[2020-12-17] IRS is trapping bitcoin and altcoin investors on 2020 tax form

[Sithara007]

It might not be practical for the tax authorities to do this themselves, however, this will cause a very productive relationship between blockchain analytics companies and the government. There might also be some exchanges who would cooperate with the IRS similar to Coinbase.

Being a resident of India, my question is how much impact will be there for the non-US users? The exchanges may cooperate with the IRS and may provide information on the American users. And I agree that there is a chance that the IRS may hire blockchain analytics firms to trace the high-volume individuals. But this should be limited to the American users, at least in the near future.

[1714970680]

1714970680

[o_e_l_e_o]

And I agree that there is a chance that the IRS may hire blockchain analytics firms to trace the high-volume individuals.

There is not just a chance of this happening. It is already happening, and in significant volumes. And it's not just the IRS who are hiring blockchain analysis companies - lots of different government departments are involved in this too.

Here are the records between the US governmet and Chainalysis - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22CHAINALYSIS+INC.%22

You'll see contracts from the IRS, the DEA, the FBI, Homeland Security, Secret Service, etc. for up to $2 million each. Here are the records for a few other blockchain analysis companies, showing the same patterns:

Elliptic - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22ELLIPTIC+INC.%22
Ciphertrace - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22CIPHERTRACE%2C+INC.%22
Coinbase - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22COINBASE%2C+INC.%22

Although these are records for the US government, this is by no means unique to the US. Other countries and other governments are employing blockchain analysis and forcing exchanges to hand over customer details. Don't assume you will be safe simply because you are not a US citizen.

[Carlton Banks]

Don't assume you will be safe simply because you are not a US citizen.

this year has absolutely proved (whatever your stance on the specifics of the issue) that when a big international agency makes sufficiently big pronouncements, then nearly every newspaper, corporation and government gangster across the entire globe jumps to unified attention.


It wouldn't surprise me in the least if some international agency (funded by banks, and with zero citizen mandate to operate) announces international cryptocurrency regulation in 2021. Don't be surprised either.

Whatever it may be, I will give them nothing. "A coward dies a thousand deaths. The soldier dies but one"

[Karartma1]

Don't assume you will be safe simply because you are not a US citizen.

this year has absolutely proved (whatever your stance on the specifics of the issue) that when a big international agency makes sufficiently big pronouncements, then nearly every newspaper, corporation and government gangster across the entire globe jumps to unified attention.


It wouldn't surprise me in the least if some international agency (funded by banks, and with zero citizen mandate to operate) announces international cryptocurrency regulation in 2021. Don't be surprised either.

Whatever it may be, I will give them nothing. "A coward dies a thousand deaths. The soldier dies but one"

If you take the travel rule you can think that a kind of international regulation on the matter is already being deployed. FATF started pushing hard on this topic and I too may fear that international regulation is upon us.
I like your attitude but you never know when confronted by the real world what you will be doing.

[Coin-Keeper]

"IF" I would have conducted any coin activity this year it would have been on segregated wallets because

Even so, "if" you sent a single transaction, regardless of what wallet it was part of or even if it was just a transaction to yourself, the IRS would expect you to answer yes to that question.

There are hundreds of small transactions in my main wallet and I guess if the tax authorities go after the Bitcoin users, then I probably need to move my coins to a fresh wallet using a good Bitcoin mixer.

This may or may not help you. If the addresses in your main wallet are already linked to your real details, as they would be if the coins have come from an exchange you have completed KYC on, then mixing them doesn't really help. The IRS will still know that you owned x amount of coins. The question won't be "Do you own crypto?" but rather "What have you done with all the crypto we know you bought?"

But is it even practical for the tax authorities to go after millions of Bitcoin wallets? They may be able to trace a few of them to individuals. But is it going to be worth the time and effort?

Yeah, they can't investigate everyone, but they will go for the low hanging fruit, primarily people who have completed KYC on large exchanges which freely hand over data to the IRS.

Sticking with my "IF" qualifier here; ---  "If" a US citizen had some reasonable BTC from long ago and it was entirely acquired without any KYC/AML and was kept fully anonymously in unique wallets it would be untraceable if the connection issues were all handled well.  Then "if" that user had made 2020 transactions/exchanges but they are small by overall standards to the total holdings, that user could decide that if need be those coins would be forever lost in the blockchain effectively disappearing from his/her/their possession.  Such a user could decide that they would rather surrender/lose those coins than answer YES on a tax form.  Effectively kicking the can down the road for a future decision not fully knowing the consequences of answering YES.  At some point in the future those lost coins could be found again given a proper circumstance.  "If" I were in that position and if I was a US citizen that would be a very tough call to make.

[malevolent]

My concerns on the Tax question is that it will place citizens on a list of those that have virtual currency.

I'm pretty sure that's the pont. They don't ask questions like this about gold, silver, stocks, shares, or any other commodity or investment. They specifically want a list of everyone who owns or uses crypto, regardless of whether or not you owe any tax on it.

Yes, but these don't really get exchanged for physical cash, except occasionally for smaller amounts of gold or silver, and they either know or can easily find out an individual's exposure to given investments. Cryptocurrencies in theory elude them, in practice with most people not only using the legacy financial system to buy or sell cryptocurrencies, but also with them willingly supplying exchanges and intermediaries with their detailed private info, in addition to having low consciousness of privacy when making transactions involving cryptocurrencies all translate into the user serving themself on a silver in front of the tax office.

People have been sentenced for their involvement in DNMs after 7-8 years, it will likely be similar when it comes to taxes.

https://www.cnbc.com/2019/07/23/man-accused-of-laundering-millions-in-bitcoin-from-silk-road.html
https://www.justice.gov/usao-sdny/pr/dark-web-narcotics-trafficker-sentenced-3-years-prison-connection-laundering-more-19

[bbc.reporter]

Israel's government tax collection agency has also begun their own inquiries about their own citizens. I speculate that this might only be the beginning. We might also witness somehing similar across Europe and Asia where the government would demand their share of your money. I am shaking my head. This might be an argument to hold anonymous coins and only trade in grey markets without KYC.



The revenue collector, the Israel Tax Authority (ITA) has reportedly sent notifications to dozens of Israelis who own digital currencies asking them to fully disclose their assets and be taxed accordingly. In addition to sending letters to local citizens, the tax body has also sent inquiries to cryptocurrency exchanges operating in Israel and those based outside the country.

Reports of the notifications and inquiries being sent by the revenue collector were preceded by Israeli media speculation that tax assessors across the country were exerting “pressure on the digital currency market.” However, as Globes is now reporting, the ITA wants to “obtain information about Israelis trading in these currencies.” Before sending notices and inquiries to crypto exchanges, the Israeli revenue collector had been receiving “data about the Europe-based funds and accounts held by Israelis.”

Source https://news.bitcoin.com/israeli-tax-authorities-notify-cryptocurrency-owners-to-disclose-their-holdings-for-taxation-purposes/

[Sithara007]

Although these are records for the US government, this is by no means unique to the US. Other countries and other governments are employing blockchain analysis and forcing exchanges to hand over customer details. Don't assume you will be safe simply because you are not a US citizen.

Agreed. I am not under a false impression that I am safe, just because I am living outside the United States. With the exchange rates rising so rapidly, the tax authorities in other countries will also be very interested in high-volume exchange users from their jurisdictions and they may hire the same Blockchain analytics companies such as Elliptic and go after the users who are residing within their borders.