Bitcoin Forum

It is only a matter of time before the tax collectors of the world figure out exactly how much they are not collecting through all the valid economic exchanges performed over the Bitcoin network.  I wonder what will be their tactics to monitor, and eventually try to tax Bitcoin?

Is this in any way possible?

what makes you think it is not possible to tax transactions carried with Bitcoin?

I expect them to use the same tactics that they use with physical cash.

 
How do they track physical cash?  It is very difficult for them, no?  You can get an idea of how much money came and went through bank statements, but these don't really exist in Bitcoin wallets, no?

They'll have to start with businesses that accept BTC first.  Before that the only way they can do anything with the rest of us is to monitor whats coming in and out of the exchanges.  Assume they will.  if you make lots of money, then plan to pay the taxes.  If you make only a little bit to none, I doubt they will even be interested.

Hm, I see how a business would declare its Bitcoin related revenues, especially if there was conversion between local currencies.  Same idea with the exchanges. 

I am more picturing a world where digital currencies become the norm and most transactions done are performed using this manner, i.e. no need to convert anything to a local currency.  How would a tax agency audit these transactions to ensure that the right tax has been declared / paid on it?

For the small fish, which is the vast majority of Bitcoin wallets, I imagine it is currently negligible regarding income.  But I still don't see how it will be controlled when the Bitcoin economy scales upwards.  Forgive the possible ignorance on my part of a crucial piece of the puzzle.

Exactly the same way they get you to pay your tax now:  hold a gun (jail time, audits, courts, etc.) to you head and force you to do it.

In Canada you can't go to jail for not paying your taxes... Unlike the USA.

Yes, sorry, I should have said "where I live" they will do exactly the same thing...

In fact in the US since income from all sources is taxable no matter what, Bitcoin income is already taxable and it would be considered a crime to not report it.

So, to answer your question:  Bitcoin income is already taxable in the US.

As mentioned above, some regulations already apply. Such as tax obligations.

it is technically possible to do much better.

For example, a Bitcoin merchant could use a type 2 deterministic wallet to generate payment addresses, and share the master public key with tax authorities (IRS). Such a setup would make it possible for the IRS to see how much they receive in payments. In order to check if the merchant is dodging taxes, the IRS agents can operate controls, where they pretend to be a customer, and check that the payment address that provided by the merchant belongs to the deterministic sequence.

This is a very simple and basic example; there are certainly lots of other ways to ensure that bitcoin businesses are taxable.

And this is a good thing, although there are surely caveats. Actively committing tax fraud surely violates the Criminal Code of Canada, and there are probably potentially serious repercussions of owing the government money. The Canadians just tend to overreact a little less about things. Another example: in British Columbia, if you don't pay the state (In$urance Corp. of British Columbia) your outstanding traffic fines, they just bar you from obtaining a driver's licence, registration and in$urance, whereas in some states in the US they'll put out a warrant for your arrest. IANAL, by the way, so take anything legal I discuss with a pinch of salt.

I hope they implement consumption taxes over introducing a massive police state to monitor every little thing you do...oh wait...