U.S. Treasury calls for stricter cryptocurrency compliance with IRS | Hacker News Reader

U.S. Treasury calls for stricter cryptocurrency compliance with IRS

cnbc.com

124 pointsASinclair108 comments

It's completely reasonable to tax investment earnings. That said, these regulations are concerning to me as a developer interested in actually building on blockchain technology.

At least from what I understand, just doing what's rapidly becoming run of the mill Web3 development is becoming extremely fraught territory for US citizens who want to comply with accounting and tax rules. It's an even bigger deterrent for students with limited ability to hire an accountant.

It wouldn't have been good for the US to stifle the web 25 years ago and I don't think regulating blockchain tech worldwide will work any better than trying to restrict the export of PGP did. Talent will just leave.

It seems to me that the US government is doing this at the right time. We're not in the early stages of cryptocurrency. We've had 10 years for lots of new ideas to mature, and we're on the verge of the most promising of all - Etherium transitioning from PoW to PoS. I'd say this is somewhat late given the Bitcoin/Etherium's popularity among small investors with much to lose, immense greenhouse gas emissions, and facilitation of ransomware and dark markets.

Any crytocurrency good enough to be useful will be large enough to have an ecosystem that complies with these rules.

Our society regulates money exchange for a reason. It can be put to tremendous negative use - funding criminal activities, siphoning money from public investment, etc.

> It can be put to tremendous negative use - funding criminal activities, siphoning money from public investment, etc.

And just like fiat, these activities will continue in the shadows, while innovation is harmed by regulation.

I keep hearing about all these amazing crypto products, yet outside of this very specific scene, where curiously only the VCs and devs involved wax poetic about it, you can never seem to find a real customer talking about their experience.

You either acknowledge that cryptocurrencies look close enough to currencies or securities and regulate them as such, or you promote them for illegal and ambiguously legal reasons for which there is little rationale for a commercial endeavor.

Anything else is just basically letting people slowly reinvent the finance system, with all the inevitable pitfalls it will have. Yes, it's regulated, so are most industries that have substantial systemic risks. The web was an anomaly, but as its proponents and participants acquired more power in society, society sought to regulate the rougher edges (for better or worse).

Decentralized securities havfe a different flavor than traditional securities, I like whos in charge, Gensler, to determine how they are going to regulate them if they are considered securities.

> with all the inevitable pitfalls it will have

Exhibit A (which I routinely get downvoted for mentioning on HN, as nobody likes to hear it): Ransomware

Exhibit B: Drugs

Sadly you can't buy your getaway car with Bitcoin anymore.

My friend bought some weed. Some years later, it turned out that could have funded a down-payment if he held the BTC. I'm not sure he talks fondly of his user experience

>"I keep hearing about all these amazing crypto products, yet outside of this very specific scene, where curiously only the VCs and devs involved wax poetic about it, you can never seem to find a real customer talking about their experience."

because there is none. A paper[1] described this as 'Veblenian Entrepreneurship'. Being 'in crypto' isn't actually about producing any tangible goods or services, but consuming the 'crypto/entrepreneur' lifestyle. It's a way for people to LARP as technologists or entrepreneurs without actually producing anything of use to the general public at large.

[1]https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3479042

> a way for people to LARP as technologists or entrepreneurs without actually producing anything of use to the general public at large.

as someone who likes Words and Terms for things, thank you. It has always rubbed me the wrong way that blockchain enthusiasts use code as a verb. This may sound strange but I find I only use “code“ as a verb for people who do not work in tech to describe what I do. Even introductory programming materials, if you look at them, always say “learn to code,” or “coding,” which I always feel amateur saying. If it’s someone I work with or who even just works in tech, it’s always more specific. Don’t know if this makes sense in the slightest but thanks regardless for the link.

I don’t know. I code and I don’t think it’s weird to use code as a verb. After all, I might be coding right now.

I bet if Carmack said he's becoming a better coder, I wouldn't blink. Everything sounds clumsy if you're convinced the ideas they convey are clumsy

It is not everyday one encounters a Thorstein Veblen reference.

>It wouldn't have been good for the US to stifle the web 25 years ago

Bitcoin was developed in 2008. The WWW opened to the general public in 1991. This would be the equivalent of the US government starting to regulate the web in 2004.

Crypto enthusiasts like to pretend we're still in the early days to try and deal with the extremely embarrassing reality that almost a decade and a half on it's still utterly useless.

That's like saying webapps are useless because users go to the app store first.

> It's completely reasonable to tax investment earnings.

Why? Don't americans have access to tax-free investment accounts like Roth?

They are only tax free if you are older than 60 and wait a 5 year holding period to prevent this exact evasion.

Why can't you do run of the mill Web3 development without transferring >$10K ???

You need to pay gas fees to transfer/execute smart contracts.

This seems like a positive for the legitimization of cryptocurrency. Of course if you were trying to use it to avoid paying taxes you may feel otherwise. Hopefully it leads better forms and adoption by exchanges to provide useful tax documents.

This is what I feel; becoming more normal. Sure a lot of people don't want to report it; don't think those people will start now anyway.

I think we should all be incredulous that any of this is "normal."

Be careful what you wish for.

If "Legitimate" means having to comply with all these regulations and decisions from unelected bureaucrats, then I prefer fringe and bizarre.

You only have to comply if you’re a US citizen or doing business as a US entity, in which case they are not unelected or are appointed by elected officials.

Unfortunately for your tastes of fringe and buzzard society and people in it at large prefer stability and regular growth. I like a bit of both. We need the fringe and buzzard for society to grow and change, and as a parent and home owner I like to know that society is stable and that I’m not in danger of losing everything some how.

Anyway, not an easy balance but such is living in a society.

I always found the derogatory use of “unelected bureaucrats” hilarious. Who elected the btc core devs?

Except the SEC is trying to classify all blockchain products as securities, which massives harms onboarding for people who want to try these fringe creative new apps.

As someone with a decent amount of money in crypto, I welcome this. I want to pay taxes on crypto capital gains in a way that makes sense instead of trying to guess my way through it, and I also want clear rules for exchanges, pools, etc. to follow to make reporting easy at tax time.

Yea, what I don't understand is how something like using ETH to buy another coin should be taxed? I totally get converting it back to dollars and calling that capital gains but trying to tax conversions from one to another seems nutty to me.

I feel like it would get really complicated to determine cost basis and actual capital gains if you did not do this. But maybe it's easy and I am missing something.

Why? If you trade Apple stock for Tesla, it’s a taxable event. There isn’t any requirement that USD be involved.

You do not trade 1 stock for another, you have to sell it, wait t+2 days for it to clear, then use those proceeds to buy the other stock. It's not the same in any manner.

That is just a side effect about how certain exchanges work, you can still trade one good for another without using cash, and it's a taxable event because your 'liquidating' property. It's known as bartering income: https://www.irs.gov/taxtopics/tc420

Very true, it's mainly an exchange thing. Thanks for pointing that out.

If I have a stock certificate for AAPL, and you have a TSLA stock certificate (I’m talking about actual paper certificates), we can trade them and it is a taxable event.

Ahh man, you are indeed right. But I seriously haven't seen a paper stock certificate in person this century.

I have some Disney ones from the 90s. They are actually very very nice artwork.

Doesn't even have to be paper shares. You can call up your broker and ask them to transfer X shares of ABC company into someone else's account. It is useful and essential to be able to transfer shares from one person to another without having to hit the open market. Like, imaging transferring 10% of a publicly traded company you own to the account of your family office.

So if I could find someone who was willing to trade shares with me, for other shares, then I could just not have to pay taxes?

Sounds like an awesome financial strategy! Sounds like someone could make a whole bunch of money doing this.

But they aren't. Nobody is doing this. Even though, there would be a huge amount of money to make, from doing it.

The bigger problem is that the automation behind sufficient tracking to make it easier to report is missing - or was. I bought stuff from Bittrex years ago, and I was forced to buy BTC to convert it to buy something else, Bittrex went away (and never cared anyway), so now I have some headaches to report. I'm glad my holdings were small.

All this goes away if there's automation and agreement among the exchanges. Of course, for those with wallets, I'm not sure what the solution there is. I'm guessing there should be some software one can use to track transfer times + prices and aggregate that, based on address... or something.

This will be an opportunity for some middleman to insert themselves. It’s normal. Crypto isn’t replacing civilization it is just another tool and will be subject to the same economies.

If I were to swap some Apple shares for Microsoft shares , without selling one for cash first, that would still be a taxable event.

I know this because we did such a trade with another fund.

Swapping one crypto for another is the same thing, the fact that fiat isn't involved doesn't change much in this scenario.

No one offers swapping x shares for y shares, you have to sell and buy. You can swap currency and some people believe crypto is currency, so it is different.

the common analogy would be an FX pair (like GBPUSD)

And how are forex transactions taxed? Why don't we just apply that policy to crypto?

> Why don't we just apply that policy to crypto?

This is the core of the whole issue; IRS (and similar bodies) are deciding what crypto "is", at least for tax purposes (as is their purview). That has implication for how and when things are taxed.

in the UK it depends on the intent of the transaction

speculation is treated differently to full-time trading, which is in term treated differently to trying to make some money on the side

Then there's a loophole right? Create a stable coin, and never have to cashout.

It doesn't really matter if you make the analogy of asset or FX; you owe tax on gains in either case.

Even giving the stock to someone else can be a taxable event (e.g. in lieu of cash you owed).

This isn't actually true as companies routinely acquire each other using mostly or only stock. However, the IRS does not consider exchange of stock for stock in mergers and acquisitions to be a taxable event.

Different case than what we're talking about here. Your case would be the same if it was cash buying a company.

Here we're talking about something different, which is an individual trading one form of crypto for another and showing how the same trade donew ith stock would be taxed similarly if you just swapped stock with another trader.

You are also taxed if you use cryptocurrency to directly buy goods or services as well. Based on my understanding, that would include using cryptocurrency to buy a company.

All transfers are taxable unless they are "in-kind", which is a very limited carve-out (e.g. you exchange gold for other gold).

Forex is often subject to such taxes. If the USD and CAD were trading 1:1 then if I buy 1000 USD with 1000 CAD in cash I have right now, and then immediately buy 1000 CAD worth of products with those USD, there are no taxes due.

If I buy 1000 of USD with 1000 CAD, with the expectation CAD will fall, then since my taxes are due in CAD in my case, when I sell those USD for 1500 CAD I've realized a gain of 500 CAD that would be considered taxable income. But if CAD goes up and I have to sell those USD for only 500 CAD, then I've realized a loss of 500 CAD and I could deduct it on my taxes.

Seems reasonable enough to tax currencies like investments when they're used as investments. Any asset held in that manner usually would be taxed like that.

You just take the current fair market value of the assets in question. You realize the gains on the asset you are selling, and you start your cost basis on the asset you are buying. Now thats easy for liquid crypto markets, its harder for when you are trading a paperclip into a house. At the end of the day, you self declare and you do your best to justify yourself. If the irs has a problem, they will let you know.

Is this actually going to help with that though? It sounds like this is just going to force exchanges and businesses to report transfers that are >= $10k to the federal government. In some ways this might make it worse since the federal government will have incomplete information and might audit you because they think you owe taxes when you really don't.

That said, I'd also really like to have clearer guidance around different crypto tax situations. Buying, selling, and transferring are all pretty darn clear to me. Wrapping tokens, staking tokens, merging multiple tokens into one, etc are all extremely unclear and result in inefficient technical solutions right now. It's horribly frustrating.

To give a simple example, I'd love to stake my ETH via a decentralized staking pool. To do so I have to convert my ETH into another token that is convertible back into ETH when I go to withdraw. In theory that might be a taxable event. In my mind it really shouldn't be since it's still ETH, just deposited somewhere.

The infinitude of tokens creates an ocean of bid ask spreads and fees and other frictional costs. It is the trade off of endless horizontal expansion of new tokens each for a different purpose. It is like the 1900s when anyone who could issued their own notes or script.

>could provide a regulatory moat around existing cryptocurrency exchanges

Because if there is one thing we need more of, it is government-sponsored oligopolies.

It was only a matter of time. I've been advising clients to retain every scrap of information regarding every trade they make for a while now. The hammer is coming.

With something that averages 200% a year growth, you really can just deposit your gains in your bank and pay your taxes with a smile.

Especially for us old-timers; gotta love that long-term capital gains tax rate! Set aside some of the gains into a high-yield savings account for making estimated tax payments, pay off some small debts, buy a couple nice things, and put the rest into a brokerage account to buy Vanguard ETFs.

Isn't Joe Biden planning to make the top capital gains rate the same as the short term rate?

For long-term capital gains above $1m, yes. I'm not lucky enough (yet?) for that to apply to me this year anyway. Plus, that change would probably apply from 2022 onwards, so there's a chance that if another crypto bull run happens later this year (a la 2013), one could still cash out gains under the current rate structure.

I also wouldn't be surprised if there's some negotiation with Republicans to raise the proposed bracket from $1m to $5-10m: pull out enough sad old widows with homes that have appreciated $1.5m+ such that the $250k exemption would still put them in the $1m+ bracket, etc.

Only for households with earnings over $1 million. So no, not for the vast majority of people.

Seriously, SPAM KING Richard J Schueler, did you pay taxes on all the money you made with all the Viagra spamming you did from Panama, and all your shitcoin shilling and lying about HEX being a CD, when you should have called it HOAX? And did you do it with a smile, just like you lie so easily to all your victims with a smile?

As the winner of the "Golden Pump Award" for "Best New Scam" for "HEX", and as one of the first people in the world to be successfully sued for online spam, specifically the Viagra spam scheme that you ran from Panama (which you lost, under your previous name "Richard J Schueler"), you could personally solve scams by ceasing and desisting your shilling of HEX, and your recruiting of unsuspecting developers to work on it, and your illegal false claims of providing CDs (certificates of deposit).

The burden seems to be on the business side here. So I'm not sure what changes tax wise for end users who were using centralized exchanges to monetize their holdings. If they weren't assuming the IRS was monitoring everything they were doing to begin with they were fooling themselves.

It'd be interesting to see though if you opened a lightning channel with an exchange and transferred funds back and forth to yourself millions of times. Seems like that would create infinite spam and flood these reporting requirements.

I'm all for reporting cryptocurrency as income. Bring on the tax deductions. Now my graphics card is an expense. So too the rest of my gaming rig, a rig that spends more time mining coin than it does playing games. My power bill? What accelerated depreciation can I take on a graphics card? Did I even turn a profit this year?

A few decades ago the IRS looked into rewards schemes, air miles and grocery store loyalty points. Those are technically income that must be declared. The result of the IRS investigation was that the entire are is too difficult to assess, too riddled with negative valuations that could be declared as losses (ie points that expire). I think they will come to the same conclusions for small bitcoin miners.

You could already do that, but generally the standard deduction is better for most people than whatever they get by itemizing.

Graphics cards are selling for thousands of dollars. Small dedicated mining rigs cost upwards of 10k. It doesn't take many of those to get beyond standard deductions.

GP could likely do it next week if he formed a business entity (Corp, LLC, etc.), which could properly take deductions from the first dollar of expense, as (s)he described.

Form the company, fund it with initial capital, then spend on rigs, utilities, & currencies. Your costs are expense-able, profits are taxable, and it all goes on a Schedule C, K, or whatever, depending on your corp type. You can probably take loss-carry-forwards from loss-making years to apply against profitable years,, and you can still likely use the standard personal deduction.

Absolutely check with your accountant and attny for local, state, national rules, this is not advice, just general experience.

I'd also advise using a proper accountant to file your taxes. Accountants put their reputation (and even their liscence) on the line and reduces the chances of audit. I've known several people who got audited, all of them had the IRS write checks to them at the end, but it was a huge pain in the arse, and they all did their own taxes, which seems like kind of a red flag (or extra demerits in their scoring systems) to the IRS.

You don't have to form a business entity. You can file as a sole proprietorship, which just means filling out a schedule c. There are some rules that you have to meet to qualify, but besides that it's just another form you fill out on your taxes.

good point, especially if you are making money so don't have to worry about the hobby issue, and aren't engaging in any activities for which you want the protection of a corporate structure.

Unless you actually make money doing this, the IRS will consider it a hobby rather than a profession, and will not allow you any preferential tax treatment related to business expense deductions, etc. Just a heads up.

Yes, that is a risk that my accountant warned me about.

But he also pointed out that it is not required to make money from Day One, and there are other criteria. IIRC, they don't have a problem until 3+ years out, and other criteria are considered, such as following business formalities (meetings, minutes, filings), segregation of funds, accounting (&yes, filing via an accountant helps), having a storefront, business cards, website, etc. Consult a qualified accountant.

I'm also presuming the GP poster is intending to make money, so that would eliminate the issue.

If you’re actually mining, you’re better off setting up a Sole Prop and filing.

Yup. If you're mining, and it fits the definition of a "business" instead of a hobby (google for more details - there are rules around what qualifies), you don't have to actually set anything up. You just file a schedule c as part of your taxes, and can therefore deduct expenses.

IMO: the IRS really needs to re-think the way crypto currency gets reported, the way it's actually used is more or less incompatible with the 8949 form and popular exchanges (coinbase in particular) generate reports that can't be directly converted to it.

> popular exchanges (coinbase in particular) generate reports that can't be directly converted to it

Isn't this really more of a Coinbase issue?

If my brokerage started sending me invalid forms at the end of the year, I would expect my brokerage to fix it. I wouldn't expect the IRS to change to match whatever the brokerage is sending out.

I use koinly.io and it does a nice job of preparing the 8949 for me, and syncs with my various wallets and exchanges. Plugs right into TurboTax.

Bookmarked, thanks for the rec!

I used Cointracker for generating tax forms from Coinbase to plug into TurboTax for the past 2 years, but Koinly website looks really nice and clean, and it feels less bloated than Cointracker, so I will give it a try next year. Especially since Cointracker started ramping up their pricing.

Yeah, I subscribed to three other services before I landed on Koinly. I also like that it properly handles fees.

This seems more like a problem for Coinbase et al, and not the IRS. Unlike the SEC, the IRS doesn’t actually care how you make your money as long as they get their cut.

Big brother can be a good thing, could be welcomed, if big brother was good for the user. The way they talk about this is a one-way transfer of value from the blockchain to the treasury - in a time of massive fiscal reserve from bond purchases. They would get a stronger desire to pay taxes if they gave better investor protections. Right now, there are none. Zero. You get rich, you pay half. You lose your life savings to a hack or rug pull, you get a $3000 maximum deduction on zero income. If both happen, you still owe the first half, and you still get nothing for the second half. And nobody is going to help you get your money back. You can’t sue, you can’t do anything. The current rules make it easy to end up owing dollars you’ve never had, and this happens a lot.

The world of fiat is not perfect, but you pay taxes and you get the might of the US government behind your investments. Your assumptions of good faith can be backed up by jail time if you are deceived. There’s actually a choice about that. You could invest cash in illegal business that affords you no protection, but most people choose not to. Blockchain investments are crippled for US citizens on both ends, crime and taxes. The benefits of the open participation model are still compelling, just not as much.

It will take broad international standards on both crime and taxes to fix this, and get Americans onto even footing with the rest of the world. Right now, US citizens are at a disadvantage compared to world counterparts, unless you are big enough to set up a subsidiary in a ‘crypto-friendly’ tax country.

We tried this with the internet 30 years ago, but we did the opposite. The US was the most Internet-friendly country on earth. Regulators knew they were in a war for global market share. The result is unsurprising. We won. Everybody came here. China may have won mobile. There will be competition for crypto. Binance is currently homeless. All the biggest VC-backed projects were led by US residents that moved to Switzerland to avoid taxes, which is perfectly legal for them, but not for a US citizen. That tax advantage made them better investments. Being a US citizen is an investment liability. Apologies if this rubs you the wrong way, but, citizenship should be an advantage here, just as it is respectively everywhere else (maybe not China).

People should want to pay their taxes, right? They voted for it, right? It’s not that different from any business or charity, and if the cypherpunks are correct, there will come a time where one may freely choose which society to enjoy the befits and bear the costs of membership. It won’t be free, but it will have to compete on value. The treasury is acutely aware of this for big business already, and the solution is to make it more competitive on the backs of citizens. There’s no other way! The US budget is loaded with items marked ‘mandatory’ that taxpayers today will never see the benefit of. We all love the roads; don’t pull that canard. There are great honest values in paying for the common good. But those dollars mostly seem to end up on the balance sheets of the same companies that shift the burden onto citizens, and this system of value extraction is the entire reason why a little experimental protest called Bitcoin has any value at all. If the dollar had as much transparency as Bitcoin, you could see this happening in real time.

So please start your cryptocurrency regulation with actions that actually help people in this space. They want violent and exploitive criminals out. They want protection from hacks and rug pulls. They want secure asset custody. They want proven reserves. They want smart contract audits. Paying taxes could and should afford advantages well worth the cost. Think about it this way: if all agencies announced that they were going to stop all taxes and all contract enforcements for the equities market, what would happen? Absolute pandemonium. Zero liquidity. The biggest market crash in history over the next 10 minutes. Like all open source, the customers in crypto markets are building solutions to obviate those agencies out of necessity, not desire.

A carbon tax should be levied on the miners too.

A carbon tax should be levied on everything that emits carbon

The simplest is your electric bill should fully encompass the externalities of the electricity you use. No one is going to self report crypto mining.

We want poor people to still have things like refridgerators.

It’s a bit hard to disambiguate. What about a PS5, should the electricity for that be taxed higher?

How this works in most areas is small amounts of electricity are subsidized and that subsidy goes away the more electricity you use.

Fridge, washing machine, A/C, tv, game console or such - you are probably not paying much.

Running a rack of gpus to mine the latest coin? Running a machine shop? Well, your cost is gonna start climbing.

Why? You can mine cryptocurrency using solar energy.

As if it was not strict enough

The powers that be will not give up their monopoly not he issuance of currency lightly. Classifying crypto as an asset rather than a currency was the first step. The hand will squeeze tighter and tighter.

They won't give it up at all, because there's absolutely no reason for them to. The reason they have this power is because they wield force legitimately, not because fiat is special.

Our nation's ideological self-segregation is proceeding nicely. I don't want to argue with you or change your mind, but I don't want to share a country with you either.

There is no such thing as a country, just a lot of trustless interactions between sovereign mafias

A private organization (central bank) having a monopoly on printing and lending money to your government is acting "legitimately"?

Many that have studied this system would disagree.

Where did you get the assertion that a central bank is a private organization? What evidence do you have for that?

The us central bank was chartered as an independent entity because policy makers here felt that having the central bank be embedded in the ex3cutive tended to inevitably corrupt the central banks decisions and led to crashes and devaluations and various bad politically motivated outcomes.

UK and US both have private central banks. This is true for all G8 countries if I remember correctly.

Most income taxes collected in the US/UK go directly to these private organizations.

In many ways slavery in the US was 'abolished' in 1865 then a revised version (aka perpetual debt slavery) was adopted in 1913 at the tail end of the US-China opium trade induced economic boom and expanded by both parties in the decades that followed.

Ah yes, the government mafia wants a bigger cut. A reminder: taxation is theft and slavery. The Crypto movement was created by people who recognize that.

If you really think that, then go live on an island somewhere and stop using our roads and other amenities, please.

the guys who built the road were taxed on their wages and they should be mad as hell about that, too.

A response completely bereft of any logical argument about why taxation is "theft and slavery". Do you have any arguments that would support this assertion?

it's a comment on a web forum, he doesn't have to reiterate the entire history of heterodox economics for you to be convinced its a defensible position. and anyway, it's quite besides the point since the economic argumentation is secondary to the observation that cypherpunks were an anti-taxation and anti-government - basically anarchist - subculture out of which crypto emerged.

I don't want to support foreign wars. I don't want to support foreign aid to countries that use it to conduct wars. I don't want to support incarceration. Yet, if I don't (e.g. pay taxes), I will be imprisoned, shot, etc.

Came here for this. It's sick to see how much energy and effort gets wasted on war and violence

Check out the book "The most dangerous superstition" by Larken Rose. You should be able to find a PDF version online for free.

Reply on news.ycombinator.com