IRS Requests Bitcoin Buyer Records in Broad Tax Evasion Case
fortune.com
fortune.com
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/...
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...
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.
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.
> 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.
lol, just. stop. you obviously have no experience with this type of regulation (or at least you better hopeyou don't).
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?
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.
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").
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.
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...
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.
Does this have anything to do with Trump coming into power?
It's been obvious this is coming for a long time to anyone who has a realistic view of the IRS.
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.
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.
- 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.
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...
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.
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.
I feel like some Syrians would disagree.
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.
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.
Not that I like the approach, but feel it would be better overall, have less gov't and be harder to work around.
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.
I was just about to sell some of it too, to help cover some recent expenses.
(This is for the US.)
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)
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).
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.
It's made filing really easy, well worth the small fee.
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.
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.
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.
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.
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.
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".
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.
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?
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'd be shocked if it wasn't, since invoicing purely by e-mail is pretty common these days.
In my experience bank/cc statements have been sufficient documentation for smaller or recurring expenses.
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?
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.
Same here.
"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...
The point is that it's a fishing expedition.
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.
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.
[1] - http://www.forbes.com/sites/kellyphillipserb/2016/11/21/irs-...
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?
IANAL, etc.
Edit: Well, for some definition of straightforward :)
[1] - https://www.irs.gov/uac/newsroom/irs-virtual-currency-guidan...
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.
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.
I wonder if that $50 will end up being hundreds owed in some kind of late fees/etc.
No. Penalties are proportionate.
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.
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.
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.
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.