Comment by pikchurn | Hacker News Reader

Comment by pikchurn | Hacker News Reader

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That's not what people are objecting to in this case.

This is not a family law judge subpoenaing coinbase for records. I've actual been an expert witness on such a court case and where Coinbase complied and gave the transaction history, for the record.

This is not the FBI or some regulator's enforcement arm investigating money laundering and having a court order requesting details of specific accounts. I'm sure they comply there too.

Nor is the IRS requesting information on specific people they think failed to report their taxes. That too would be understandable.

This is a fishing expedition. The IRS is requesting coinbase to turn over all personal information of all accounts and the entire transaction histories, with no specific basis given.

This is the financial privacy equivalent of court-order wiretapping vs dragnet surveillance. It is entirely reasonable to be angry about this.

Case in point: I bought and sold bitcoin on Coinbase at that time, as part of my non-registered sole proprietorship consulting business--I was paid by my clients in bitcoin, and purchased some on behalf of my father. As per the advice received by my accountant at that time, prior to publication of any IRS rules regarding bitcoin, I merely reported aggregate values of my own sales, not individual trades, on my Schedule C business income part of my personal 1040. Even in light of later advice published by the IRS, it's not clear that this was the incorrect way to file since it business income is handled differently. So I paid my taxes, legitimately, but there's no mention of bitcoin, or the individual trades that were made to cash out that bitcoin on Coinbase.

But, it now seems that the IRS is going to get a data dump that has my name and a bunch of bitcoin trades from years ago, and have no way of knowing that I already paid taxes on them. And, bad on me, I'm not sure I have sufficient record to prove my story, or if I do it will take a lot of unpaid work to put together. So I'm either going to get hit with an excessively large tax bill, or deal with a lot of pain and suffering and personal cost fighting this in tax court, losing a ton of my time for having done nothing wrong.

Fuck that. That's why we have due process and don't allow law enforcement fishing expeditions. False positives have a cost.

Coinbase partly brought this lawsuit on themselves (and you) by not sending 1099s to their customers. So the IRS overreacted by requesting all the data.

Thank you! That single integer "1099" clarified the whole thing for me! Of bloody course Coinbase is providing a service just like, say, Schwab does for stock accounts. And part of that service ought to be a nice, neat, verifiable year-end statement, "trading through us this year, you made/lost $X in taxable capital gains."

My 1099s from several Schwab accounts are the basis for much of my tax return each year and I am quite grateful for the way Schwab abstracts so much complicated accounting into a single statement that both I and the IRS can trust without question.

Is there a BTC exchange that DOES provide 1099-type statements?

How would Coinbase know the cost basis of coins transferred in?

Why would Coinbase issue 1099s? And on what basis? Keep in mind it holds custodian funds in a wallet service, like a bank account. If I deposit 1 BTC when it is worth $5,000, does Coinbase report that as $5,000 of income on my 1099? I hope not! What if I withdraw that same 1 BTC when it is worth $16,500, should Coinbase tell the IRS I made $11,500 in gains? But I didn't sell anything! I just moved something I already owned from one place to another. That's not a taxable event.

If I use my bank to transfer you money, the bank isn't responsible for filing a 1099 to report that income to you; I am. Using coinbase to transfer funds to you should be handled the same, and Coinbase is a wallet and merchant service as much as it is an exchange.

Now selling coins is always a taxable event. But when properly using an exchange, the coins should not be kept "on account." So ideally, every bitcoin sold was transferred into Coinbase/GDAX prior to the sale. How does Coinbase know the cost basis to report? It doesn't. Not unless that information is freely provided by the user, in which case it is fully unverifiable and the user would be free to put whatever the heck they want. Should Coinbase be required to file 100% self-reported tax information from its users without any way to verify the authenticity of that reported cost basis and time held?

Banks and brokers are required, by law, to report similar information.

Cypto-exchanges might be able to skirt those laws for now, because they're slightly different, new, and small, but if cryptocurrencies become mainstream the laws will be updated to include them.

and this speaks to the fundamental issue: governments intrude upon new freedoms and pure environments. There is no place free of control. What right does the government have to inject itself, ultimately resorting to violence, into a new economic system.

In this way, it is the government who commits a crime, crusading into new territory and plundering those who object.

I think you meant injustice. Doesn't sound like a crime for the government to legislate bitcoin unless there's a law forbidding creating laws against bitcoin?

"We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed."

What are you saying? My brokerage account has to tell the IRS how much money I made selling stocks. Sometimes I find that information out by referring to the documents which they send to the IRS, ffs!

Why is this any different at all?

If you already paid taxes on them, you can demonstrate that pretty easily.

Are currency trades taxed? I think bitcoin should fall more into that category.

Trades are not taxed in either case. Capital gains are, for both bitcoin and forex.

Because with traditional custodial assets there is a system in which there are verifiable records of ownership from which cost basis can be extracted, and a method for porting this information from custodian to custodian when assets are moved between brokerages. None of that exists for bitcoin, rather by design, as bitcoin resembles more of a bearer instrument than a traditional asset. Except in the simplest case where you buy coins from a single exchange, leave them on that exchange for the entire time you hold them (against all best practices), and then sell on that same exchange, there is absolutely no way for the exchange to know what your cost basis was, whether it was short term or long term capital gains, etc.

I get you and there is harm to be done from this, but did anyone expect otherwise? I mean if all the trades are done through the exchanges like coinbase, what did anyone think, that IRS wouldn't go after the exchanges?

I would be surprised that if you had been reporting your transactions (even as bulk numbers) on your schedule C that the IRS would have an issue now that they had details about those aggregates.

And since your bitcoin trades attached to your name can be linked to your tax returns I think they would absolutely know that you've already paid taxes on yours, and they will ask for your help in tracking down people for whom you did transactions so that they might connect their transactions to taxes that they have paid on them.

You tried to do the right thing. For what it's worth, that's very commendable. It's reasonable that you'd be upset because you're going to be burdened by the efforts required to further legitimize those earnings in the eyes of the IRS/law.

That said, you still did business in an unsanctioned proxy-currency. There's bound to be a cost to that.

Honestly, you should be upset with the broker (coinbase) for not providing you with suitable reporting documentation in the first place.

Did you do any transactions with more than $20,000 worth of bitcoin? If you didn't, you're fine. If you did, well then I hope people dealing with that much bitcoin would be wary of the financial consequences.

For anything which involves real money, the threshold is $10k:

https://en.wikipedia.org/wiki/Currency_transaction_report

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