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

[o_e_l_e_o]

however, Bitcoin is a strange case.

It's more than a little dishonest on their part that for the purposes of this question they have a definition of virtual currencies, defining it as a medium of exchange, but for the purposes of actually taxing bitcoin is classed as an asset and not a currency, so they can extract the maximum amount of money from you.

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).

Even if they were to see transactions from an address I provably owned to other active addresses, in the absence of KYC or IP logs from exchanges or other third party services, it would be very difficult to prove that it was me who made the transaction. "My seed was stolen" is a defense I suspect we will see a lot of in the future.

I'm also curious as to what will happen in the scenario you describe, where someone claims they lost or never owned the private keys for some addresses. What about 5 or 10 years down the line, does the person think that enough time has passed and it would now be safe to empty those addresses? Will the IRS be monitoring these addresses forever more?

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[Carlton Banks]

It's more than a little dishonest on their part that for the purposes of this question they have a definition of virtual currencies, defining it as a medium of exchange, but for the purposes of actually taxing bitcoin is classed as an asset and not a currency, so they can extract the maximum amount of money from you.

supposedly, the IRS has no legal mandate to tax people anyway. A constitutional amendment was required, and it was not ratified by the required number of states.

"Can there ever be justice on stolen land?" - KRSOne

"My seed was stolen" is a defense I suspect we will see a lot of in the future.

I'm also curious as to what will happen in the scenario you describe, where someone claims they lost or never owned the private keys for some addresses. What about 5 or 10 years down the line, does the person think that enough time has passed and it would now be safe to empty those addresses? Will the IRS be monitoring these addresses forever more?

if someone wanted to use the "lost or stolen" defense in falsehood, they need not wait any amount of time to move it. Send the outputs to a channel HTLC (privately or on the overall LN), then what happens to it after that becomes incredibly difficult to trace.

[mohdk52]

If necessary, I will be willing to pay taxes, but for this I will demand protection for me as a trader.

[bryant.coleman]

If necessary, I will be willing to pay taxes, but for this I will demand protection for me as a trader.

This is the biggest irony out there. Our wealth is already taxed once (when we received it as salary). And we make risky investments using whatever amount is left after paying the income taxes. And if we incur losses, then no one is going to help us. We have to bear our losses without any support from anyone. On the other hand, in case we end up with a profit, then we need to pay tax on this amount as well. How many times we need to pay taxes on the same amount? And the biggest joke is that the vast majority of these taxes are going to bomb the sh!t our of some third world country such as Syria, or used to pay salaries and pensions to lazy government employees.

[o_e_l_e_o]

We have to bear our losses without any support from anyone.

Don't get me wrong here, I absolutely agree that it's theft that we are being taxed twice or even more on the same money, but you can claim against your losses.

Any capital loss can be used to offset a capital gain within the same year, and therefore pay no taxes on the amount offset If your losses outweight your gains, i.e. you made a net capital loss, then you can claim up to $3,000 of that against taxes on other income that you pay, and you can roll over any additional losses over the $3,000 threshold to future years.

If you are going to pay these horrendous taxes, then at least claim back every cent you can.

[Carlton Banks]

How many times we need to pay taxes on the same amount? And the biggest joke is that the vast majority of these taxes are going to bomb the sh!t our of some third world country such as Syria, or used to pay salaries and pensions to lazy government employees.

the joke is even bigger than that

current due taxes are paying off wars and government services from decades ago, not today's spending. They can't afford their debts & spending today despite how much tax they are levying against current wages, and they also couldn't afford it long before you were alive at all.

The money you pay in taxes now was (in effect) already stolen from you decades before you were born. Voting today for politicians promising spending on services/wars today will only affect your grandchildren's taxes, and the government contractors will be sure to overcharge for the work so they can steal something from both yours and their own grandkids too

[PrimeNumber7]

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.

Fair enough, but I would maintain that arguing the discrepancy is not material if it does not affect the total tax due would not be frivolous. I am also unaware of any prosecutions for violating this statute when the proper amount of taxes were paid.

[target]

Sorry to update the thread but I think this is the right thread to post this since its related to it.  And so this is it!

The IRS is now asking Kraken investors who at least conducted $20,000 in the platform. It might not be long they will also be asking from Binance and other exchanges.
Source: https://bitcoinmagazine.com/business/irs-authorized-to-summon-kraken

Would the traders get to pay the tax even when they conducted transactions before the crypto tax law?

[NotATether]

The IRS is now asking Kraken investors who at least conducted $20,000 in the platform. It might not be long they will also be asking from Binance and other exchanges.

If I were them I'd withdraw my excess money and send it through a mixer fast, and start trading crypto with an actual CFD provider instead of a random exchange that doesn't let you easily bet short (or even bet long, if you don't consider holding BTC to facilitate that like I don't).

[Streets 2.0]

In my opinion, this is such a psychological trick. It is only a matter of the severity of the legislation on tax evasion. You are not included in the list of people who are generally associated with cryptocurrency. And there must be such a list of owners. Therefore, in my opinion, it is easier to somehow convert the proceeds from the sale of cryptocurrency into something third that is not directly related to it and pays tax on this already. And even more so not to disclose wallets that could be directly related to you.

[PrimeNumber7]

Sorry to update the thread but I think this is the right thread to post this since its related to it.  And so this is it!

The IRS is now asking Kraken investors who at least conducted $20,000 in the platform. It might not be long they will also be asking from Binance and other exchanges.
Source: https://bitcoinmagazine.com/business/irs-authorized-to-summon-kraken

The IRS will likely send similar letters to Kraken customers, and Binance customers if a similar order is granted against Binance.

My advice to anyone who hasn’t been reporting all their bitcoin/crypto related income would be to file amended returns ASAP. IIRC, some of the letters allowed taxpayers to file amended returns, however there is no guarantee the IRS won’t simply audit taxpayers who appear to have not reported all their income.

Would the traders get to pay the tax even when they conducted transactions before the crypto tax law?

There is no crypto tax law. I believe in 2014, the IRS issued guidance that they expect taxpayers to treat bitcoin as property, and that you must treat any capital gains on bitcoin as capital gains on your taxes.

For example if you receive $100 worth of bitcoin on March 1 as a payment for a service, you would report this as $100 worth of income. If you were to subsequently use that bitcoin to buy $120 worth of goods, you would report $20 in capital gains the year you sell/barter the coin.

Everyone’s situation is different, so it is always best to consult with a tax professional to discuss your specific situation.

[o_e_l_e_o]

If I were them I'd withdraw my excess money and send it through a mixer fast

What would that achieve? If you have completed KYC at a centralized exchange, then it doesn't matter how well you obfuscate or mix your coins after withdrawal in this case. The exchange still have a complete record of all your deposits, trades, and withdrawals, and will report that to the IRS.


As we've said before, it is only a matter of time before all centralized exchanges are reporting all their customers to the IRS (or your equivalent tax agency or government). I am very surprised it has taken them this long to start going after other exchanges after they served a similar summons to Coinbase in 2016. If you have completed KYC somewhere, then expect the IRS to get their hands on your details sooner or later.

[Vishnu.Reang]

As we've said before, it is only a matter of time before all centralized exchanges are reporting all their customers to the IRS (or your equivalent tax agency or government). I am very surprised it has taken them this long to start going after other exchanges after they served a similar summons to Coinbase in 2016. If you have completed KYC somewhere, then expect the IRS to get their hands on your details sooner or later.

Well.. I am not going to deny any of this. But let me ask you one question. Coinbase claims to have an userbase of 56 million verified users. A large majority may be from the United States. Then there are other exchanges such as Kraken and Bitstamp, which mostly service the American users. Do the IRS have the resources available to go after these 50-100 million users? If the users had used these exchanges for just one or two trades, then what is the possibility that the IRS will go after them?

[o_e_l_e_o]

Do the IRS have the resources available to go after these 50-100 million users?

Maybe. Maybe not. They certainly have the resources to send mass threatening letters to everyone, and one would imagine their database is sophisticated enough that they could simply pull the details for everyone that Coinbase/Kraken/whoever tell them about and see if they have reported cryptocurrency gains, or even something as simple as marking "Yes" to the cryptocurrency question which now appears on everyone's Form 1040.

If the users had used these exchanges for just one or two trades, then what is the possibility that the IRS will go after them?

I suspect they aren't examining actual reported gains and losses against the data the exchanges are providing them except for people with high trading volumes, because that takes a lot of manual work and is expensive and time consuming. However, if you have a fully verified and KYCed exchange account, but you have marked "No" to the question mentioned above, or haven't filed a Schedule D, or haven't filed a Form 8949, then that can be flagged up with a simple database search and is a pretty sure fire sign that you aren't giving the IRS what they want.

At the end of the day, none of us can be sure. But if you have a fully KYCed account, then the IRS will get your details eventually. Whether or not they end up investigating you further is anybody's guess. If you are concerned about this, then you should take the advice of a tax professional.

And everybody should stop handing out their KYC like confetti to anyone who asks for it.

[PrimeNumber7]

As we've said before, it is only a matter of time before all centralized exchanges are reporting all their customers to the IRS (or your equivalent tax agency or government). I am very surprised it has taken them this long to start going after other exchanges after they served a similar summons to Coinbase in 2016. If you have completed KYC somewhere, then expect the IRS to get their hands on your details sooner or later.

Well.. I am not going to deny any of this. But let me ask you one question. Coinbase claims to have an userbase of 56 million verified users. A large majority may be from the United States. Then there are other exchanges such as Kraken and Bitstamp, which mostly service the American users. Do the IRS have the resources available to go after these 50-100 million users? If the users had used these exchanges for just one or two trades, then what is the possibility that the IRS will go after them?

The IRS can trivially review tax return data along with the data received from the various exchanges to get a good idea as to if income was properly reported and if not how much income was not reported. They have no reason to go after 50 million people when 99%+ of these people properly reported their income.

The number of trades is less important than the value of the transactions/trades.

[o_e_l_e_o]

They have no reason to go after 50 million people when 99%+ of these people properly reported their income.

I assume there are no actual public data for this, but I would be very surprised if only less than 1% of US citizens had not properly reported their cryptocurrency gains or losses. I suspect the real figure is much higher, which is why the IRS are pushing exchanges to hand over the info. If it were only a handful of users, then their resources would be better spent elsewhere, like going after bankers who abuse loopholes to avoid tax (HA! Like they are ever going to do that.) I also suspect that if the number were really this low, the IRS wouldn't be putting the cryptocurrency question right on the front page of the 1040 and forcing literally everyone in the country to answer it.

[PrimeNumber7]

They have no reason to go after 50 million people when 99%+ of these people properly reported their income.

I assume there are no actual public data for this, but I would be very surprised if only less than 1% of US citizens had not properly reported their cryptocurrency gains or losses. I suspect the real figure is much higher, which is why the IRS are pushing exchanges to hand over the info. If it were only a handful of users, then their resources would be better spent elsewhere, like going after bankers who abuse loopholes to avoid tax (HA! Like they are ever going to do that.) I also suspect that if the number were really this low, the IRS wouldn't be putting the cryptocurrency question right on the front page of the 1040 and forcing literally everyone in the country to answer it.

It appears that approximately 1 in 6 tax dollars go unpaid, so the percentage of taxes related to unreported crypto gains may be higher than 1%. Even if 1% of citizens fail to report crypto-related income, it would mean that over 3 million people are not reporting their income accurately.

When the IRS reviews data from an exchange, they can compare this data to tax return data to get a good idea as to the amount of unreported income. However, when the IRS reviews blockchain data, for example, they will have a difficult time determining which transactions are related to taxpayers obligated to report income to the IRS.

It would not be a good use of resources for the IRS to go after people exploiting loopholes in the tax code. A loophole may or may not be something that congress intended, however, a loophole is still legal. If loopholes are being used in ways that Congress did not intend, it is up to Congress to close the loophole.

[Vishnu.Reang]

They have no reason to go after 50 million people when 99%+ of these people properly reported their income.

I assume there are no actual public data for this, but I would be very surprised if only less than 1% of US citizens had not properly reported their cryptocurrency gains or losses. I suspect the real figure is much higher, which is why the IRS are pushing exchanges to hand over the info. If it were only a handful of users, then their resources would be better spent elsewhere, like going after bankers who abuse loopholes to avoid tax (HA! Like they are ever going to do that.) I also suspect that if the number were really this low, the IRS wouldn't be putting the cryptocurrency question right on the front page of the 1040 and forcing literally everyone in the country to answer it.

I have heard that US citizens need to report each and every cryptocurrency transaction made by them in the income tax return, as per the directive from the IRS. Now how many out of 50 million could have done this? I strongly suspect that a majority of the low volume users might have ignored this directive. And I don't think that the IRS will go after them for $100 or $200 in pending taxes. But they are moving very slowly. Only around 10,000 have been sent the notice till now. 10K out of 50 million... And out of that 10K, I assume a majority would be letter 6174.

[Streets 2.0]

I think the situation has changed over such a period of time. The number of cryptocurrency holders has grown, so this number is not relevant today. I also think that letters came to those who previously declared their assets in cryptocurrency. So I think that most of the owners of digital assets did not do this at all. I think that the funds spent on the calculations of all these people in terms of the volume of expenses for these activities will exceed the taxes themselves that can be obtained in the future. Nobody knows the exact numbers, so these are only assumptions.

[hv_]

IRS, DOJ, CFTC, Bafin ...

https://www.techtimes.com/articles/260223/20210513/binance-under-irs-doj-investigation-due-alleged-illegal-transactions-platform-cryptocurrency.htm