IRS Sets Its Sights On Cryptocurrencies (Dec 2016)

[Y_Participant 4591]

IRS Sets Its Sights On Cryptocurrencies

A federal court in the Northern District of California has entered an order authorizing the IRS to serve a John Doe summons on Coinbase Inc. The IRS goal is information about U.S. taxpayers who conducted transactions in a convertible virtual currency during 2013 to 2015. The IRS is seeking the records of Americans who engaged in business with or through, a virtual currency exchanger headquartered in San Francisco.

Meanwhile, a key aspect of the IRS demand is under-discussed. The agency clearly wants to extend the Foreign Account Tax Compliance Act (FATCA) to cover bitcoiners.

FATCA is the enforcement mechanism for a tax policy called Report of Foreign Bank and Financial Accounts (FBAR). FBAR spells out the compliance requirements of “United States persons” who have foreign accounts that amount to $10,000 or more at any point in one year. Those accounts and other assets are considered taxable by the IRS even if the “United States person” lives and earns abroad. FBAR has been less than effective in collecting taxes, however, because the IRS must rely on voluntary reporting, snitches or luck.

Enter FATCA. Passed in March 2010, FATCA imposes extensive requirements on foreign banks and financial institutions to report on the accounts and transactions of American clients. It does not target individuals but institutions. Or, rather, it targets individuals by strong-arming institutions to provide open access to their accounts.

“As the use of virtual currencies has grown exponentially, some have raised questions about tax compliance,” said Principal Deputy Assistant Attorney General Caroline D. Ciraolo, head of the Justice Department’s Tax Division. “Tools like the John Doe summons authorised today send the clear message to U.S. taxpayers that whatever form of currency they use – bitcoin or traditional dollars and cents – we will work to ensure that they are fully reporting their income and paying their fair share of taxes.”

“Transactions in virtual currency are taxable just like those in any other property,” said IRS Commissioner John Koskinen. “The John Doe summons is a step designed to help the IRS ensure people doing business in the emerging economy are following the tax laws and meeting their responsibilities.”

In the court’s order, U.S. Magistrate Judge Jacqueline Scott Corley found that there is a reasonable basis for believing that virtual currency users may have failed to comply with federal tax laws.

The IRS has issued guidance regarding the tax consequences on the use of virtual currencies in IRS Notice 2014-21, which provides that virtual currencies that can be converted into traditional currency are property for tax purposes, and a taxpayer can have a gain or loss on the sale or exchange of a virtual currency, depending on the taxpayer’s cost to purchase the virtual currency (that is, the taxpayer’s tax basis).

The IRS uses John Doe summonses to obtain information about possible violations of internal revenue laws by others, individuals whose identities are unknown. This John Doe summons directs Coinbase to produce records identifying U.S. taxpayers who have used its services, along with other documents relating to their virtual currency transactions.

It is technically true that the U.S. cannot compel foreign institutions to obey IRS regulations. But powerful ‘incentives’ are in place. For example, the U.S. threatens to withhold up to 30% of any U.S. security transaction from a noncomplying bank.

In the end, if Coinbase continues to deny the IRS access to essentially all user records, expect a raid on the main offices in short order – and frozen accounts as a result.

It would be advisable for one to remove any cryptocurrencies stored at Coinbase. It would also be advisable that Coinbase encrypt all user account information and hand the keys over to their customers. At that point, only banks would have information as to who sent money to Coinbase.

Americans or “United States persons” who have used financial institutions, such as exchanges, for their bitcoins should be aware that the past few years worth of transactions are vulnerable to IRS scrutiny. You may not be informed if your records are sent to the IRS, and may find out only when you receive a nasty letter from the IRS demanding payment of the tax due on the bitcoin income.

Next on the agenda? Bitstamp? Kraken? Poloniex? Just wait. If there is a solution to this situation, bitcoiners had best execute it now.

Citations
https://www.irs.gov/pub/irs-drop/n-14-21.pdf

https://news.bitcoin.com/irs-attack-dog-target-us-bitcoiners/

Will Coinbase Survive?

[BlacqueJacqueShellacqueParticipant 6890]

Yumbo, a thumbs up emoji. It is all about time theft. TPTB (The Powers That Be) want us to believe that our time is not our own. It is to be redistributed from the top down so that those on the bottom can never rise. Power and control are to be protected by any means necessary. Examples; war, poverty, starvation and marriage.

[Y_Participant 4591]

BlacqueJacqueShellacque wrote:

It is to be redistributed from the top down so that those on the bottom can never rise. Power and control are to be protected by any means necessary.

Yes – we are all to be made into serfs of the big corporations. This is the real master plan beyond currency controls.

[PistolPeteParticipant 27143]

I hate to sound like an idiot but I have never really understood this whole bitcoin thing to begin with—is it money? or is it some kind of barter? WHAT how does this work.

The reason I ask is because taxes can only be levied against currency—and the only currency is official US dollars that say–good for all debts public and private. You can’t levy a tax on bartered good because the value isn’t pegged to a currency.

Am I wrong here?

[Y_Participant 4591]

PistolPete wrote:

I hate to sound like an idiot but I have never really understood this whole bitcoin thing to begin with—is it money? or is it some kind of barter? WHAT how does this work.

Hi Pete,

Bitcoin is a type of “crypto-currency”. This is a computer generated “coin” designed to work as a medium of exchange (just like real money) using cryptography to secure the transactions by software only. The ‘coin’ lives in cyberspace and can be accessed by the owner with a device (a computer or a portable bitcoin storage medium). Bitcoin is part of ‘blockchain’ technology where the coins are created and stored sequentially.

There are different types of such crypto-currencies. Just like gold and silver their value is determined by the ‘virtual’ market of buyers and sellers and the number of coins available. They have a dollar value set by the free market and can be bought and sold against US dollars just like hard currencies. They can be used to buy all kinds of stuff similarly.

Banks hate crypto-currencies since there is no need for banks in their use.

As these transactions are not sent through real banks (to the IRS or any government body in the world) they currently have problems being taxed. Bitcoin transaction hubs (like Coinbase) are important as they hold bitcoins like banks and also secure buy and sell transaction records. This is what the IRS are after.

Hope this helps.

Some of the guys in this site are very good at it. I myself only occasionally use it.

[PistolPeteParticipant 27143]

That is incredible—its like a shadow economy–but in the end even if it is treated like currency it is not—its like a gentleman’s agreement. Very interesting! Thanks man

[narwhalParticipant]

Well, if there are actual capital gains (and losses) occurring here, which it definitely sounds like there is, then I have no problem with the IRS taxing that income.

Ok. Then do it.

[Y_Participant 4591]

PistolPete wrote:

That is incredible—its like a shadow economy–but in the end even if it is treated like currency it is not—its like a gentleman’s agreement. Very interesting! Thanks man

No prob Bro – always good to hear from you.
If you want to know more the Wiki site is useful

https://en.wikipedia.org/wiki/Cryptocurrency

To be frank I have issues with cryptocurrencies as they can be hacked/stolen and if there is a power blackout or internet shutdown or interference from banks/Feds you are on your own.
The banks are trialing their own versions to help them in cashless payments.

[Y_Participant 4591]

narwhal wrote:

Well, if there are actual capital gains (and losses) occurring here, which it definitely sounds like there is, then I have no problem with the IRS taxing that income.

I agree this is what is supposed to happen. What really happens is your name gets flagged on a terrorist watch list just like someone who wants to withdraw a few thousand from the bank.

Not good.

[PistolPeteParticipant 27143]

narwhal wrote:

Well, if there are actual capital gains (and losses) occurring here, which it definitely sounds like there is, then I have no problem with the IRS taxing that income.

You’re a gentleman and a scholar but frankly—I’d like to see the IRS go up in flames. The power to tax is the power to destroy—so anything that denies money to the “beast” of government is OK with me.

[Freeman_KParticipant 3524]

I like the whole idea of out of the system crytocurrencies but see no real hedge in it agains future society. People in power have too much control over what is going on to just let some out of the system cryptocurrencies continue to grow. We are definitaly going towards distopian orwelian society and i can see a return to the tradtional stores of value present throughout history once the history repeats itself one more time.

The choices we make, not the chances we take, determine our destiny

[Y_Participant 4591]

Freeman_K wrote:

I like the whole idea of out of the system crytocurrencies but see no real hedge in it agains future society. People in power have too much control over what is going on to just let some out of the system cryptocurrencies continue to grow.

Don’t lose hope – Trump and Brexit showed people are waking up. It is incredible what the masses can do if they are forced into a corner.
Nothing is set in stone.

[BlacqueJacqueShellacqueParticipant 6890]

Y_ wrote:

Just like gold and silver their value is determined by the ‘virtual’ market of buyers and sellers and the number of coins available.

For the first time I COMPLETELY and respectfully disagree. Gold and silver are real tangible items. Bitcoin, and the like, are fake as f~~~. They work in the moment but nothing else on earth is as revered as gold, and to a lesser extent, silver.

And the WISE MEN came and laid at the Baby Jesus’ feet, bitcoin, frankincense, and myrrh.

Gold is not made or corruptible by man. Silver is insanely difficult to refine. Bitcoin is zeroes and ones. Digital currencies are “virtual”, metals are real.

[TaxGuyParticipant]

The real bitch here is that the only reason you have a gain on a bitcoin is because our government is devaluing the dollar daily. If they devalue the dollar by 50% and you have your money in Bitcoin, then you have a 100% gain when you convert it back to dollars. But your gain is just that you hedged against the government stealing your money through devaluation. So you owe a tax because you didn’t allow the government to steal your money.

Seem pretty fair……..

Order the good wine

[BeerParticipant 11832]

Currency traders get taxed when they make gains…don’t know why it would be news to anyone they’re catching up with crypto currencies. Its becoming too big of a cookie jar for them not to put their hand into it.

[Y_Participant 4591]

BlacqueJacqueShellacque wrote:

For the first time I COMPLETELY and respectfully disagree. Gold and silver are real tangible items. Bitcoin, and the like, are fake as f~~~. They work in the moment but nothing else on earth is as revered as gold, and to a lesser extent, silver.

BJ – Apologies but respectfully I believe there is a misunderstanding on what I said. I said bitcoin VALUE is determined by the virtual market just like gold and silver (price fixing aside). That is all. I never advocate bitcoin as equivalent to gold or silver – which in my opinion are the only real money.

I also in the a later post that I have issues with cryptocurrency for the same reasons you mentioned. So I do not think I have ever gone away from my position of gold and silver.

Hope that clarifies. Stay well.

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