC website as your reference.
It may not be perfect, but if you do get audited they will want to see you’ve done what you can to assess your capital gains as fairly as you can.
I am also not a CPA, but what you are describing would be considered ordinary income, not capital gain. Capital gain comes from the proceeds of selling a coin minus the cost basis of that coin.
That being said, there is very little IRS guidance on staking. Conservative filers do what you describe and claim staking rewards as income based on the fair market value at the time of receipt. That income will then be considered the cost basis of those coins to be used later when calculating the capital gain/loss when you sell (or exchange for another coin).
Aggressive filers have tried approaches such as claiming that staking rewards are analogous to livestock having offspring, or extracting minerals from property, which is not considered income, and does not become taxable until disposal, at which time, you would consider it to have a 0 cost basis, so the entire proceeds of selling the coin would be considered capital gain.
Even if you go the conservative route, you still have quite a headache. Technically, the IRS could say that it becomes income at the moment you have the ability to claim, meaning every 6-second block would technically be a point of taxable income. I doubt they could possibly enforce that view considering the burden that would place on filers, but if they do ever put out guidance saying that it must be considered income at time of receipt, it is unlikely someone would be able to avoid claiming that income by just not claiming rewards for years.