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Is FLR Airdrop to XRP Holders Taxable? Here's What Ripple CTO Says

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Wed, 04/21/2021 - 10:43
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Vladislav Sopov
Flare (FLR), a core native asset of Flare blockchain, will be airdropped to the majority of XRP holders in late Q2, 2021. What does this mean in terms of taxation?
Is FLR Airdrop to XRP Holders Taxable? Here's What Ripple CTO Says
Cover image via ripple.com
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James Yochum, a Certified Public Accountant (CPA), has taken to Twitter to share some thoughts on how U.S. taxation norms might affect FLR airdrop to XRP holders and the price dynamics of a newly introduced asset. Ripple CTO David Schwartz and Flare CEO Hugo Philion expressed opposing views regarding this issue.

How would FLR airdrop be taxed?

According to Mr. Yochum, FLR airdrop to XRP holders should be taxed pursuant to IRS Rev. Ruling 2019-24, the document that clarifies the rules for taxation of income related to digital asset airdrops and hardforks.

CPA Youchum: FLR airdrop is eligible for taxation
Image via Twitter

Mr. Yochum shared the calculations of possible tax amounts. He claims that, should the FLR price witness a rally ended by a massive sell-off, those who hold FLR through the whole tax year will be put at an unfair disadvantage.

This is why possible taxation (at preferential tax rates of 20-24 percent) evolves into a dangerous potential catalyst for selling FLR and its price drops.

Twitter commentators from the U.S. are disappointed by Mr. Yochum's theory as to why their peers in Europe and Australia are happy about their countries' regulatory neutrality.

"The faster, the better"

Regarding this estimation, David Schwartz, CTO at Ripple, stressed that the FLR airdrop will be taxable. Thus, Flare Networks should airdrop FLR as soon as possible to reduce artificial selling pressure created by tax implications.

Flare's representatives disagreed with Mr. Yochum's take:

The analysis we have commissioned does not lead to the conclusion that there are multiple distributions or 'airdrops' happening over the extended timeframe.

Flare CEO Hugo Philion responded that Flare Networks will take time to come out with its own analysis of the tax aspects of the FLR airdrop. Meanwhile, he will not comment on the tax aspects of Flare (FLR) airdrop until this analysis is released:

David. We will release what we can on the analysis we have received in a format that does not give specific tax advice. Until that time myself or Flare won't comment further. Many will likely follow your lead, hence you may wish to consider more fully the veracity your comments.

FLR coins will be airdropped in multiple batches: the first one will go to registered XRP holders shortly after Flare launches in mainnet while the other portions will be distributed in a few months.

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About the author

Blockchain Analyst & Writer with scientific background. 5+ years in IT-analytics, 2+ years in blockchain.

Worked in independent analysis as well as in start-ups (Swap.online, Monoreto, Attic Lab etc.)