IRS Requests Bitcoin Buyer Records in Broad Tax Evasion Case(fortune.com)
fortune.com
IRS Requests Bitcoin Buyer Records in Broad Tax Evasion Case
http://fortune.com/2016/11/20/irs-bitcoin-tax-evasion-case/
114 comments
Respectfully, you are incorrect or misinformed on many points.
- coinbase is and has been a licensed MSB for several years, this means that it has already had to comply with all of the same BSA rules as every other bank. [1]
- Banks don't have to report ANY transaction over $10,000. They have to report every CASH transaction (or aggregate of transactions) over $10,000 and any Suspicious transaction (or aggregate of transactions) over $2,000 [2]
- coinbase is rightfully concerned about the breadth of the subpoena because it's a giant fishing expedition. In order to request records, the federal government SHOULD have to provide reasonable proof of suspected criminal activity. [3]
- finally, this has absolutely nothing to do with anonymity. This has everything to do with another drastically over-reaching request by the federal government for personal information even when there is no evidence of any specific crime.
[1] https://www.coinbase.com/legal/licenses?locale=en
[2] https://www.ffiec.gov/bsa_aml_infobase/pages_manual/OLM_015....
[3] See the Constitution.
- coinbase is and has been a licensed MSB for several years, this means that it has already had to comply with all of the same BSA rules as every other bank. [1]
- Banks don't have to report ANY transaction over $10,000. They have to report every CASH transaction (or aggregate of transactions) over $10,000 and any Suspicious transaction (or aggregate of transactions) over $2,000 [2]
- coinbase is rightfully concerned about the breadth of the subpoena because it's a giant fishing expedition. In order to request records, the federal government SHOULD have to provide reasonable proof of suspected criminal activity. [3]
- finally, this has absolutely nothing to do with anonymity. This has everything to do with another drastically over-reaching request by the federal government for personal information even when there is no evidence of any specific crime.
[1] https://www.coinbase.com/legal/licenses?locale=en
[2] https://www.ffiec.gov/bsa_aml_infobase/pages_manual/OLM_015....
[3] See the Constitution.
Coinbase is welcome to fight the breadth of the request, but they will lose -- if not this time, then the next. The government has every interest in regulating BTC out of existence: the ability to transact value with no government intermediation cuts to the core of what it means to be a nation state, and no state is ever going to renounce that monopoly.
>> ..cuts to the core of what it means to be a nation state, and no state is ever going to renounce that monopoly.
Yet, some countries have started willingly renouncing that monopoly.
For example, Australian Reserve Bank has clearly stated that "There would be nothing to stop people in this country deciding to transact in some other currency in a shop if they wanted to. There’s no law against that, so we do have competing currencies."[1]
Similarly, The South African Reserve Bank has come to the conclusion that "The Bank does not oversee, supervise or regulate the Virtual Currency (VC) landscape."[2]
[1] https://en.wikipedia.org/wiki/Legality_of_bitcoin_by_country...
[2] https://en.wikipedia.org/wiki/Legality_of_bitcoin_by_country...
Yet, some countries have started willingly renouncing that monopoly.
For example, Australian Reserve Bank has clearly stated that "There would be nothing to stop people in this country deciding to transact in some other currency in a shop if they wanted to. There’s no law against that, so we do have competing currencies."[1]
Similarly, The South African Reserve Bank has come to the conclusion that "The Bank does not oversee, supervise or regulate the Virtual Currency (VC) landscape."[2]
[1] https://en.wikipedia.org/wiki/Legality_of_bitcoin_by_country...
[2] https://en.wikipedia.org/wiki/Legality_of_bitcoin_by_country...
Two counters:
1) These are bit players in the world economy, with nothing like the clout that the US derives from manipulating the world economy via seigniorage, reserve currency status, monetary policy and the ability to lock other countries out of the global economy
2) They will all change their tune if/when crytocurrencies start impeding the state's ability to make policy and collect taxes.
There's a digital currency in our future, but I guarantee that it won't be decentralized and that the government will have the signing keys.
1) These are bit players in the world economy, with nothing like the clout that the US derives from manipulating the world economy via seigniorage, reserve currency status, monetary policy and the ability to lock other countries out of the global economy
2) They will all change their tune if/when crytocurrencies start impeding the state's ability to make policy and collect taxes.
There's a digital currency in our future, but I guarantee that it won't be decentralized and that the government will have the signing keys.
> There's a digital currency in our future, but I guarantee that it won't be decentralized and that the government will have the signing keys.
That might be possible, but its too early to say anything at this point in time. The thing is that Bitcoin has technologically established itself as a stable crypto-currency and also an open-source wallet software. In future, some governments may also come up with their own centralized digital currency, but it will be too little and too late compared to something like bitcoin or litecoin.
Besides, bitcoin is international and a lot of people have started transacting in it already. Now, the government has to tread carefully about this, despite all the talk of sovereign nation and government upholding its economic control, no government can go against its own people in this day and age.
Also, actually persecuting the public for using crypto-currencies is against their own interest as it will create something like a Streisand effect. Right now, only the technically inclined know about bitcoins, blockchains and wallets, the rest treat it like some magical buzzwords. But if they start persecuting, a lot of other non-technical folks will also come to know about it and they will also start using it.
In short, the future depends on the mood of the people of the nation and not the governments. Its a fallacy that money begets is value as a legal tender by the government. Rather, it gets is value because its "generally acceptable", in other words the people accept it. People of a nation are above the government, not the other way round.
That might be possible, but its too early to say anything at this point in time. The thing is that Bitcoin has technologically established itself as a stable crypto-currency and also an open-source wallet software. In future, some governments may also come up with their own centralized digital currency, but it will be too little and too late compared to something like bitcoin or litecoin.
Besides, bitcoin is international and a lot of people have started transacting in it already. Now, the government has to tread carefully about this, despite all the talk of sovereign nation and government upholding its economic control, no government can go against its own people in this day and age.
Also, actually persecuting the public for using crypto-currencies is against their own interest as it will create something like a Streisand effect. Right now, only the technically inclined know about bitcoins, blockchains and wallets, the rest treat it like some magical buzzwords. But if they start persecuting, a lot of other non-technical folks will also come to know about it and they will also start using it.
In short, the future depends on the mood of the people of the nation and not the governments. Its a fallacy that money begets is value as a legal tender by the government. Rather, it gets is value because its "generally acceptable", in other words the people accept it. People of a nation are above the government, not the other way round.
> no government can go against its own people in this day and age
I feel like some Syrians would disagree.
I feel like some Syrians would disagree.
>the ability to transact value with no government intermediation cuts to the core of what it means to be a nation state
You realize you can transact in any medium you want, right? Literally anything you want, as long as the other party accepts it. But this has nothing to do with the fact that you owe taxes on income, to be paid in dollars, regardless of the medium you choose.
You realize you can transact in any medium you want, right? Literally anything you want, as long as the other party accepts it. But this has nothing to do with the fact that you owe taxes on income, to be paid in dollars, regardless of the medium you choose.
> be a nation state, and no state is ever going to renounce that monopoly.
I agree that the politicians in Washington will fight back to continue their monopoly. How people transact in private life has however no implication on nation state. USA as a nation state and we as people would be significantly better if Fed stops the business of regulating currency and simply replaces old note with new ones.
The fight on BTC is something that US government is bound to lose because the rate of innovation here has already surpassed the rate at which the pen pushers in Washington can pass a bill.
I agree that the politicians in Washington will fight back to continue their monopoly. How people transact in private life has however no implication on nation state. USA as a nation state and we as people would be significantly better if Fed stops the business of regulating currency and simply replaces old note with new ones.
The fight on BTC is something that US government is bound to lose because the rate of innovation here has already surpassed the rate at which the pen pushers in Washington can pass a bill.
This, absolutely. I'm actually surprised the government showed their hand so soon. There must be a lot of money in Bitcoin already. The government WANTS people to go 100% digital with their capital. It is infinitely easier to track digital money. Bitcoin is something they're against because the anonymity factor. I won't be surprised if we see some legislation to block or inhibit anonymous digital currency.
Let's not forget that the US will really want to "own" or be in control of any significant digital currency. Since the US dollar is the world reserve currency, the US wields unprecedented economic power on a global scale. Any currency that has the potential or shows signs of shaking that up will be on the radar for the US govt and the Fed, as controlling currency is the means by which one can control the economic destiny of any nation(s). As we saw with Egypt, for example, several years ago. A simple change in US monetary policy can result in the overthrowing of foreign governments!
Interesting side anecdote: A person very close to me purchased Bitcoin on the stock market, but Bank of America froze the account on suspicion / risk of money laundering or general FUD. It isn't clear how much of this was due to the bank or the government, as they are in bed together, but it prevented this person from being able to trade Bitcoin in his account anymore. Sadly, had his account not been frozen, he would have doubled his money.
N.B. Citations needed, obviously. Commenting on mobile makes this challenging.
Let's not forget that the US will really want to "own" or be in control of any significant digital currency. Since the US dollar is the world reserve currency, the US wields unprecedented economic power on a global scale. Any currency that has the potential or shows signs of shaking that up will be on the radar for the US govt and the Fed, as controlling currency is the means by which one can control the economic destiny of any nation(s). As we saw with Egypt, for example, several years ago. A simple change in US monetary policy can result in the overthrowing of foreign governments!
Interesting side anecdote: A person very close to me purchased Bitcoin on the stock market, but Bank of America froze the account on suspicion / risk of money laundering or general FUD. It isn't clear how much of this was due to the bank or the government, as they are in bed together, but it prevented this person from being able to trade Bitcoin in his account anymore. Sadly, had his account not been frozen, he would have doubled his money.
N.B. Citations needed, obviously. Commenting on mobile makes this challenging.
> Interesting side anecdote: A person very close to me purchased Bitcoin on the stock market, but Bank of America froze the account on suspicion / risk of money laundering or general FUD. It isn't clear how much of this was due to the bank or the government, as they are in bed together, but it prevented this person from being able to trade Bitcoin in his account anymore. Sadly, had his account not been frozen, he would have doubled his money.
I highly doubt your contact bought bitcoin on the stock market, since there hasn't been an ETF launched. They might've bought bitcoin on an bitcoin exchange and had their bank account frozen- it still happens frequently. Banks in the US are still scared to do business with bitcoin folks because they don't want to get undue attention down the line (eg Operation Chokepoint), and banking a potential MSB is more difficult ("know your customer's customers").
I highly doubt your contact bought bitcoin on the stock market, since there hasn't been an ETF launched. They might've bought bitcoin on an bitcoin exchange and had their bank account frozen- it still happens frequently. Banks in the US are still scared to do business with bitcoin folks because they don't want to get undue attention down the line (eg Operation Chokepoint), and banking a potential MSB is more difficult ("know your customer's customers").
They might've bought bitcoin on an bitcoin exchange and had their bank account frozen- it still happens frequently. Banks in the US are still scared to do business with bitcoin folks because they don't want to get undue attention down the line
Banks also don't want to do business with bitcoin exchanges because this makes it trivial to loot an account over which you have gained unauthorised access. At the moment the bittcoin market consists primarily of people who value privacy over convenience and criminals. Until the former gets larger you should expect any reasonable bank to be extremely way of the latter.
Banks also don't want to do business with bitcoin exchanges because this makes it trivial to loot an account over which you have gained unauthorised access. At the moment the bittcoin market consists primarily of people who value privacy over convenience and criminals. Until the former gets larger you should expect any reasonable bank to be extremely way of the latter.
> I'm actually surprised the government showed their hand so soon.
Yes and in a very incompetent way. Coinbase will lose all credibility now if they don't challenge this in court. Coinbase is likely to win in the court increasing costs for IRS to do the same thing in future.
Secondly, despite the immense coercive power of US government this is a fight they are likely to lose badly in my opinion. The rate of innovation in currencies have reached well beyond the rate at which government can make sense and act on these things.
Yes and in a very incompetent way. Coinbase will lose all credibility now if they don't challenge this in court. Coinbase is likely to win in the court increasing costs for IRS to do the same thing in future.
Secondly, despite the immense coercive power of US government this is a fight they are likely to lose badly in my opinion. The rate of innovation in currencies have reached well beyond the rate at which government can make sense and act on these things.
The downvotes on this comment are confusing. Do people dispute that a cashless society would be a dream come true for the US government & Fed? Or that the US will do pretty much anything to protect its currency hegemony?
I would dispute that Bitcoin is likely to ever pose a threat to the US 'currency hegemony', at least as a currency in its own right rather than a glorified payment network with prices usually delimited in… US dollars.
More practically, I would dispute that the US regulators' concern about Bitcoin has much to do with speculation on its potential to pose such a threat in the future, as opposed to its current suitability for tax evasion and popularity for money laundering, crime, etc. (Please note that I'm not claiming Bitcoin is only or primarily used for those things, only that people who want to do those things often use Bitcoin.)
*edited to add tax evasion, which is of course the stated purpose in this instance...
More practically, I would dispute that the US regulators' concern about Bitcoin has much to do with speculation on its potential to pose such a threat in the future, as opposed to its current suitability for tax evasion and popularity for money laundering, crime, etc. (Please note that I'm not claiming Bitcoin is only or primarily used for those things, only that people who want to do those things often use Bitcoin.)
*edited to add tax evasion, which is of course the stated purpose in this instance...
>Do people dispute that a cashless society would be a dream come true for the US government & Fed?
For all intents and purposes we are already cashless.
But again, the government can't force you to use a specific medium for transactions, only what they will accept in taxes. If the system doesn't work for the people, the people will find away around it. That is guaranteed.
For all intents and purposes we are already cashless.
But again, the government can't force you to use a specific medium for transactions, only what they will accept in taxes. If the system doesn't work for the people, the people will find away around it. That is guaranteed.
>Any currency that has the potential or shows signs of shaking that up will be on the radar for the US govt and the Fed, as controlling currency is the means by which one can control the economic destiny of any nation(s). As we saw with Egypt, for example, several years ago. A simple change in US monetary policy can result in the overthrowing of foreign governments!
You have your causation reversed. The USD is the global reserve currency because of the power and stability of the United States. People choose to use it, they aren't forced to.
You have your causation reversed. The USD is the global reserve currency because of the power and stability of the United States. People choose to use it, they aren't forced to.
> This, absolutely. I'm actually surprised the government showed their hand so soon.
Does this have anything to do with Trump coming into power?
Does this have anything to do with Trump coming into power?
Given that Trump has not yet come into power, temporal consistency suggests the answer to your question is "no".
Do we have any reason to believe either of Obama or Trump particularly care about this issue? Enough to actually do something about this other than casually brush off a question if asked?
It's been obvious this is coming for a long time to anyone who has a realistic view of the IRS.
It's been obvious this is coming for a long time to anyone who has a realistic view of the IRS.
Coinbase has to report SARs, as well- they're a fully licensed money transmitter in the US- so maybe tone down the condescension. This is an overreach of a different type and by a different government body, and would be precedent-setting AFAIK.
SARs only apply to suspicious activity. CTRs are what your bank has to file for every transaction over $10000.
Also, it's all the Dept. of Treasury. The IRS is essentially the collection agency of the Dept. of Treasury.
It's listed as a bureau on the U.S. Treasury's website. https://www.treasury.gov/about/organizational-structure/bure...
Also, it's all the Dept. of Treasury. The IRS is essentially the collection agency of the Dept. of Treasury.
It's listed as a bureau on the U.S. Treasury's website. https://www.treasury.gov/about/organizational-structure/bure...
My point stands. Coinbase already has bank-level scrutiny, both directly and from its banking partners ("know your customer's customer").
I completely agree that anonymity in finance is at odds with many of the government's methods to enforce taxation, and that this is only the beginning. But Coinbase has been the white knight in this space in the US dealing with the regulations, and I don't think they're naive to push back on this. It might be a losing battle over the next decade, but that doesn't mean it's not a worthwhile cause today.
I completely agree that anonymity in finance is at odds with many of the government's methods to enforce taxation, and that this is only the beginning. But Coinbase has been the white knight in this space in the US dealing with the regulations, and I don't think they're naive to push back on this. It might be a losing battle over the next decade, but that doesn't mean it's not a worthwhile cause today.
If your point is that it has a bank's level of scrutiny, then no it clearly does not stand. I mean isn't that the point of the government request? A bank's level of scrutiny would mean the government could reasonably guess if you are holding out on taxes which is clearly not the case here. Does the IRS regularly subpoena Chase and BofA's customer records. No, because there is no need. Thanks to the CTRs, they can crunch the numbers and figure out if the amount you paid on your taxes is suspiciously low.
Sure, it's a worthwhile cause. I wish them luck because Congress and the Courts have consistently torn down financial privacy over the last 30-40 years.
Sure, it's a worthwhile cause. I wish them luck because Congress and the Courts have consistently torn down financial privacy over the last 30-40 years.
To your point about SARs / CTRs- SARs at banks are usually triggered by cash deposits and withdrawals at a much lower level, and every bitcoin transaction is roughly equivalent to a cash transaction. Thus "bank-level scrutiny".
> I mean isn't that the point of the government request?
It's not clear to me whether they actually need this at all, considering Coinbase's existing reporting requirements. It's common enough from other branches to make overreaching requests to set a precedent (eg the DoJ / Apple iPhone) so I wouldn't just assume it's business as usual.
> I mean isn't that the point of the government request?
It's not clear to me whether they actually need this at all, considering Coinbase's existing reporting requirements. It's common enough from other branches to make overreaching requests to set a precedent (eg the DoJ / Apple iPhone) so I wouldn't just assume it's business as usual.
You're fixated on SARs being comparable to CTRs and they just aren't. First, a SAR is only for suspicious activity and it's relatively uncommon, a CTR is not optional and very common. If a SAR is being filled out, it's after trying to get in touch with the person to better understand their business and why various transactions look suspicious. It's not undertaken lightly. It's not a routine filing whereas CTR's are.
> SAR is only for suspicious activity and it's relatively uncommon
lol, just. stop. you obviously have no experience with this type of regulation (or at least you better hopeyou don't).
lol, just. stop. you obviously have no experience with this type of regulation (or at least you better hopeyou don't).
>SARs only apply to suspicious activity. CTRs are what your bank has to file for every transaction over $10000.
For every currency transaction, not every transaction. (if you deposit a check for $50,000, that doesn't get reported unless the bank thinks something about the transaction is suspicious)
Are bitcoins classified as currency for the purposes of CTR reports?
For every currency transaction, not every transaction. (if you deposit a check for $50,000, that doesn't get reported unless the bank thinks something about the transaction is suspicious)
Are bitcoins classified as currency for the purposes of CTR reports?
No, transferring 10k worth of bit Coin doesn't warrant a CTR, only if it's bought or sold using cash.
I've been postulating that a return to import/export taxes in addition to a small vat and include financial exchanges for import/export could be a better tax system with less bureaucracy than the current IRS.
Not that I like the approach, but feel it would be better overall, have less gov't and be harder to work around.
Not that I like the approach, but feel it would be better overall, have less gov't and be harder to work around.
>return to import/export taxes in addition to a small vat
thus significantly slowing B2B and B2C markets. Why would we do it? It is like Middle Ages - one can consume only what is produced in the castle's vicinity and from every bucket of grain one has to give share to the lord and share to the church (note - the example is exactly vat, not income tax, as vat is taken as share of the total volume without regard to the production cost while income tax is share of profit (i.e. of difference between total value and cost to produce)) And yes, nor the lord, nor the church were bothered with bureaucracy.
thus significantly slowing B2B and B2C markets. Why would we do it? It is like Middle Ages - one can consume only what is produced in the castle's vicinity and from every bucket of grain one has to give share to the lord and share to the church (note - the example is exactly vat, not income tax, as vat is taken as share of the total volume without regard to the production cost while income tax is share of profit (i.e. of difference between total value and cost to produce)) And yes, nor the lord, nor the church were bothered with bureaucracy.
Because B2B and B2C markets usually use BANKS as intermediaries for currency exchange anyway, so only the banks need to do it, and already have exchange provisions for fees, it would be easier to do there as a tax (additional fee). So instead of every individual responsible for filing taxes, only banks, and businesses do (which they already do as sales tax).
I've said for a long time that the problem digital currency proponents seem to be missing is that there is nothing intrinsic to the technology that prevents it from being regulated. A bill is already up in California that requires businesses to report anyone who uses it. The only reason it hasn't been heavily regulated is because it hasn't become big enough to be on the radar yet. The second it is, it will become like anything else.
I buy a small amount (about $20 worth) every paycheck, so I'm really not sure how to even report that reasonably. With such a volatile price, I don't really know how much it's gone up or down without some serious calculations. I'm not really sure what to do about that.
I was just about to sell some of it too, to help cover some recent expenses.
I was just about to sell some of it too, to help cover some recent expenses.
I am not an accountant or tax advisor.
Lots of little transactions are a pain, but I do believe you are required to track them in order to report your capital gains correctly. You only have capital gains when you sell, but you need to know your purchase prices and dates in order to compute it.
I used this website to analyze my CoinBase transactions: https://bitcoin.tax/
The site imports the transactions and computes your capital gains automatically. Then I entered my information into the IRS capital gains worksheet and reported the gains on my taxes.
Lots of little transactions are a pain, but I do believe you are required to track them in order to report your capital gains correctly. You only have capital gains when you sell, but you need to know your purchase prices and dates in order to compute it.
I used this website to analyze my CoinBase transactions: https://bitcoin.tax/
The site imports the transactions and computes your capital gains automatically. Then I entered my information into the IRS capital gains worksheet and reported the gains on my taxes.
When I visited Istanbul, I passed through a district with an endless number of exchange shops, and it seemed like a place where you could easily wash money without any bank account involved. I believe Turkey isn't alone in having such a culture of buying/selling US dollars by tracking the USD rate.
Do the IRS and say Turkey's tax office tracks these as well? Assuming that you don't try to deposit the exchanged for bills in a bank.
Couldn't someone offer Bitcoin exchange in existing currency shops or the same service via Bitcoin ATMs? How would the IRS and its equivalents track that without requiring identification and registration before use? I suppose a small amount would be allowed for the tourist aspect but then you could use a group of friends or employees to wash small amounts. If you require ID for that, including tourists, then you can track it.
Do the IRS and say Turkey's tax office tracks these as well? Assuming that you don't try to deposit the exchanged for bills in a bank.
Couldn't someone offer Bitcoin exchange in existing currency shops or the same service via Bitcoin ATMs? How would the IRS and its equivalents track that without requiring identification and registration before use? I suppose a small amount would be allowed for the tourist aspect but then you could use a group of friends or employees to wash small amounts. If you require ID for that, including tourists, then you can track it.
This is not tax advice but from what I've seen in news reports, the IRS has different rules for currency. The reason bitcoin users have to report every little gain/loss is that the IRS doesn't consider it currency.
And the main reason they don't consider it currency is to impose a tax that discourages its use.
Without capital gains, if Bitcoin had ~0% inflation and the US got back up to 5%-10% inflation, then Bitcoin would become a better store of value.
However, with capital gains, the US would have to have significant inflation, around 20% or more, before Bitcoin would really be competitive. (I'm assuming there are significant transaction costs related to the low acceptance of Bitcoin)
In this manner, the US can (1) gain some additional tax revenue, and (2) prevent Bitcoin from becoming a competitor to the national currency, which every nation wants complete control over.
Without capital gains, if Bitcoin had ~0% inflation and the US got back up to 5%-10% inflation, then Bitcoin would become a better store of value.
However, with capital gains, the US would have to have significant inflation, around 20% or more, before Bitcoin would really be competitive. (I'm assuming there are significant transaction costs related to the low acceptance of Bitcoin)
In this manner, the US can (1) gain some additional tax revenue, and (2) prevent Bitcoin from becoming a competitor to the national currency, which every nation wants complete control over.
I've been thinking about this and wondering how they could prevent people moving to a WeChat like app and doing all financial transactions within that. If you enable anonymity in that there's no need to identify your meat life persona with your WeChat profile, how would the control be retained? Short of illegalizing mobile devices that allow installing a banned app like WeChatAnonEdition and having traffic police carry inspection devices that would allow them to detect illegally open Android devices in a driver's pocket, I don't see how it can be prevented. If you sell and buy inside WeChatAnonEdition and also get your salary inside WeChatAnonEdition, there is no monitoring and control anymore.
Just to be clear, I'm not agains taxes, because not paying taxes is like swatting an apartment, and generally taxes make sense to be paid, although most places also have several unfair tax codes, so I understand the common perception of taxes as "highway robbery".
Just to be clear, I'm not agains taxes, because not paying taxes is like swatting an apartment, and generally taxes make sense to be paid, although most places also have several unfair tax codes, so I understand the common perception of taxes as "highway robbery".
[deleted]
This is fantastic, thank you!
The note from the IRS about Bitcoin I read on CoinBase's site said it's similar to a security. So until you trade it out (sell it) you don't realize a gain. When you do your gains are considered similar to capital gains / capital losses (if you held for more than 1 year). Otherwise considered income.
Well again, I was about to sell some, and figuring out exactly how much I 'gained' from so many tiny buy transactions I imagine would be difficult (but might not be, I'm not sure).
It shouldn't be difficult, unless you don't have access to the proper information. The bitcoins you are selling need to be tied to specific bitcoins that were bought. Once you do that, then you have a cost basis for your sale. Subtract the amount you sold them for from your cost basis and that's your gains. If the source transaction was older than a year, it's capital gains. Otherwise, it's income.
(This is for the US.)
(This is for the US.)
Is there a "first bought, first sold" clause in US tax law regarding securities, or is it the average purchase value of your total holdings during a sale that counts?
E.g. I buy 10 BTC for $1 and then buy 10 BTC for $50 and then sell 10 BTC for $100: I have to pay tax on ($100-$1)
E.g. I buy 10 BTC for $1 and then buy 10 BTC for $50 and then sell 10 BTC for $100: I have to pay tax on ($100-$1)
> Is there a "first bought, first sold" clause in US tax law regarding securities, or is it the average purchase value of your total holdings during a sale that counts?
Neither. It's all specific lots (individual orders). How Coinbase chooses which bitcoin to sell will affect what tax you owe.
With a typical brokerage (e.g. Vanguard), you can configure individual securities to sell FIFO, lowest cost, avgcost, or specific lots. Not sure if Coinbase lets you do that.
Edit: From your example:
> E.g. I buy 10 BTC for $1 and then buy 10 BTC for $50 and then sell 10 BTC for $100:
You could sell the last 10 BTC you bought, in which case you'd owe capital gains tax on the $50 appreciation, or you could sell the first 10 BTC you bought, in which case you'd owe capital gains tax on 9 * $5 + 1 * $9 (= $54, slightly more).
Neither. It's all specific lots (individual orders). How Coinbase chooses which bitcoin to sell will affect what tax you owe.
With a typical brokerage (e.g. Vanguard), you can configure individual securities to sell FIFO, lowest cost, avgcost, or specific lots. Not sure if Coinbase lets you do that.
Edit: From your example:
> E.g. I buy 10 BTC for $1 and then buy 10 BTC for $50 and then sell 10 BTC for $100:
You could sell the last 10 BTC you bought, in which case you'd owe capital gains tax on the $50 appreciation, or you could sell the first 10 BTC you bought, in which case you'd owe capital gains tax on 9 * $5 + 1 * $9 (= $54, slightly more).
How is anyone supposed to distinguish the first 10 BTC from the last 10 BTC when the underlying satoshis might not even be the same? e.g. I might transfer those 10 BTC to an online store (web wallet, other trading, whatever) but then transfer them back, except I'll likely get a different 10 BTC. Seems like all you can determine is that you once bought $x and once sold $y. Since you can also exchange btc for goods, or mine it (which I believe even the IRS has different rules for), you can't say with certainty whether it must be $y <= $x or $y >= $x. So when you sell 5 BTC, it's either mining income (or other income) or a capital gain, but it seems like there's nothing stopping someone from always taking the least expensive taxes first.
> Seems like all you can determine is that you once bought $x and once sold $y.
That's all that matters. Your gains (or losses) are $y - $x.
> it seems like there's nothing stopping someone from always taking the least expensive taxes first.
Yes. If you had some with gains and some with losses, you could even choose to sell those at a loss in order to offset other gains.
That's all that matters. Your gains (or losses) are $y - $x.
> it seems like there's nothing stopping someone from always taking the least expensive taxes first.
Yes. If you had some with gains and some with losses, you could even choose to sell those at a loss in order to offset other gains.
You can decide how you want to do cost basis, but once you've decided for one security, you have to continue using that until it's gone. You can do first in, first out, last in, first out, or average price. I believe the default is average.
Under their tools menu, they have a report that calculates it for you.
For the past two tax seasons I've used app.libratax.com to automatically calculate the amount I owe to the IRS. It also exports a list of the relevant transactions to itemize when you file.
It's made filing really easy, well worth the small fee.
It's made filing really easy, well worth the small fee.
[deleted]
I had the same problem with the Canadian equiv (CRA).
I just treated it like I bought it all at $0 / BTC. I was selling between $100 and $1000, with an average purchase price between $4 and $10, so the cost was basically minuscule.
I just treated it like I bought it all at $0 / BTC. I was selling between $100 and $1000, with an average purchase price between $4 and $10, so the cost was basically minuscule.
I would personally be wary of a $0 purchase price since that seems more like a gift to someone reviewing it.
In Canada you just file capital gains or expenses for anything under how much your expense / gain was. If you get reviewed or audited you can revise your documents and you'll get more back.
It's kinda interesting because a lot of people will claim less than the levels that would normally trigger an audit (49% of household expenses towards rent, say) and then if they get audited upwards revise it to 75%. It's like a societal cheaper NASH equilibrium, since both the individual and the government gets penalised for being overzealous.
It's kinda interesting because a lot of people will claim less than the levels that would normally trigger an audit (49% of household expenses towards rent, say) and then if they get audited upwards revise it to 75%. It's like a societal cheaper NASH equilibrium, since both the individual and the government gets penalised for being overzealous.
But you wont get penalized for overpaying tax right?
It's no different than any other stock or ETF.
It's really tempting to say that the IRS won't be able to do anything - you can't prove I spent/received this for <x> type of activity.... but that's not how the IRS works. Once the IRS decides to audit, you are guilty until proven innocent. They will be elbow-deep into your figurative financial rectum, and you will (almost always) lose.
That's because they are very good at picking who to audit. If you can document all your deductions, and have all your sources of income declared, and stored it all together an audit consists of hitting print, handing the scanned copies to them, and waiting.
US tax law is so dense and complicated that they can effectively implicate anyone they choose. Having worked with numerous small businesses in the past, do you know how many of them could readily provide carbon copy receipts for every single deduction they claimed in the last X years?
I think there is a valuable discussion to be had about the power of a federal agency that can so easily zero their sights on anyone they choose, especially when that same agency has admitted to targeting for political purposes in the past.
I think there is a valuable discussion to be had about the power of a federal agency that can so easily zero their sights on anyone they choose, especially when that same agency has admitted to targeting for political purposes in the past.
If you choose to take a deduction, it's on you to keep the relevant documentation for that deduction for the period proscribed by law, generally 3 years. It's been a well-established principle of tax law for several decades, and there's really no excuse now that records can be easily and trivially digitized.
> do you know how many of them could readily provide carbon copy receipts for every single deduction they claimed in the last X years?
So on what basis did they take those deductions in the first place, if they didn't have the documentation to figure out what their deduction was in the first place? Did they just guess? Or are you saying they had it for one tax season and then destroyed it?
So on what basis did they take those deductions in the first place, if they didn't have the documentation to figure out what their deduction was in the first place? Did they just guess? Or are you saying they had it for one tax season and then destroyed it?
Either they had it and destroyed it, lost it or did what lots of small businesses do and had a credit card or checking account only used for business, then referred against the statements to determine deductions (sans receipts)
Is an e-mail copy receipt sufficient for the IRS? As a small business, we travel a lot and obviously book travel online (as well as make a number of other business purchases online).
I've never even considered that the e-mail receipt or purchase history on Amazon.com might not be sufficient documentation. Is this something I should spend the next half-hour researching, or am I concerned over nothing?
I've never even considered that the e-mail receipt or purchase history on Amazon.com might not be sufficient documentation. Is this something I should spend the next half-hour researching, or am I concerned over nothing?
IANAL, but looks like it's addressed on page 9 here: https://www.irs.gov/pub/irs-irbs/irb97-13.pdf
I'd be shocked if it wasn't, since invoicing purely by e-mail is pretty common these days.
I'd be shocked if it wasn't, since invoicing purely by e-mail is pretty common these days.
Receipts can be trivially documented by taking pictures with a cell phone at the time of purchase....
In my experience bank/cc statements have been sufficient documentation for smaller or recurring expenses.
In my experience bank/cc statements have been sufficient documentation for smaller or recurring expenses.
Anyone with W-4 and investments in a major mutual fund company probably doesn't have a problem complying with the tax law.
Not in the US. Been 7 years into business. It's practically impossible to be 100% clean on deductions, receipts, reporting, etc... That, and I'm very strict by any standards.
I think this is a pretty reasonable request if they only want Americans who traded bitcoin.
The IRS and SEC have the power to compel brokerages to turn over trading records for people who bought/sold stocks on the stock market so the precedent is not only set but well established long, long, long ago.
I mean if you traded bitcoin but didn't claim the income on your taxes, then you just blatantly and almost certainly knowingly/intentionally lied on your taxes.
I'm not certain what there is to argue about or push back on here.
It's not like you can create something new like bitcoin and then with a straight face claim that its not an equity or currency so the law doesn't apply to you.
Capital gains are taxable, full stop, unless there is a specific law to override that, like selling your primary residence.
Can someone make the case that this isn't just a cut and dry issue?
The IRS and SEC have the power to compel brokerages to turn over trading records for people who bought/sold stocks on the stock market so the precedent is not only set but well established long, long, long ago.
I mean if you traded bitcoin but didn't claim the income on your taxes, then you just blatantly and almost certainly knowingly/intentionally lied on your taxes.
I'm not certain what there is to argue about or push back on here.
It's not like you can create something new like bitcoin and then with a straight face claim that its not an equity or currency so the law doesn't apply to you.
Capital gains are taxable, full stop, unless there is a specific law to override that, like selling your primary residence.
Can someone make the case that this isn't just a cut and dry issue?
The IRS isn't supposed to use these powers to go on "fishing expeditions", according to its own manual[1]. Requesting info on millions of users without particular suspicion is more broad than necessary.
[1] - http://www.forbes.com/sites/kellyphillipserb/2016/11/21/irs-...
[1] - http://www.forbes.com/sites/kellyphillipserb/2016/11/21/irs-...
Conflating coinbase with a brokerage seems a stretch to me.
Many people used it more like Paypal, a conduit to make or receive payments for sales of goods or services. With the conversion of bitcoin to regular currency happening very quickly. No buy/hold/trade activity, etc.
Many people used it more like Paypal, a conduit to make or receive payments for sales of goods or services. With the conversion of bitcoin to regular currency happening very quickly. No buy/hold/trade activity, etc.
> Many people used it more like Paypal, a conduit to make or receive payments for sales of goods or services. With the conversion of bitcoin to regular currency happening very quickly. No buy/hold/trade activity, etc.
I'm glad you brought this up because it just strengthens my point. Paypal reports US account transactions to the IRS once they go over a certain size.
https://www.paypal.com/us/webapps/mpp/irs6050w
I'm glad you brought this up because it just strengthens my point. Paypal reports US account transactions to the IRS once they go over a certain size.
https://www.paypal.com/us/webapps/mpp/irs6050w
So does coinbase.
If you made money on ebay, deposited to your PayPal, and then spent elsewhere, and did not claim that money on your American taxes, you would be evading taxes by not reporting taxable income.
Same here.
Same here.
But the IRS has not asked for Paypal to dump their entire database of all payments and customers.
In fact they do.
"Since 2011, PayPal has been required by the IRS to report the sales of goods and services for customers who, in a single year receive:
More than $20,000 USD, AND 200 or more payments."
[1] https://www.paypal.com/us/selfhelp/article/How-does-PayPal-r...
"Since 2011, PayPal has been required by the IRS to report the sales of goods and services for customers who, in a single year receive:
More than $20,000 USD, AND 200 or more payments."
[1] https://www.paypal.com/us/selfhelp/article/How-does-PayPal-r...
That is a significantly smaller subset than "all US customers and all US transactions".
The point is that it's a fishing expedition.
The point is that it's a fishing expedition.
Well sure, they don't need to fish in USD, but they do need to fish in bitcoin.
It is what it is, but if I dealt in bitcoin over that period of time, and my returns didn't reflect it, I would be talking to tax attorneys and filing amended returns BEFORE the IRS letters started, not after.
It is what it is, but if I dealt in bitcoin over that period of time, and my returns didn't reflect it, I would be talking to tax attorneys and filing amended returns BEFORE the IRS letters started, not after.
How does it work if you sold a service for bitcoin, and the value of the bitcoin changed befor converting to cash? I would think that regular taxes (income) would be owed on the initial cash value, then capital gains tax would be owed on the float. Same as selling something in a foreign currency?
That's exactly the attraction coinbase had for many sellers (avoiding the volatility): https://www.coinbase.com/instant-exchange
Well it is a currency exchange and does broker currency transactions. Seems like a brokerage to me.
What's interesting here is that bitcoin is both an "investment" and "currency" (since you can pay for [some] goods and services with btc directly).
From the "currency" point of view - exchange rate (FX) gains/losses technically only apply to officially recognized foreign currencies.
So that is an interesting can of worms. If I buy bitcoin at price point X, it goes up to X+Y, but instead of selling it I use that Y to pay for something - was that Y a taxable gain?
From the "currency" point of view - exchange rate (FX) gains/losses technically only apply to officially recognized foreign currencies.
So that is an interesting can of worms. If I buy bitcoin at price point X, it goes up to X+Y, but instead of selling it I use that Y to pay for something - was that Y a taxable gain?
The IRS views crypto currency as property. In that context, they provided this recently:
https://www.irs.gov/uac/newsroom/irs-virtual-currency-guidan...
Which links to: https://www.irs.gov/pub/irs-drop/n-14-21.pdf
TL;DR - it's not currency, it's property, and as taxed as such in all ways (including recognizing gain/loss).
Specifically re: your question:
> Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?
> A-6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain.
https://www.irs.gov/uac/newsroom/irs-virtual-currency-guidan...
Which links to: https://www.irs.gov/pub/irs-drop/n-14-21.pdf
TL;DR - it's not currency, it's property, and as taxed as such in all ways (including recognizing gain/loss).
Specifically re: your question:
> Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?
> A-6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain.
The IRS has already released guidance on this [1]. It might be interesting to think about, but right now it's straightforward in practice.
IANAL, etc.
Edit: Well, for some definition of straightforward :)
[1] - https://www.irs.gov/uac/newsroom/irs-virtual-currency-guidan...
IANAL, etc.
Edit: Well, for some definition of straightforward :)
[1] - https://www.irs.gov/uac/newsroom/irs-virtual-currency-guidan...
They can be an income source if you mine, too.
Even more fun, if you mine back in the old days when difficulty was 3-digits, and then sell years later, they can be a long term capital gain.
Even more fun, if you mine back in the old days when difficulty was 3-digits, and then sell years later, they can be a long term capital gain.
Canadian govt apparently treats bitcoin as an asset. I wonder how that affects your taxes if the price goes lower than you bought it for; do you treat it as a depreciation in assets and are allowed to pay less tax?
I made a whole $50 on Coinbase. I expected some tax form to arrive, and it never came. Honestly I completely forgot about it until I saw this.
I wonder if that $50 will end up being hundreds owed in some kind of late fees/etc.
I wonder if that $50 will end up being hundreds owed in some kind of late fees/etc.
They will probably not go after anyone who made less than like $500. Remember each time they go after someone it costs them money too.
The IRS is kind of strapped for money. I suspect the threshold is way over $500.
We had a couple of agents show up at our door over something like $17. They weren't even from the nearest IRS office (50 miles away instead of 10 miles). Our theory is that they needed an excuse to drive up and try the new In-N-Out that just opened up in the state.
> I wonder if that $50 will end up being hundreds owed in some kind of late fees/etc.
No. Penalties are proportionate.
No. Penalties are proportionate.
Spoken like someone who has never been penalized by the IRS.
If you get a zealous agent, they will tack on anything even remotely plausible to nail you with. If you get an "it's a job" agent, they will do the minimum amount of work to process your file out of their inbox.
The difference between the two can be thousands of dollars, not just hundreds.
If you get a zealous agent, they will tack on anything even remotely plausible to nail you with. If you get an "it's a job" agent, they will do the minimum amount of work to process your file out of their inbox.
The difference between the two can be thousands of dollars, not just hundreds.
It really depends on how you underpaid or underreported your taxes:
https://en.wikipedia.org/wiki/IRS_penalties
Note that you can only be penalized if you screwed up. If you've paid your taxes appropriately, there is no penalty. So yeah, to the best of my ability I've filed my taxes accurately and paid the amount due, and I've never had to pay an IRS penalty.
https://en.wikipedia.org/wiki/IRS_penalties
Note that you can only be penalized if you screwed up. If you've paid your taxes appropriately, there is no penalty. So yeah, to the best of my ability I've filed my taxes accurately and paid the amount due, and I've never had to pay an IRS penalty.
I have never been entirely convinced that I have neither screwed up somehow in filing US federal tax forms, nor paid the minimum possible amount in tax.
Even if I were to somehow correctly claim every applicable reduction, and keep all the necessary supporting documentation, I still couldn't be certain that some faceless IRS agent wouldn't later tax my time by arbitrarily making me defend my filings in detail.
Being objectively correct is not adequate defense against IRS penalties. If you have never had to pay one, it may just be because the IRS computer never (randomly?) spat out your number for further scrutiny by a human.
Even if I were to somehow correctly claim every applicable reduction, and keep all the necessary supporting documentation, I still couldn't be certain that some faceless IRS agent wouldn't later tax my time by arbitrarily making me defend my filings in detail.
Being objectively correct is not adequate defense against IRS penalties. If you have never had to pay one, it may just be because the IRS computer never (randomly?) spat out your number for further scrutiny by a human.
I would bet that unless you're a person who willfully hid large capital gains in bitcoin or faked some kind of large tax deductible expenses by purchase of Bitcoin you probably will have anything to worry about. If you are among those two group then you've probably been worrying anyway.
Well, that was kind of inevitable.
I wonder if this in response to the recent launch of zcash: http://z.cash
I have always reported my virtual currency earnings by providing my deposits to Coinbase at tax time. Then again, I use Coinbase strictly to buy things with bitcoin, not as an investment tool.
Purchasing something with bitcoin can trigger capital gains/loss. If you buy 1 BTC at $700, it increases to $800, and you pay 1 BTC for something worth $800, then you have to report and pay taxes on $100 capital gains.
May be unrelated... but what happens when I purchase goods with a foreign currency which I had bought before (and reported the purchase) and said foreign currency value had increased 15% since the moment I reported its purchase?
Technically you have to report and pay capital gains if the change in value is more than $200. In your case 15% gain is probably not more than $200 so you wouldn't have to report it. However if you're talking about $100,000 initial FX transaction you would have to report the $15,000 as a long or short term capital gain.
remembering that time, we saw BTC spoke to the ~1000$us mark. my thoughts about his at the time was that the price spike was largely driven by Chinese demand for BTC.
Note that the price crashed after Beijing halted BTC exchanges with their state banks.
It could be part of some larger plan to leverage info against the sorts of folks who have enough RMB to help drive the price of BTC to +$1000.
Note that the price crashed after Beijing halted BTC exchanges with their state banks.
It could be part of some larger plan to leverage info against the sorts of folks who have enough RMB to help drive the price of BTC to +$1000.
I've read that Mt Gox, or someone who compromised it, caused the Nov-13 to Dec-14 bubble.
thats why on some level it is better to run your own wallet.
You still have to buy your bitcoin somewhere, unless you earn it or mine. This is about Coinbase's brokerage activities, not its wallet services.
OK, so you earn Bitcoin online, as an anonymous consultant. Cashing out is a risk. But at least, you can fund your anonymous online activity. Long term, I suppose that you could drop it somewhere as gold or real estate, and then emigrate. But that's also risky.
You could buy fairly anonymously via certain methods on localbitcoins.com (or in person, etc).
This should be a good one.
[deleted]
Whenever I hear someone talk about the dream of anonymous currency. I kind of laugh to myself because I know how far the government currently goes to monitor every little piece of your financial life to make sure you are paying what you owe in taxes.
[1] https://www.washingtonpost.com/news/the-watch/wp/2014/03/24/...