Ethereum Merge and the heavy tax bill you might have

Ethereum merger may be a taxable event if it results in a hard fork that splits the chain, tax experts warn.

Ether (ETH) hodlers who don't play their cards right after the Ethereum merger could face a hefty bill come tax time, tax experts say.

Around September 15, the Ethereum blockchain is set to transition from its current Proof-of-Work (PoW) consensus mechanism to Proof-of-Stake (PoS), aiming to improve the network's impact on the environment.

It is possible that the merger will result in a controversial hard fork, which will cause ETH holders to receive duplicate units of hard-forked Ethereum tokens, like what happened when the Ethereum hard fork and Ethereum Classic performed in 2016.

Tax compliance firm TaxBit, head of government solutions, Miles Fuller, told Cointelegraph that the merger raises interesting tax implications in the event of a hard fork, stating:

"The biggest question for tax purposes is whether the merger will result in a hard fork that will split the chain."

"If it's not, there's really no tax implications," Fuller explained, noting that the current ETH PoW will just become the new ETH PoS "and everyone just keep going their little man on the way".

However, if a hard fork occurs, meaning ETH holders receive duplicate PoW tokens, then a "variety of tax impacts may fall" depending on the quality of PoW chain support ETH" and where the ETH is held when the fork occurs.

For ETH held in user-owned on-chain wallets, Fuller points to IRS guidelines stating that any new ETH PoW token would be considered revenue and will be valued at the time the user comes into possession tokens.

Fuller explained that the situation may be different for ETH held in custodial wallets, such as exchanges, depending on whether the platform decides to support the bifurcated ETH PoW chain, noting:

"How custodians and exchanges handle forks is usually covered by your account agreement, so if you're not sure, you...