What Are Airdrops & Forks?
An airdrop occurs when a blockchain project distributes free tokens to holders or wallet addresses. This is often used to promote a new project or reward community members. A fork happens when a blockchain splits into two separate chains, creating new tokens for holders of the original chain. Both events can result in new tokens appearing in your wallet unexpectedly.
How Airdrops & Forks Occur
Imagine you hold 2 ETH before a network upgrade. During a hard fork, the blockchain splits, and you now hold 2 ETH plus a new token—say, 100 fork tokens—on the new chain. For airdrops, a project might send tokens directly to your wallet address, perhaps in proportion to your holdings or as part of a promotional campaign. These tokens appear without any transaction on your part.
Valuation and Timing of Income
The IRS generally considers airdrops and forks as taxable income when you have dominion and control over the tokens—usually when they appear in your wallet. The value is based on the fair market value at that moment. For example, if 1,000 tokens are worth $0.50 each when received, your income is $500. Valuing these tokens accurately depends on market data at the time they hit your wallet.
Tax Treatment of Airdrops & Forks
The IRS hasn't issued specific guidance on airdrops and forks, leaving some ambiguity. Most tax professionals agree: receiving tokens from an airdrop or fork is income at the moment of receipt, equal to the fair market value. This income is taxable as ordinary income. When you later sell or exchange these tokens, you'll recognize capital gains or losses based on the sale price minus the value at receipt.
Common Mistakes & How to Avoid Them
❌ Failing to recognize airdrop income
Why
Many users think tokens are free or not taxable until sold.
Fix
Track the receipt date and valuation. Recognize income based on fair market value when tokens appear.
⚠️ Cost
Potential underreporting of income and IRS penalties
❌ Ignoring valuation timing
Why
Token prices fluctuate rapidly, making valuation tricky.
Fix
Use exchange data at the time tokens hit your wallet for accurate valuation.
⚠️ Cost
Incorrect income reporting, possible audit risk
❌ Not reporting forks or airdrops
Why
Uncertainty about IRS guidance leads to neglect.
Fix
Treat receipt as taxable income, report on Schedule 1 or ordinary income line.
⚠️ Cost
Legal penalties, interest on unpaid taxes
How Moonscape Handles Airdrops & Forks
Moonscape automatically detects when airdrops and forks appear in your wallet. We flag these events and estimate the fair market value at the moment of receipt based on available market data. Our system records the valuation date and amount, making it easy to include this income in your tax reports. When you sell the tokens later, Moonscape tracks your cost basis, simplifying capital gains calculations.