IRS/tax question: Exchanging bitcoin cash for bitcoin?

[lottoken@lottoken.org]

Any one has found a way to do it without tax implication?

Please share any ways to avoid being taxed for something which is not really an income or any kind of capitals gain.

[Kakmakr]

Tax evasion is a criminal offense and helping someone to avoid paying taxes makes you complicit with these actions. All the profits from the free coins you received must be declared for capital gains. If the IRS or tax authorities request a audit of your returns and/or they audit these services that offer exchange of Bitcoin Cash to other currencies, then you will face stiff penalties.

Pay your taxes and avoid having to worry about the IRS or tax authorities for the rest of your life. ^hmmmmm^

[Wind_FURY]

How can the free BCC be considered capital gains if they were basically given to you for free for holding Bitcoins? It was not traded using fiat and there was no value exchanging hands.

I believe it will only become taxable once you sell it for fiat. But then again these are not gains from trading, so it is another question mark.

[687_2]

Any one has found a way to do it without tax implication?

Please share any ways to avoid being taxed for something which is not really an income or any kind of capitals gain.

In the US, tax is due when you sell your Bitcoin for USD. That's capital gains tax on the sale of a commodity, no question.

But that's not what is going on when you go to an exchange and trade your Bcash for Bitcoin. Now, simple minds might try to shoe-horn this type of event into the definition of a like-kind exchange.

https://www.irs.gov/newsroom/like-kind-exchanges-under-irc-code-section-1031

What are the different structures of a Section 1031 Exchange?

To accomplish a Section 1031 exchange, there must be an exchange of properties.  The simplest type of Section 1031 exchange is a simultaneous swap of one property for another.

Real property and personal property can both qualify as exchange properties under Section 1031

How do you report Section 1031 Like-Kind Exchanges to the IRS?

You must report an exchange to the IRS on  Form 8824, Like-Kind Exchanges and  file it with your tax return for the year in which the exchange occurred.

But in the case of a cryptocurrency hardfork I argue that absolutely no "exchange" has occurred, even though you may have had to go to a market maker like Bitmex and you "exchanged" Bitcoin for Bcash. I argue that what you are actually doing is recovering your own assets. It's as if you purchased a 1kg bar of gold; then you watch as 0.05kg of some new material suddenly emerges from your gold bar. Let's say it's shit. Your gold bar took a shit, and now you need to clean it up. Some random person in another country conjured up a magic spell and made your gold take a shit.

Did this event remove some of the utility or value of your asset? Maybe. But nobody knows for sure. You do know that your gold now shits, which you may or may not need to cleanup, and that's a new consideration regarding your gold. But beyond that you have no idea what this means. But weirdly, there are people in this world that are willing to exchange their gold (which they now know also takes shits that they have to clean up) for your gold's shit. So you trade your gold's shit for their gold. Do you physically have more gold now? Yes. Is your gold as valuable as it was before? Nobody knows. You just know that you have gold that shits. There is no precedent for this event. What about when your gold shits something else one day, and you never even realize it because that new shit is odorless and invisible? Should you be taxed on that too? How does anyone even know that this exists?

All we can consider is that you should be able to convert your gold's shit back into gold without any penalty, because this event was not driven by you or decided by you in any way. And as far as you are concerned, your gold is actually shitting out some of its value each time it shits, and therefore you need to take action just to maintain it's relative value. That's not a like-kind exchange; that's "required maintenance". It's not a financial decision to clean up the shit as much as it is a technical or social decision.

Your gold's shit is not a dividend. It's probably not something you wanted or even knew about. And it may very well be important to convert that shit back into gold because it might be the case that every time your gold shits 0.05kg, you lose 0.05kg of gold. The fact is that at this point in time, nobody knows what is going on with these forks in terms of value creation/destruction. If you are a tax authority and start taxing people's decisions on which UTXOs to hold and why, without really understanding what's going on, then that can be super disruptive to the technology, and you might really lose out on big tax revenue opportunities in the future by destabilizing what little stability is there in the first place.

So to make a long story short: if you want to be extra safe, you could always file a like kind exchange report. But otherwise I think the technology is moving too quickly to make a call on these types of things, and I argue that filing a report about wiping your gold's ass is completely unnecessary and counterproductive. If the technology works out and it keeps increasing in utility, you will still pay more tax in the end, when you convert back to USD to pay for things.

[687_2]

Tax evasion is a criminal offense and helping someone to avoid paying taxes makes you complicit with these actions. All the profits from the free coins you received must be declared for capital gains. If the IRS or tax authorities request a audit of your returns and/or they audit these services that offer exchange of Bitcoin Cash to other currencies, then you will face stiff penalties.

Pay your taxes and avoid having to worry about the IRS or tax authorities for the rest of your life. ^hmmmmm^

Tax evasion is not tax avoidance. And yes, profit or loss on sale of commodities is a taxable event in the US.

But what we are talking about with hardforks is not the taking of profits or losses, we are talking about the technical and social maintenance of a complex technological system. We do not tax the action of placing dirty diapers into a dumpster. We see that as social (cleanliness is viewed positively in most cultures) and technical (we will get physically sick if we contaminate our environment with bacteria from shit) maintenance.

[Spendulus]

The IRS views bitcoin as property. I would think this is not different than the case of a rancher, who started with 120 cattle and a couple years later has 450. Another analogous case is a stock split, such as when a company is split into two. Stockholders get proportional shares. Generally taxation occurs when the asset is converted to USD.

Consider if you had BTC on coinbase, and they gave you BTH. You wanted to convert it to BTC, and ON THAT PLATFORM this requires BTH-->USD, then USD-->BTC. A taxable event.

Another platform could allow BTC-->BTH directly. Viewing this as an exchange of property, rules for barter should apply.

Just the fact that you were airdropped new coins would not mean you had experienced a taxable event.

[Spendulus]

The IRS views bitcoin as property. I would think this is not different than the case of a rancher, who started with 120 cattle and a couple years later has 450. Another analogous case is a stock split, such as when a company is split into two. Stockholders get proportional shares. Generally taxation occurs when the asset is converted to USD.

Consider if you had BTC on coinbase, and they gave you BTH. You wanted to convert it to BTC, and ON THAT PLATFORM this requires BTH-->USD, then USD-->BTC. A taxable event.

Another platform could allow BTC-->BTH directly. Viewing this as an exchange of property, rules for barter should apply.

Just the fact that you were airdropped new coins would not mean you had experienced a taxable event.

Barter is a taxable event in the US, but you're not bartering. It would be more like if you owned a sheep, which gives birth, and then you had to pay tax on the birth of the new baby sheep.

You owned a sheep which gave birth, and then you exchanged the lamb with a buddy for a hunting dog. The exchange of one property for another is pretty much the definition of barter.

[687_2]

The IRS views bitcoin as property. I would think this is not different than the case of a rancher, who started with 120 cattle and a couple years later has 450. Another analogous case is a stock split, such as when a company is split into two. Stockholders get proportional shares. Generally taxation occurs when the asset is converted to USD.

Consider if you had BTC on coinbase, and they gave you BTH. You wanted to convert it to BTC, and ON THAT PLATFORM this requires BTH-->USD, then USD-->BTC. A taxable event.

Another platform could allow BTC-->BTH directly. Viewing this as an exchange of property, rules for barter should apply.

Just the fact that you were airdropped new coins would not mean you had experienced a taxable event.

Barter is a taxable event in the US, but you're not bartering. It would be more like if you owned a sheep, which gives birth, and then you had to pay tax on the birth of the new baby sheep.

You owned a sheep which gave birth, and then you exchanged the lamb with a buddy for a hunting dog. The exchange of one property for another is pretty much the definition of barter.

But not if I expected my sheep to give birth to a sheep, and instead it gave birth to a dog. And my friend's dog gave birth to a sheep. The we trade the offspring, and everything is right again in the world. I just don't see that fitting with the concept of barter, and how that should be a taxable event. 

[darkangel11]

Tax evasion is a criminal offense and helping someone to avoid paying taxes makes you complicit with these actions. All the profits from the free coins you received must be declared for capital gains. If the IRS or tax authorities request a audit of your returns and/or they audit these services that offer exchange of Bitcoin Cash to other currencies, then you will face stiff penalties.

Pay your taxes and avoid having to worry about the IRS or tax authorities for the rest of your life. ^hmmmmm^

Why are you threatening people with the IRS? They are a US thing and they are some thieving bastards IMO. Actually not only the majority of people in the world but also the majority of cryptocurrency users don't fall under the authority of the IRS and he hasn't said anything about living in the US or having to deal with one of those 3 letter agencies everyone is so scared of.

[darkangel11]

But in the case of a cryptocurrency hardfork I argue that absolutely no "exchange" has occurred, even though you may have had to go to a market maker like Bitmex and you "exchanged" Bitcoin for Bcash. I argue that what you are actually doing is recovering your own assets. It's as if you purchased a 1kg bar of gold; then you watch as 0.05kg of some new material suddenly emerges from your gold bar. Let's say it's shit. Your gold bar took a shit, and now you need to clean it up. Some random person in another country conjured up a magic spell and made your gold take a shit.

The image you've drawn just doesn't want to leave my mind.



Personally I think taxable exchange takes place only when you're getting something taxable in return, like money. When you have BTC and buy another coin with it (LTC) you don't pay taxes, because how would you? You don't know if this exchange will increase your wealth.
In most countries that i've been to you calculate your income based on your income. If you had an investment, like a property that you're renting out, and the value of that property went up for some reason, you don't owe anything to the government, just like you wouldn't be able to ask them for a refund if the value of that property went down. The only taxable thing is the income you got from renting it out.
When you're holding a crypto you don't get any income from it. The taxation comes when you buy something physical or switch to fiat, which makes your crypto produce an income.

[iamTom123]

How can the free BCC be considered capital gains if they were basically given to you for free for holding Bitcoins? It was not traded using fiat and there was no value exchanging hands. I believe it will only become taxable once you sell it for fiat. But then again these are not gains from trading, so it is another question mark.

As far as I know, this is the correct assessment. The tax law can only be applied once the person holding the digital coin will convert his hoard into the fiat money and am sure this is the time that a person has to declare it for possible capital gains (even if given for free or as a gift). This is actually a universally accepted system in applying tax towards cryptocurrency. A person can keep his digital currency forever and not be taxed if there is no movement to convert it into the fiat cash. Now, as in anything in life, we have to follow the law on taxes especially in countries where the government is strict and is always monitoring. People who are not fond  of paying taxes should instead relocate to some third-world countries where the governments are busy with something else.

[AmXProX]

Any one has found a way to do it without tax implication?

Please share any ways to avoid being taxed for something which is not really an income or any kind of capitals gain.

IF I understand your scenario correctly you are trading bitcoin cash to bitcoin right?
If that is the case I don't think that tax should be applied for that transaction since you haven't earned anything yet. Yea the value of your crypto might be higher because of the trade but it is still in crypto currency and until you converted it to fiat no taxes can be computed.

[btc-facebook]

Any one has found a way to do it without tax implication?

Please share any ways to avoid being taxed for something which is not really an income or any kind of capitals gain.

If government already make regulation for bitcoin it means that they able control bitcoin and usually they will apply tax on bitcoin so it has a power of law. It's impossible to avoid it except you're moving out from your current citizen into a country that still not have any regulation for bitcoin yet

[Wind_FURY]

How can the free BCC be considered capital gains if they were basically given to you for free for holding Bitcoins? It was not traded using fiat and there was no value exchanging hands. I believe it will only become taxable once you sell it for fiat. But then again these are not gains from trading, so it is another question mark.

As far as I know, this is the correct assessment. The tax law can only be applied once the person holding the digital coin will convert his hoard into the fiat money and am sure this is the time that a person has to declare it for possible capital gains (even if given for free or as a gift). This is actually a universally accepted system in applying tax towards cryptocurrency. A person can keep his digital currency forever and not be taxed if there is no movement to convert it into the fiat cash. Now, as in anything in life, we have to follow the law on taxes especially in countries where the government is strict and is always monitoring. People who are not fond  of paying taxes should instead relocate to some third-world countries where the governments are busy with something else.

But there is another problem. Can coins coming from a hard fork be considered "capital gains"? I know that there are definitely no laws for this and a good lawyer may find a small window for tax avoidance.

I am sure there are exploitable gaps regarding this, but I would like to see a lawyer join the thread though, to educate us.

[777Bitcoin]

Any one has found a way to do it without tax implication?

Please share any ways to avoid being taxed for something which is not really an income or any kind of capitals gain.

If your intention is to be on prison then it’s your choice. If not, read stories and news on Press section doing the same mistakes that you are willing to take. Is it even worthy? You will gain saving on not paying appropriate taxes to be used in jail is the unpractical things every person would think. The government is mandated to regulated and implement the law and we are obliged to follow it.

[exstasie]

But there is another problem. Can coins coming from a hard fork be considered "capital gains"? I know that there are definitely no laws for this and good lawyer may find a small window for tax avoidance.

I am sure there are exploitable gaps regarding this, but I would like to see a lawyer join the thread though to educate us.

I'm fairly sure that coins generated by a hard fork are not considered capital gains. But that doesn't mean that hard forks aren't taxable events. Forbes put out an article about this a couple weeks ago with regard to US bitcoiners:

Another hurdle for taxpayers is when to report the income from the hard fork. The issue is that not all Bitcoin holders will receive the benefit of the hard fork at the same time. Some users will have immediate access to their new cryptocurrency wallets, but others will not. Users who keep their Bitcoin on third-party exchanges like Coinbase will not be able to access their new cryptocurrency until the platform supports the new blockchain, which could be months or never at all.

Taxpayers in the first group almost certainly have taxable income on the date of the hard fork. But taxpayers in the second group can probably delay recognizing taxable income until they're actually able to claim the new cryptocurrency, whenever that is. These taxpayers might be able to use the value of the cryptocurrency on the date it becomes available to them, as opposed to the date of the hard fork.

The IRS is likely to say that neither group, though, can avoid the taxable income by simply "turning their back" on the new cryptocurrency. Under the doctrine of constructive receipt, an item of income becomes taxable as soon as it is credited to the taxpayer's account or otherwise made available to the taxpayer so that he or she can claim it at any time.

So our hopes of "free money" without taxes seem to be thwarted -- at least those of us in the USA.

It's still not entirely clear to me exactly what kind transactions it falls under, but the implication seems to be that the fair market value of the hard fork coins when you receive them is taxable income. Naturally, any profits/losses realized from holding the coins would be capital gains/losses.

[awilliams]

Dude i wish there was a way to not get taxed with income tax or capital gains, but crypto is considered property so any time you cash out, they will know. Even if you keep the transactions small, they'll still see a pattern.