United States of America: Adopted Taxation of Cryptocurrency after Protocol Upgrade (Memorandum 202316008)

On 21 April 2023, the Internal Revenue Service (IRS) issued a memorandum for taxpayers holding a certain type of cryptocurrency. Specifically, it concerns cryptocurrency using distributed ledger technology (DLT) which recently underwent a protocol upgrade. A protocol upgrade is defined as a change in the algorithm where blockchains move from proof-of-work to proof-of-stake consensus mechanisms. The IRS stated that the protocol upgrade does not alter the transaction history of the cryptocurrency holder. As a result, the protocol upgrade does not result in any gains, losses, or other changes to income for tax purposes. The IRS also stated that the memorandum should not be cited as a precedent for future cases.