[2019-07-26] The IRS is warning thousands of cryptocurrency holders to pay taxes

[Kyraishi]

Do you know if this is a follow up to the coinbase subpoena that requested information regarding customers  who have transactions over $20,000 or more?

Yes. As far as I know, the IRS hasn't said where they are getting their info from, and I'd be surprised if they ever did since people would then know to avoid those methods. However, there have been loads of users on this forum and on reddit who have confirmed that Coinbase shared their details and they also received the tax letters.

The IRS are likely receiving similar information from a number of exchanges, and will continue to push harder and harder until all exchanges hand over all customer details. If you have ever completed KYC on any exchange, at some point in the future the IRS will likely find out your trading history.

It's going to be interesting to see how far back they go and how much they go looking for.
The IRS has stated that below a certain amounts unless there is another reason to go after you they don't even try to collect. No letter, no nothing it's just kind of sitting there in their computers.

-Dave

Honestly, the regular and long term holders who don't move their crypto-currencies a lot and only do a bit of trading will be fine, the real issue is with crypto traders.

How will people who buy and sell BTC get taxed? It seems like they will end up losing a lot of money on each transaction, and I could see a chance of every transactions being taxed.

Things just a whole lot sillier/fruitier - https://www.irs.gov/newsroom/frequently-asked-questions-on-virtual-currency-transactions

https://coincenter.org/entry/irs-cryptocurrency-guidance-answers-some-questions-while-raising-messy-new-ones

I was really freaked out when I first read the guidelines, but I'm glad Coincenter pointed this out:

On the other hand, because the value of a coin is typically zero at the moment of a hard fork (given there are no markets yet), then the reportable income would be zero, in which case taxpayers may be incentivized to always hold their own coins rather than end up with new coins from an exchange only after markets have developed and the income event could actually be substantial.

Since hard forks are valued at zero at the time of receipt, this actually seems like a positive development. It means if you ignore the hard forks, you never received any taxable income. And if you sell the fork coins, the taxes are really straightforward.

That definetly looks like a change for the better, they aren't trying to squeeze cash out of their citizens

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[squatter]

The IRS is at it again. They circulated a draft of the 2019 Form 1040, Schedule 1. About 150 million people will file this form next April. Check out the highlighted portion:



Given this, the new tax guidance issued this month, and the mass mailing campaign over the summer, it sure seems like the IRS is looking forward to crawling up our asses.

[malevolent]

Wow. What a pain in the ass it must be if someone in the US is KYC verified on exchanges. Here only profits must be declared when cashing out and cryptocurrency-to-cryptocurrency transactions are excluded for simplicity's sake.

[PrimeNumber7]

Receiving coin usually means that you had some kind of income that you were paid via coin. Sending coin means that you probably exchanged coin in a way that you need to report a profit/loss via a barter transaction.

I would imagine that sending coin to yourself would be exempt from having to check 'yes' on the above box. Receiving or sending coin would almost always mean you have something to report on one or more tax form anyway.

[figmentofmyass]

Receiving coin usually means that you had some kind of income that you were paid via coin. Sending coin means that you probably exchanged coin in a way that you need to report a profit/loss via a barter transaction.

I would imagine that sending coin to yourself would be exempt from having to check 'yes' on the above box. Receiving or sending coin would almost always mean you have something to report on one or more tax form anyway.

the way it's worded, it's a catch-all for any and all cryptocurrency activity. even if you only sent coins to yourself, you first must have acquired a financial interest in it.

they're asking for confirmation even where there is no taxable event, eg buying and holding. it's almost like a stripped down FBAR filing that's required with your tax return! if you have any involvement with crypto, they want to know about it.

[PrimeNumber7]

Receiving coin usually means that you had some kind of income that you were paid via coin. Sending coin means that you probably exchanged coin in a way that you need to report a profit/loss via a barter transaction.

I would imagine that sending coin to yourself would be exempt from having to check 'yes' on the above box. Receiving or sending coin would almost always mean you have something to report on one or more tax form anyway.

the way it's worded, it's a catch-all for any and all cryptocurrency activity. even if you only sent coins to yourself, you first must have acquired a financial interest in it.

they're asking for confirmation even where there is no taxable event, eg buying and holding. it's almost like a stripped down FBAR filing that's required with your tax return! if you have any involvement with crypto, they want to know about it.

Buying coin with fiat and holding it in cold storage wouldn’t be a taxable event, so I don’t believe there is any basis in law for the IRS to require this to be reported, although I am not an expert in tax law.

If you were to sell your services and receive payment in coin, this would be taxable because you are receiving payment. You would owe taxes on the value of the coin you receive and this amount would be your cost basis. There are other similar situations in which you would also need to report income when you receive coin.

I don’t know what the final instructions will look like once the form is complete and no longer in draft format. 

[squatter]

Buying coin with fiat and holding it in cold storage wouldn’t be a taxable event, so I don’t believe there is any basis in law for the IRS to require this to be reported, although I am not an expert in tax law.

They aren't asking you to specifically report your holdings. However, if you bought any cryptocurrency in 2019, you're supposed to answer "yes" to that question -- even if you never sold anything.

Hopefully they scrap this from the final form, but I'd say the chances are low.

[o_e_l_e_o]

if you have any involvement with crypto, they want to know about it.

Yeah, it's a bullshit question. Even if you just bought and held, which isn't a taxable event and so wouldn't need to be declared, they still want to know even though its none of their business. If you answer "yes", expect them to hound you every year for the rest of your life. If you answer "no", you are effectively lying on your tax return, which is felony punishable with both thousands of dollars in fines and prison.

What's their definition of a "virtual currency"? As far as I know, they don't have one yet? What about my air miles? They have value, I receive them, can buy more for fiat, can send/sell/trade/exchange them with friends or family, can sell them in exchange for flights, upgrades, or add-ons. Do they count as "virtual currency"?

[darkangel11]

if you have any involvement with crypto, they want to know about it.

Yeah, it's a bullshit question. Even if you just bought and held, which isn't a taxable event and so wouldn't need to be declared, they still want to know even though its none of their business. If you answer "yes", expect them to hound you every year for the rest of your life. If you answer "no", you are effectively lying on your tax return, which is felony punishable with both thousands of dollars in fines and prison.

Is this a confession? Why would anyone in their right mind share something like that with some clerk. Are they going to look into my garden now, because I might be eating my own veggies and not buying them in the store by which I'm not adding to the GDP It's not their business if you have crypto or not and only someone who paid crypto taxes in the past would participate in their sad survey.

What's their definition of a "virtual currency"? As far as I know, they don't have one yet? What about my air miles? They have value, I receive them, can buy more for fiat, can send/sell/trade/exchange them with friends or family, can sell them in exchange for flights, upgrades, or add-ons. Do they count as "virtual currency"?

What about currencies used in games like eve online. You can trade them with random people for ingame stuff, but you can also trade it for game fees and subscriptions and sell them for money. Just wait, soon they will ask you for any valuables you might have.
Do you own art? Do you own gold? Maybe you have an expensive watch or a diamond ring. You got a necklace from your boyfriend? That's a taxable income! Don't have money to pay? Sell the necklace and pay us, or else! 

[o_e_l_e_o]

Why would anyone in their right mind share something like that with some clerk.

Let's say you answer "no" to that question. A couple of years down the line, the IRS are successful in their push to get Coinbase, Kraken, Gemini, Binance, etc. to hand over all their customer details. They find out you lied, and did indeed own and use bitcoin in 2019, and you lied on your tax return. Do you think they are going to be sympathetic? No chance. They are going to try to string you up as an example to everyone else.

[darkangel11]

Why would anyone in their right mind share something like that with some clerk.

Let's say you answer "no" to that question. A couple of years down the line, the IRS are successful in their push to get Coinbase, Kraken, Gemini, Binance, etc. to hand over all their customer details. They find out you lied, and did indeed own and use bitcoin in 2019, and you lied on your tax return. Do you think they are going to be sympathetic? No chance. They are going to try to string you up as an example to everyone else.

I have a number of ways to answer that, one being that I don't use any of the centralized exchanges. I don't have my personal data on any of the existing exchanges. I have used some of the ones that went bankrupt or run with the money, but back in the day there was not much push for KYC so the majority of exchanges in 2014 and 15 did not even ask for a scan of ID. They just wanted your name, address, email and phone number and you were free to trade.

You could also risk it and start getting a citizenship outside of the US. Chances are pretty high that in a couple years your cryptocurrency will be worth so much that you'll be able to abandon everything you have in the US with no regrets and go live somewhere where you won't have to worry about government agents marching in and stealing everything you've worked for, just because they can.

It's all a personal choice. I'm not a US citizen nor am I ever going to apply due to your taxation. I like a lot of things about the US but after reading some stories from people who got robbed by the government and even after being acquitted never got their things back I'd be scared to live there.

It's a good moment to start using DEX and trade in person for cash. I'm all cash right now. My bank account is only for emergencies and I don't have more than €1000 in there at any time.

[target]

Why would anyone in their right mind share something like that with some clerk.

Let's say you answer "no" to that question. A couple of years down the line, the IRS are successful in their push to get Coinbase, Kraken, Gemini, Binance, etc. to hand over all their customer details. They find out you lied, and did indeed own and use bitcoin in 2019, and you lied on your tax return. Do you think they are going to be sympathetic? No chance. They are going to try to string you up as an example to everyone else.

That's more of a Halloween story.
These exchanges are sure going to be seize by the government if they really will crack down all of the cryptocurrency owners. If you just hold few coins in there I guess its something you can afford to pay. When later they find out you have no activity to the accounts you have in the exchanges, they will probably start creeping into you. Is Mexico, Brazil or Venezuela a good idea also?

[squatter]

What's their definition of a "virtual currency"? As far as I know, they don't have one yet?

They defined it in Notice 2014–21, their first guidance on cryptocurrency. It seems to cover both cryptocurrencies and stablecoins:

Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. In some environments, it operates like “real” currency — i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance—but it does not have legal tender status in any jurisdiction.

Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” virtual currency. Bitcoin is one example of a convertible virtual currency. Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, Euros, and other real or virtual currencies.

[PrimeNumber7]

Buying coin with fiat and holding it in cold storage wouldn’t be a taxable event, so I don’t believe there is any basis in law for the IRS to require this to be reported, although I am not an expert in tax law.

They aren't asking you to specifically report your holdings. However, if you bought any cryptocurrency in 2019, you're supposed to answer "yes" to that question -- even if you never sold anything.

Hopefully they scrap this from the final form, but I'd say the chances are low.

Like I previously said, I haven't seen the proposed instructions, so I don't know what circumstances tax payers would need to answer 'yes' to the question; it is probably not going to be as simple as answering the question on its face. I am also unaware of any basis in law for the IRS asking about transactions that do not affect income or eligibility for credits/deductions.

if you have any involvement with crypto, they want to know about it.

Yeah, it's a bullshit question. Even if you just bought and held, which isn't a taxable event and so wouldn't need to be declared, they still want to know even though its none of their business. If you answer "yes", expect them to hound you every year for the rest of your life. If you answer "no", you are effectively lying on your tax return, which is felony punishable with both thousands of dollars in fines and prison.

What law are you referring to that carries these penalties? The only law I can think of that a taxpayer could possibly get charged with is perjury (US § 1621), but this law does not carry any fines. Perjury is very rarely prosecuted, even for 'slam dunk' cases, but it may be a very reasonable defense that any statement that does not change the amount of taxes due on a tax return is not 'material' and thus does not meet the criteria for perjury. Most people who get in criminal trouble with regard to their taxes usually are charged with attempting to evade or defect taxes (US § 7201), but I don't believe answering this question incorrectly, alone would make someone guilty of this crime.

[figmentofmyass]

What law are you referring to that carries these penalties? The only law I can think of that a taxpayer could possibly get charged with is perjury (US § 1621), but this law does not carry any fines. Perjury is very rarely prosecuted, even for 'slam dunk' cases, but it may be a very reasonable defense that any statement that does not change the amount of taxes due on a tax return is not 'material' and thus does not meet the criteria for perjury. Most people who get in criminal trouble with regard to their taxes usually are charged with attempting to evade or defect taxes (US § 7201), but I don't believe answering this question incorrectly, alone would make someone guilty of this crime.

it doesn't fall under the tax evasion section, but there's another one you missed: https://www.law.cornell.edu/uscode/text/26/7206

U.S. Code § 7206. Fraud and false statements
Any person who—
Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter;
shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution.

perjury prosecutions may be rare but false/fraudulent return prosecutions---less so.

[o_e_l_e_o]

I have a number of ways to answer that, one being that I don't use any of the centralized exchanges. I don't have my personal data on any of the existing exchanges.

I'm the same, but we are definitely in the minority. The majority of users have completed KYC on at least one exchange, if not several, and I fully expect every exchange to hand over details of their users to the relevant governments sooner or later, and we all know just how happy governments are to share data with each other. There are also plenty of other ways for the IRS to track you down and link your identity to various addresses and transactions.

-snip-

An interesting definition. So by their any "digital representation of value", my air miles would count, as per my previous post. So too, technically, would things like World of Warcraft in game gold.

As above, lying on your tax return is still fraud/false statement, and I would be expecting the IRS to go hard on anyone caught out so as to "set an example" for other users.

[SaShiRaJaVu]

Yeah, it's a bullshit question. Even if you just bought and held, which isn't a taxable event and so wouldn't need to be declared, they still want to know even though its none of their business. If you answer "yes", expect them to hound you every year for the rest of your life. If you answer "no", you are effectively lying on your tax return, which is felony punishable with both thousands of dollars in fines and prison.

So no one will dare to attract a felony charge against them, if any traded in any exchange and your KYC is verified then there is no way you can lie to them as they will be another issue, i am not facing these issues now but in the future we are also expecting this in the future but want to know the possibility of the punishment before revealing what i own .

[figmentofmyass]

An interesting definition. So by their any "digital representation of value", my air miles would count, as per my previous post. So too, technically, would things like World of Warcraft in game gold.

could those things really be defined as "a medium of exchange, a unit of account, and/or a store of value" though? that seems like a stretch for rewards rebates and in-game credits.

As above, lying on your tax return is still fraud/false statement, and I would be expecting the IRS to go hard on anyone caught out so as to "set an example" for other users.

what do you think they plan to do with this info?

i figure it's some sort of pre-audit system. if you answer "yes" and file a form 8949 disclosing crypto and there are no discrepancies with 1099s they received.....you're probably in the clear.

the thing is, buy and holders would answer "yes" but file no form 8949, and they may get 1099s (which just show total volume) if they bought more than $20k worth. that could make it look like there is unreported taxable activity going on, even if there isn't.

[o_e_l_e_o]

could those things really be defined as "a medium of exchange, a unit of account, and/or a store of value" though?

They could certainly be classified as a "medium of exchange". It's a poor definition, but I suspect they've kept it deliberately vague so it can apply to whatever they want it to.

i figure it's some sort of pre-audit system.

Yeah, agreed. If you answer "yes", but haven't also reported and paid taxes on some crypto activities, I suspect you may end up being audited. Remember of course the IRS class any crypto to crypto trade as a taxable event, so even if you bought bitcoin only to use it to buy and hold some altcoin, and have never sold for fiat, they would still fine you for not declaring that.

[Carlton Banks]

could those things really be defined as "a medium of exchange, a unit of account, and/or a store of value" though?

They could certainly be classified as a "medium of exchange". It's a poor definition, but I suspect they've kept it deliberately vague so it can apply to whatever they want it to.

logically, that's not easy to sustain. if something is too variable in market value to be a universal store of value, it cannot be a either a unit of account or an exchange medium. Unwanted gifts get exchanged, that does not make them accounting units, nor exchange media.

however, Bitcoin is a strange case. It was designed as an explicit medium of exchange (but the network performs that role, not the units ) and implicitly as money. That would be the grounds of a perfectly sensible argument; just because some people use Bitcoin as money, doesn't mean that's what you're doing!

If there is evidence you bought or mined, there is still no evidence that you necessarily sold any, even if you conducted transactions with any outputs you provably owned. As there is no way to prove that you didn't send your cryptographic numeric abstractions  ( ) to an eater address for which no known spending key exists (or to a key-hash you did have the private key for, but later lost it). There's a real possibility that tax evasion cases will take place in courts exactly like that, where someone really did lose a wallet, while the public prosecutor tries to insinuate that the defendant exchanged it for something without paying capital gains.

how much difference will sensible, logical arguments make? I guess it depends how badly IRS & their cohorts need the money