However, I stopped mining Bitcoins a while before the guidelines were officially created by the IRS, back when Bitcoin was <$50 each. That said, I have no recollection or records of the pools I used to mine Bitcoin and I’m pretty sure the majority of them are out of commission by this point. I've also had to recreate my Bitcoin wallet several times along the way do to re-installing the OS/wallet getting corrupt. On top of that, the majority of Bitcoin now in my possession came from investing a few Bitcoins into other coins such as NXT that grew in price such that I was able to convert it back into several times the amount of Bitcoin I had put in.
My problem is, I’ve converted and withdrawn ~$20,000 worth of Bitcoin into my bank account. From my comments above, and now that Bitcoin is over $400 apiece, you can see most of my gains are capital gains from investing rather than mining. However, I have no record of my mining history, nor my gains history (the new coins I mainly invested in were newly created coins, aka I invested in it before it was officially offered on an exchange). When I file my taxes this year, would it be safe for me to file the $20,000 as $20,000 worth of capital gains (i.e. file everything I convert/withdraw for the full amount as capital gains) as opposed to worrying about the income tax portion?
First, you should understand the responsibility to keep records is on you. And in taxes, you are "guilty" until proven innocent. You do this by showing records.
Next, it doesn't matter when the IRS published guidelines. They are retrospective. Any coins you ever mined follow the same rules, which is, they are income at their fair value at the time of receipt. There has been well-documented historic prices for Bitcoin since they started, so you are able to find prices. Or, enter your mining volumes into
https://bitcoin.tax and we'll look it up.
For capital gains, you take the amount you receive for the coins less their cost. The problem here is that if you can't adequately show (in an audit) when you received those coins, the IRS could treat them as 100% short-term capital gains. This effectively means they are being taxed at income rates rather than discounted long-term rates. However, this is really no different than mining a coin and then spending/selling it. You will pay income tax on the mined portion and capital gains tax on the gains portion. The only difference is if you can show it was long-term.
If you can't find records of when you acquired these coins, well, first, look harder. The blockchain exists for a reason. If you can track your mined coins to a payout address you can show when you received them. Otherwise you could estimate it, the date that is, and then look up the fair value. Or, lastly, treat it all as short-term gains. If you are paying the maximum amount of tax, the IRS won't care, they are getting what they are owed.
