Coinbase Sends Form W-9 to send Form 1099-K if 200+ Transactions Are $20K+

[dmwardjr]

What I'm about to share is important to users of bitcoin mining pools who use CoinBase for their wallet and/or to convert bitcoin into USD.  If you have more than 200 transactions [Easily done with a payout for every block in a matter of several months] -AND- more than $20,000 in transactions.

I received the following email from coinbase today after they asked if I use my coinbase account primarily for business or personal use.  I told them business because my business checking account is linked to Coinbase.  I write off expenses related to bitcoin mining.  All payroll [since I began mining on September 22, 2014] still comes from my telephony training at the moment.  All profits [After expenses] from bitcoin mining are put back into buying more rigs.  

So, no payroll from profits made from bitcoin mining at the moment while I use those profits to grow my business [of mining].  I know of many entrepreneurs who did not take a pay check for a couple of years while starting a business to keep it alive before they could finally draw a paycheck for themselves.  Remind you, my only payroll in 2015 came from training telephone technicians.

Here is a copy and paste of the email:  [Nothing on the email said I could not share this anywhere else].

========================

Coinbase has requested a file from you.

Thank you for using Coinbase for your business activity. Due to your processing volume, your Coinbase transaction activity last year met U.S. tax reporting thresholds. As a result, we kindly ask you to please do the following:

1. Complete the fillable Form W-9 found here: https://www.irs.gov/pub/irs-pdf/fw9.pdf. Please fill out the basic information in boxes 1 through 6 and enter the applicable Taxpayer Identification Number in Part 1. Note: you may enter tax exemption codes, if any apply to your business, in Box 4. (If you believe the Form W-9 does not apply to you, please email us at taxfiles@coinbase.com and we will help you find the proper form.)

2. Sign and date the form on the line in Part II.

3. Upload the completed and signed Form W-9 using the Kiteworks website.

Coinbase will retain your completed form for tax reporting purposes and we will send you a Form 1099k in the next few weeks for your own records. If you have any questions please do not hesitate to reach out to taxfiles@coinbase.com. Please return the completed Form W-9 to us by January 25 so we can meet federal tax filing deadlines.

Upload link expires: Jan 25, 2016
This upload requires authentication.
To upload your file, please activate your account by creating a password.

========================

If you read the instructions for US Form 1099-K you will see the following in the instructions:  https://www.irs.gov/instructions/i1099k/ar02.html#d0e387

Exception for de minimis payments.   A TPSO is required to report any information concerning third party network transactions of any participating payee only if for the calendar year:
The gross amount of total reportable payment transactions exceeds $20,000, AND The total number of such transactions exceeds 200.

========================

Box 4. Federal Income Tax Withheld

Enter backup withholding. Persons who have not furnished their taxpayer identification number to you in the manner required are subject to backup withholding on payments required to be aggregately reported in box 1a.

========================

My question is this:  How does Coinbase KNOW what transactions are payments and what transactions are simply transfers from their wallet to a hardware wallet for cold storage?  What if I then [Later] transfer all or part of funds from cold storage back to my Coinbase wallet and use it later on to purchase rigs or other hardware?  Will the transfer from cold storage wallet to coinbase be counted as a "transaction" or thought to be a "payment" to me by Coinbase?  How the hell do they KNOW what is a payment and what is not?

Another example:  If I transferred $70,000 USD to my Coinbase account THEN purchased $70,000 worth of rigs, then transferred $70,000 to my cold storage wallet, then later transferred back to my coinbase wallet, then later bought $70,000 worth of rigs, is this to be reported as $280,000 worth of transactions on form 1099-K?

Another example:  I paid for something with bitcoin via escrow.  Let's say it did not work out and I get refunded that same amount.  Is the refunded amount to be added to the form 1099-K as well?

How do they know what is payments and what is not?  How do they know what is simply a transfer to what would be considered a savings account (cold storage) and then transferred back to what would be considered a checking account (everyday wallet)?

This will be interesting when I get the form 1099-K to see the gross dollar amount they put on the form.

We will see what is put on the 1099-K and if discrepancies have to be fixed, how well will Coinbase communicate with me to fix those discrepancies?  Will they ignore me or assist me?

The purpose of this post is to help others to avoid going through what I'm going through.  Especially, if this ends up being a long grueling process of editing one discrepancy after another regarding form 1099-K.  I hope others will be able to learn from this experience I'm about to go through and how to avoid a lot of headache on our end and on Coinbase's end.  I'm sure they will not enjoy fixing discrepancies either.

I now have to make sure I'm DEFINITELY organized.  I can see a visit from the tax man very easily this year if my Form 1099-K is not accurate and Coinbase does nothing with me to fix discrepancies.  

If Coinbase is helpful with me in fixing any possible discrepancies, I will change the title of this thread to reflect it and I will post in detail how they assisted me.

If Coinbase is not helpful with me to fix any possible discrepancies and makes this a long, grueling and stressful process , I will be on a mission to put an end to anyone doing business with Coinbase.

Hopefully, [as a miner who works to process transactions and strengthen the bitcoin mining network] I'm not spat upon and ignored by those who benefit from my work of securing the network and keeping it decentralized and thereby assisting them in continuing their prophets from the exchange and bitcoin mining network.

[dmwardjr]

That sucks but I think that's the law. You ever trade stocks? same thing there. after you reach $20k the SEC needs a blowjob and you must declare yourself as a day trader.

I think your only fix is give up citizenship

[dmwardjr]

I recommend not using Coinbase in any regard and use another means of conducting your business with bitcoin.  I can see this becoming a BIG mess.  I now have to make sure I'm DEFINITELY organized.  I can see a visit from the tax man very easily this year.  If that happens, I will be on a mission to put an end to anyone doing business with Coinbase.

I doubt this is Coinbase's fault.  They are a financial institution and there are very strict Federal regulations they have to adhere to.  When you make a large deposit to your checking or savings the Bank will report it too.  The transaction limit just smells like a government bureaucrat that probably can't even spell Bitcoin.

But please keep us apprised of the situation I would like to know what our liabilities are here in the US.  Thanks.

[dmwardjr]

The total number of such transactions exceeds 200.

Why not Mine to your own Wallet and just transfer to Fiat exchange such as Coinbase in large chunks when needed?
Avoid the 200+ transactions.

As for Tax purposes in USA, everyone should already be documenting their Fiat to BTC transfers and vice versa.  Fiat to BTC would go into a "Hold" account.  Then sales of BTC to Fiat would be removed from "Hold" account.  If more comes out than goes in, it becomes Capital gain and declared as such.  If you have sold all BTC and are under than you'll file a capital loss.  This should be done regardless of documents received as an audit will make resolution of those transactions a necessity.  1099k will put you under the microscope for audit for sure.  #1 cause for small business audit is discrepancy of reported income vs sum total of 1099's reported.  You'll need all your ducks in a row because an audit is highly likely if they are reporting all transfers as "payments" on the 1099k and you are not including those transfers in your over all "earned income" field.

[dmwardjr]

I recommend not using Coinbase in any regard and use another means of conducting your business with bitcoin.  I can see this becoming a BIG mess.  I now have to make sure I'm DEFINITELY organized.  I can see a visit from the tax man very easily this year.  If that happens, I will be on a mission to put an end to anyone doing business with Coinbase.

I doubt this is Coinbase's fault.  They are a financial institution and there are very strict Federal regulations they have to adhere to.  When you make a large deposit to your checking or savings the Bank will report it too.  The transaction limit just smells like a government bureaucrat that probably can't even spell Bitcoin.

But please keep us apprised of the situation I would like to know what our liabilities are here in the US.  Thanks.

I'll keep you updated.

NOTE:

I also see in the following instructions to Coinbase regarding form 1099-K:

Enter in box 1a the gross amount of the total reportable payment card/third party network transactions for the calendar year. Gross amount means the total dollar amount of total reportable payment transactions for each participating payee without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts. The dollar amount of each transaction is determined on the date of the transaction.

=======================

I suppose the tax man has a threshold of those amounts before investigating.  I'm NOT doing anything wrong and I'm doing everything by the book with all laws and taxes.  I'm only concerned about Coinbase making it look like I've conducted more business or made more profits than I actually made.

[dmwardjr]

I think that it is a very interesting topic. Maybe you should move it (into bitcoin discussion or mining speculation?) as many people/miners might be interested.
First off, I have no tax advice at all, and you need to consult with a professional tax adviser.

However, from what i understand, W9 form is for payments to YOU (that's what they refer to as payment transactions).
Since you were mining to your Coinbase account, you have many payments directed to you.
Ebay is the same ($20K, 200), so there is nothing unusual about this.
Your own account sending money to coinbase does not constitute payment transaction (as far as I understand), NOR does the spending of your money from your coinbase account.
You get 1099 for payments to you and then report expenses on general tax forms.
It would not be any different if you are a contractor, consultant or a part-timer (although in those cases they typically ask you for W9 beforehand).

[dmwardjr]

The total number of such transactions exceeds 200.

Why not Mine to your own Wallet and just transfer to Fiat exchange such as Coinbase in large chunks when needed?
Avoid the 200+ transactions.

As for Tax purposes in USA, everyone should already be documenting their Fiat to BTC transfers and vice versa.  Fiat to BTC would go into a "Hold" account.  Then sales of BTC to Fiat would be removed from "Hold" account.  If more comes out than goes in, it becomes Capital gain and declared as such.  If you have sold all BTC and are under than you'll file a capital loss.  This should be done regardless of documents received as an audit will make resolution of those transactions a necessity.  1099k will put you under the microscope for audit for sure.  #1 cause for small business audit is discrepancy of reported income vs sum total of 1099's reported.  You'll need all your ducks in a row because an audit is highly likely if they are reporting all transfers as "payments" on the 1099k and you are not including those transfers in your over all "earned income" field.

Totally agree...

[dmwardjr]

Thats all pretty disgusting. I am in Canada, and i use it in a similar way, but the way BTC is defined in the law is pretty vague and only a capital gain should have to be declared so its pretty easy to do whatever as long as you declare your real BTC profits as a other source of income.

I really wish it does not become like that in Canada in the future.

I can understand them having to report transactions "according to government regulations" since they do business like a bank and with banks that are also under the same regulations.  It's a way for the government to police [via the tax man] those who might commit fraud or evade taxes.

I do everything by the book.  I mark off all things that are allowed to be written off for tax purposes.  I invest what remains after expenses back into more mining rigs.  The ONLY payroll I have had is from the training part of my business when training telephone technicians.  There has been no payroll from bitcoin mining because I use ALL of it's profits to invest into more rigs or related hardware to grow my hash.

My only concern at this point in time is WHAT EXACTLY is Coinbase going to report on their 1099-K as transactions?  I more than likely will have to have several communications back and forth with them to PROVE that some transactions were simply transfers from cold storage address to coinbase or visa versa or from coinbase to another exchange after coinbase exchange went down to have the opportunity to sell my coin at another exchange in the event of a flash crash.  That occurred here recently when Coinbase Exchange went down.  This is what concerns me.

We will see how cooperative Coinbase is with me in future correspondence to clear up any discrepancies they may have on form 1099-K.

[dmwardjr]

I have received similar inquiries from both Coinbase and Circle last year largely due to large incoming payouts from now defunct ltcgear (I had over 6 GH worth of Scrypt shares). I told them that it was for personal use and investment. I had to answer some questions before I could use their services. Just so it doesn't happen again, I mostly use electrum wallet for coins now.

[dmwardjr]

It all strange. I was on the IRS site reading the small amout of tax law there is regarding Bitcoin. This was about 2 weeks ago.

Last time i looked they were not doing 1099 but looks like they are now.

For what i read from the IRS you pay taxes on Bitcoins that are sold and you got to keep track of the amount you sold in USD.

[peonminer]

wtffffffffffffff get out of our livessss coin baseeeeeeeeeeeeeeeeeeeeeeeeeee uurrhghhhhhhhh!

[nhando]

Really glad I saw this post as I'm starting to get close to that 200 transaction limit already for this year.  Is the 200 for all transactions or only incoming and trading ones? 

[dmwardjr]

I can understand Coinbase having to follow banking regulations made by the U.S. government if they are to do business with banks inside the U.S.  I have no issue with that.  The main purpose of this thread is to create a history of what I'm about to go through for others to learn from.

It may turn out that all will be fine and nothing to worry about.

My main concern is how in the world Coinbase will KNOW what transactions were payments and which one's were not?  I may end up having to go back and forth with them PROVING my wallets which funds were transferred to were for cold storage and I alone own and have access to them.  Because I would move funds in and out of the cold storage wallets all the time.

There were times I transferred to another exchange when Coinbase Exchange was down so I can be prepared to dump my coin in the event of a flash crash.  When the cause for concern for a flash crash was over and I transfer THE EXACT SAME AMOUNT back to my coinbase wallet, is that considered another transaction to report on form 1099K and looked at as a payment I received from someone else or what?

It is many things like this we are about to find out over the next several weeks as I straighten this out.

David

[dmwardjr]

Really glad I saw this post as I'm starting to get close to that 200 transaction limit already for this year.  Is the 200 for all transactions or only incoming and trading ones? 

That I'm not sure of.  That's what I'm about to find out when I get form 1099-K sent to me.

[dmwardjr]

That sucks but I think that's the law. You ever trade stocks? same thing there. after you reach $20k the SEC needs a blowjob and you must declare yourself as a day trader.

I think your only fix is give up citizenship

Yes, I can see this for day trading.

My only concern for me as a miner and NOT day trading is what transactions they may THINK are payments to me or income that are in fact NOT income or payments to me.  They were simply nothing more than a transfer from like a checking account to a savings account and then back from a savings account (cold storage) to checking account.  I'm curious if they will have those included on the form 1099-K.

[dmwardjr]

I think that it is a very interesting topic. Maybe you should move it (into bitcoin discussion or mining speculation?) as many people/miners might be interested.
First off, I have no tax advice at all, and you need to consult with a professional tax adviser.

However, from what i understand, W9 form is for payments to YOU (that's what they refer to as payment transactions).
Since you were mining to your Coinbase account, you have many payments directed to you.
Ebay is the same ($20K, 200), so there is nothing unusual about this.
Your own account sending money to coinbase does not constitute payment transaction (as far as I understand), NOR does the spending of your money from your coinbase account.
You get 1099 for payments to you and then report expenses on general tax forms.
It would not be any different if you are a contractor, consultant or a part-timer (although in those cases they typically ask you for W9 beforehand).

Agreed, form 1099 is for payments + the following:  

Box 1a. Gross Payment Card/Third Party Network Transactions

Enter in box 1a the gross amount of the total reportable payment card/third party network transactions for the calendar year. Gross amount means the total dollar amount of total reportable payment transactions for each participating payee without regard to any adjustments for credits, cash equivalents, discount amounts, fees, refunded amounts, or any other amounts. The dollar amount of each transaction is determined on the date of the transaction.

[dmwardjr]

Thats all pretty disgusting. I am in Canada, and i use it in a similar way, but the way BTC is defined in the law is pretty vague and only a capital gain should have to be declared so its pretty easy to do whatever as long as you declare your real BTC profits as a other source of income.

I really wish it does not become like that in Canada in the future.

I can understand them having to report transactions "according to government regulations" since they do business like a bank and with banks that are also under the same regulations.  It's a way for the government to police [via the tax man] those who might commit fraud or evade taxes.

I do everything by the book.  I mark off all things that are allowed to be written off for tax purposes.  I invest what remains after expenses back into more mining rigs.  The ONLY payroll I have had is from the training part of my business when training telephone technicians.  There has been no payroll from bitcoin mining because I use ALL of it's profits to invest into more rigs or related hardware to grow my hash.

My only concern at this point in time is WHAT EXACTLY is Coinbase going to report on their 1099-K as transactions?  I more than likely will have to have several communications back and forth with them to PROVE that some transactions were simply transfers from cold storage address to coinbase or visa versa or from coinbase to another exchange after coinbase exchange went down to have the opportunity to sell my coin at another exchange in the event of a flash crash.  That occurred here recently when Coinbase Exchange went down.  This is what concerns me.

We will see how cooperative Coinbase is with me in future correspondence to clear up any discrepancies they may have on form 1099-K.

[dmwardjr]

Bitwit,

This is the last time for me to delete a post of yours.  You are not welcome here any more.  If you keep posting you will be banned.

Yippie
You just don't understand how to keep your mouth shut.  Coinbase has been sent a copy of your post. YOU have violated there terms and conditions.     You are a MORON.  You post your e-mail, home address, ip address, many wallet addresses, pool usernames, kids name, soon to be x wife name, occupation, wife occupation,fathers name, employer, NOW a coinbase e-mail   ......YOU HAVE NO UNDERSTANDING of Bitcoin.    
It's greedy people like you THAT HAVE NO UNDERSTANDING OF BITCOIN THAT IS THE PROBLEM.


How about a Reddit topic about your understanding of Bitcoin?

You are not welcome here.

If you continue, you will receive a ban from a global moderator.  Not just your user name, but your IP address will be banned.

[dmwardjr]

Bitwit,

This is the last time for me to delete a post of yours.  You are not welcome here any more.  If you keep posting you will be banned.

Yippie
You just don't understand how to keep your mouth shut.  Coinbase has been sent a copy of your post. YOU have violated there terms and conditions.     You are a MORON.  You post your e-mail, home address, ip address, many wallet addresses, pool usernames, kids name, soon to be x wife name, occupation, wife occupation,fathers name, employer, NOW a coinbase e-mail   ......YOU HAVE NO UNDERSTANDING of Bitcoin.    
It's greedy people like you THAT HAVE NO UNDERSTANDING OF BITCOIN THAT IS THE PROBLEM.


How about a Reddit topic about your understanding of Bitcoin?

You are not welcome here.

If you continue, you will receive a ban from global moderator.  Not just your user name, but your IP address will be banned.

OH MY is that world wide? (as i tremble)

As I've said before, it will occur.  Your evidence is only mounting up.

I say again, please stop posting here.  As your posts here [Or anywhere else for that matter] do not contribute anything positive to the forum or the bitcoin community.  If you cannot talk or debate respectfully, you are not welcome him, Sir.

[dmwardjr]

wtffffffffffffff get out of our livessss coin baseeeeeeeeeeeeeeeeeeeeeeeeeee uurrhghhhhhhhh!

I believe they are doing what they have to do in order to do business with banks.  Banks have to abide by these regulations and any other institution that acts like a bank and does business with banks on a large scale has to abide by the same regulations.  I simply ran into a regulation I was ignorant of with 200+ transactions totaling more than $20K must be reported with Form 1099-K.  If I had known this, I could have saved Coinbase and myself unnecessary paperwork.

My only concern is what transactions will be included in their total on Form 1099-K.  I'm concerned simple transfers back and forth from my everyday wallet to cold storage should not be added into the total on Form 1099-K.  I will find out soon enough I suppose...