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Comment by drcode | Hacker News Reader

It seems rather unprecedented that there are currently US citizens who are billionaires because of their crypto holdings, without the government having any insight into precisely who these people are. It seems like eventually the government is going to push for more onerous reporting laws to return to the usual equilibrium, where the government has at least some basic idea regarding who owns what (which I think they currently have, even for offshore bank accounts)

(not that I in any way support more aggressive reporting laws)

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It's not a big deal. It isn't that different than finding a significant amount of oil/precious metals on your land. As soon as you try to extract the value of the resource/crypto, the government will know. If you just sell it, the crypto exchange will report it to the IRS. If you try to trade/buy goods with it directly, any assets you get will create a paper trail that the IRS will eventually discover.

Consider the fact that illegal enterprises like drug dealers will pay a premium to launder the money (probably >=10%) and then pay taxes on the remainder. If you have the gains legally (crypto), it makes little sense to not just pay the normal taxes.

Also, if you made a significant amount of money on any crypto, you probably held it for more then a year at which point to capital gains tax is probably at most only 15% (<$441,000 ordinary income). And if you quit your job prior to selling (i.e had ordinary income <$40,000) then the capital gains would go to 0% (seems wrong (?) and maybe you would have to pay the alternative minimum tax... not quite sure).

Anyway the taxes are basically nothing compared to the benefits of having 100% clean money that can be reinvested and make 10-15% in the stock market.

> And if you quit your job prior to selling (i.e had ordinary income <$40,000) then the capital gains would go to 0% (seems wrong (?) and maybe you would have to pay the alternative minimum tax... not quite sure).

Not a tax advisor, but I thought capital gains counts as taxable income? So someone who sells $50k worth of BTC will pay 15% on $10k.

>but I thought capital gains counts as taxable income

It's taxed, but at a different rate compared to ordinary income.

Yes, and the rate depends on the amount of ordinary income you have (including short-term gains) and the amount of long-term capital gains. The capital gains rate is 0% under $40k (for single individuals) but ordinary income is calculated first (after deductions) and the total income determines the bracket. So if you have $40k or more in ordinary income (after deductions) then the 0% rate won't apply to any of your long-term gains. If you had $20k in ordinary income (a.d.) then the first $20k of long-term gains would be taxed at 0% and the next $400k (from $40k to $440k of total income) would be taxed at 15%, with anything beyond that taxed at 20%.

Also, if you have significant income from investments then a surcharge of 3.8% in Net Investment Income Tax may be added on top of the long-term capital gains rate for part of that income for a marginal rate of 18.8% or 23.8%.

The problem is, you can't transfer the oil to others with the click of a button for other things.

Tax evasion is very easy when you have crypto. You couldn't just sell it all at an exchange tax-free, but you can convert it into foreign currencies, goods, and services all without any oversight.

maybe taxes are bad and we should do something else

> Also, if you made a significant amount of money on any crypto, you probably held it for more then a year at which point to capital gains tax is probably at most only 15% (<$441,000 ordinary income).

Ownership of other assets tends to have legal documents of when it was purchased though. How does anyone know how long you've held it? You could prove it if it's been in the same wallet the whole time, with the transaction ID, and proof of ownership of the wallet. But what if you transferred it between wallets, and lost the first?

>How does anyone know how long you've held it?

The blockchain?

The Blockchain doesn't mandate that you hold the private key of any wallet you owned since you acquired some Bitcoin assets.

And a piece of paper doesn't mandate that you actually transacted on the date it claims you did.

all good points

> It seems rather unprecedented that there are currently US citizens who are billionaires because of their crypto holdings,

Perhaps, but it’s not as common as it sounds. Maybe there are people out there who invested $33,000 into Bitcoin when it was $1 and then didn’t sell a single penny as it rose and crashed multiple times, but the number of people achieving billionaire status without starting out with tens of millions invested is going to be quite small.

Also, once you pass a specific threshold of wealth it doesn’t pay to flout the rules and risk increasing consequences. Famous and wealthy people have gone to prison for tax evasion in the range of millions of dollars. Trying to dodge taxes to remain a billionaire instead of paying the relatively small capital gains taxes wouldn’t be a rational move.

Anyone sitting on huge amounts of crypto worth has likely hired teams of lawyers to cross every t and dot every i to stay in full compliance rather than put their windfall at risk for some irrelevant level of taxation.

There aren't a huge number of crypto billionaires (though your calculations miss those who rode other crypto waves with their bitcoin profits), but there are a decent number of people in the upper 10-figure lower 11 figure range.

Outside of Satoshi, the number of those people who are anonymous at a governmental level has got to be quite small.

Oops, meant 8-9 figure range. Too many zeroes. $50+ million.

Agree with all of this, except that I don't think these folks are currently reporting their holdings, as there is currently no requirement to do this.

It's very unlikely there are US citizens in the US who are Bitcoin billionaires and have not reported it and paid taxes to the government. Unless you're planning to flee the country, at some point the IRS will catch up with you. Remember that Bitcoin is an open, public ledger of every transaction. If someone is a billionaire, paying capital gains taxes is worth their freedom without a doubt.

There is currently absolutely no requirement in the US to report crypto holdings, only crypto sales.

So it is very likely there are such people, especially since it is common to divide large holdings between many separate addresses, making it impossible to infer holdings from sales income.

Good point. By "Bitcoin Billionaire" I mean people who had cashed out. If you haven't ever sold, you don't owe taxes.

But the IRS needs a mechanism to understand and interpret these ledgers, right? And the IRS enforcement is only as good as the people who are doing the enforcing.

I'm an engineer and I barely understand crypto, what hope does an IRS auditor have?

The IRS has teams of crypto experts and they use tools like Chainalysis that do much of the low level analysis for them. Also, they get data from crypto exchanges so when someone sells Bitcoin for dollars to cash out, Coinbase will (in most cases) send the IRS the 1099.

Like the rest of the US tax system, it's based on the tax payer being required to submit what she owes. If she lies about her income, the enforcement comes from the risk of IRS doing an audit and asking you to show where you got your funds from. It's no different than if you own a restaurant or other private business. You can misreport your earnings, but the risk is the IRS will audit you and you will get fined or possibly go to jail.

Crypto experts are predicting insane valuations for BTC, at the same time USD value will drop (rather people will lose confidence in USD).

What I fear is, will Uncle Sam just let the USD go down the drain and watch doing nothing?

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