Without a legal definition of cryptocurrency ownership there is no way to interpret this guidance. I may assert that I own the private key which can transact on the Bitcoin blockchain but also assert that I do not own the exact same private key on the Shitcoin 1234 blockchain. A very crude and simple analogy would be like assuming people with the same bank pin are the same person.
The guidance does have a defintion of ownership: "Under § 61, all gains or undeniable accessions to wealth, clearly realized, over which a taxpayer has complete dominion, are included in gross income."
If you are the sole possessor of a private key which grants control of a cryptocurrency address then you have complete dominion over the crypto at that address. Under situation 2 of the guidance: "B has dominion and control of Crypto S at the time of the airdrop, when it is recorded on the distributed ledger, because B immediately has the ability to dispose of Crypto S."
Taken in the most taxpayer hostile interpretation that means that if the ledger is duplicated you have income because you have the ability to dispose of the forked coin with your private key even if you have no desire to touch it in any way.
This generates a lot of additional questions. What about a multisig situation? Can I have a buddy withhold a digital signature until I want to transact so that I did not own the crypto up until the transaction? Add in multiple jurisdictions of private key holders and things could get really interesting. Maybe it would be possible to pay no taxes at all! What about exchange coins where the person has no private keys and hence owns no crypto at all? Would they still have to pay taxes on crypto they clearly don't possess? What an absolute mess.
Lots of IRS regs are about the common case, not weird cases.
As an analogy: if I get paid by check on december 30th, and the check doesn't clear until january 2nd, is the income for the old year, or the new year? What if I hold onto the check, waiting for the new year? How about if I have the check, but I'm snowed in, and can't get to the bank? What if I can get to the bank on december 30th, but the bank is snowed in and closed?
(Answers: old year, old year, and then two don't knows)
What about the (unlikely) case that a wallet is shared between 2 or more individuals? Could I then "share" my private key with a trusted person (e.g. a parent) and claim _not_ to have complete dominion over the gains, thus no gross income?
So, according to the IRS, if you keep your crypto on an exchange, the exchange owns it, since it has complete dominion over the private keys. Taken literally, this would mean you wouldn't have to pay any taxes on it.
