Bitcoin “Hard Forks” and Federal Income Tax: A Landmark Case to Watch

The US Tax Court is currently considering a case, Rogovy v. Commissioner, that could have an enormous impact on cryptocurrency holders. The primary issue under consideration is whether a Bitcoin "hard fork" that results in a taxpayer receiving a new digital token generates taxable income.

The Internal Revenue Service (IRS) says yes and has assessed Benjamin Rogovy and Carol Castellon Miranda $25.5 million in tax deficiencies and penalties. The couple says no, arguing that the fundamental legal requirements for recognizing taxable income were not met.

This case is being closely watched because it may be among the first federal court decisions to establish judicial precedent on how Bitcoin hard forks are taxed under federal income tax law. Regardless of the result, the case could significantly affect how millions of cryptocurrency holders report (or don't report) income arising from hard forks.

What Is a "Hard Fork"?

A blockchain is essentially a shared, immutable digital ledger that records transactions in a cryptocurrency network. The rules governing that ledger are called a protocol. When participants in a blockchain network fundamentally disagree about how the protocol should work going forward, the network can "split" into two separate blockchains, one following the old rules and one following the new rules. This split is called a hard fork.

A hard fork does not involve an exchange of the original cryptocurrency for a new cryptocurrency. The holder retains the original cryptocurrency, which remains unchanged on the original blockchain. A new cryptocurrency may also be created on the new blockchain and distributed, or “airdropped,” to the holder solely because the holder owned the original cryptocurrency at the time of the hard fork.

The IRS defines an airdrop as a means of distributing units of cryptocurrency to the distributed ledger addresses of multiple taxpayers. A hard fork is not always followed by an airdrop. Under IRS Revenue Ruling 2019-24, a hard fork by itself does not generate gross income if the taxpayer does not receive units of a new cryptocurrency. If a hard fork is followed by an airdrop of new cryptocurrency over which the taxpayer can exercise dominion and control, however, the IRS treats the new cryptocurrency as ordinary income when received. In the ruling’s income-recognition example, the taxpayer had the ability to dispose of the new cryptocurrency immediately following the airdrop. View IRS Revenue Ruling 2019-24.

In this case, the petitioners held thousands of Bitcoin in offline "cold-storage" wallets, which store Bitcoin on hardware or media not connected to the internet (a common security practice for large cryptocurrency holders). Between 2017 and 2018, nine separate Bitcoin hard forks occurred, which generated new tokens associated with petitioners’ Bitcoin holdings. The IRS attributed over $12 million in income to those forked tokens.

Case Status

A quick note on the history and status of the case, since the case is still ongoing.

• The IRS examined the couple's returns and assessed a deficiency of approximately $24.6 million for tax year 2017 and nearly $967,000 for tax year 2018, plus roughly $4.9 million in penalties for a combined exposure of approximately $25.5 million.
• The couple petitioned the US Tax Court, challenging the deficiency determination.
• The IRS moved for partial summary judgment, seeking a ruling as a matter of law on certain issues. 
• The Tax Court denied that motion, finding genuine issues of material fact regarding whether the couple actually earned income from the hard forks, meaning the case required further factual development and potentially a trial.
• On July 2, 2026, the petitioners filed their seriatim opening brief (a format where each party addresses issues sequentially) laying out their full legal arguments before the Tax Court. 
• On August 21, 2026, the IRS filed its seriatim opening brief.

The IRS' Argument

The IRS’s position rests on its previously published guidance, Revenue Ruling 2019-24. The ruling distinguishes between a hard fork in which a taxpayer does not receive new cryptocurrency and a hard fork followed by an airdrop through which the taxpayer receives new cryptocurrency.

Under the ruling, a hard fork alone does not result in gross income if the taxpayer does not receive units of a new cryptocurrency. When a taxpayer receives new cryptocurrency through an airdrop following a hard fork and can exercise dominion and control over it, however, the receipt constitutes ordinary income measured by the fair market value of the new tokens when received. The ruling’s taxable example assumes that the taxpayer has the ability to dispose of the new cryptocurrency immediately following the airdrop. 

Here, the IRS argues that the nine Bitcoin hard forks generated new tokens attributable to the petitioners, resulting in more than $12 million of taxable income in 2017 and 2018.

The Taxpayers' Argument

The petitioners' central legal argument is that the hard forks did not produce taxable income because they failed to satisfy all three prongs of the foundational income recognition test established by the US Supreme Court in Commissioner v. Glenshaw Glass Co. Under Glenshaw Glass, taxable income requires (1) an undeniable accession to wealth, (2) that is clearly realized, and (3) over which the taxpayer has complete dominion. The petitioners argue that none of these three elements were met here:

• No Complete Dominion: Accessing the forked tokens required six complex technical procedures that most ordinary cryptocurrency holders (let alone those using offline cold-storage wallets) would not be able to easily accomplish. Crucially, the petitioners argue these procedures also exposed their existing Bitcoin to significant security risks, making it impractical or even inadvisable to claim the new tokens. The petitioners further state that they were unaware of eight of the nine forks before the IRS audit, making it impossible to exercise dominion over assets they did not know existed. The IRS ruling, by contrast, addresses a taxpayer who had the immediate ability to dispose of the new cryptocurrency following an airdrop. Whether the petitioners’ technical difficulties, security concerns, and lack of awareness prevented them from exercising dominion and control is therefore a central factual issue. The difficulty of accessing an asset, standing alone, may not necessarily establish a lack of dominion and control.
• No Clear Realization Event: A hard fork is a protocol change, not a sale, exchange, or other event that traditionally constitutes a "realization" of income. The petitioners argue that merely having a new token appear (in theory) in connection with one's holdings is not a sufficiently clear realization event to trigger income recognition.
• No Undeniable Accession to Wealth: Given the complexity of accessing the tokens, the security risks of doing so, and the lack of awareness, the petitioners argue that there was no measurable or reliable increase in wealth at the moment of the hard fork.

Key Takeaways

This case matters to anyone who holds or has held Bitcoin or other cryptocurrencies that have been subject to hard forks, particularly those holding large quantities through offline wallets or through corporate entities. Although not discussed here in detail, the petitioners held their Bitcoin through an S corporation, raising questions about whether any income from the forked tokens passed through to them as shareholders and how that income should be allocated.

The outcome of this case could help determine whether the passive receipt of forked tokens, without any affirmative action by the holder or immediate practical access to the tokens, constitutes taxable income. We will continue to monitor this case closely and provide updates as the Tax Court issues further rulings.