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Court Rules IRS Can Seek Information on Bitcoin Customers

99 points by siavosh 10y ago

throwawaydfsgs 10y ago
So how would one go about settling up with the IRS on this?
- bitJericho 10y ago
  It's your responsibility to correctly fill out your taxes. You can file a tax amendment to fix mistakes.
- patio11 10y ago
  The short and useful answer is talk to an accountant. The longer and less useful answer is that it depends heavily on circumstances. Two relevant ones are "What sort of income do you have here?" and "How much are we talking about?" If we assume the answers are "You have capital gains because you happened to purchase some Bitcoin, they appreciated, and you sold them, but you weren't conceivably operating a business while doing this" and "Enough money to matter but not enough that your failure to get better advice was clearly negligent" then your resolution is going to be fairly simple. Your CPA will calculate how much money you owe, file a 1040-X (amended return) for the years at issue, and say "On routine review of a prior year tax filing we found that we inadvertently understated income. We're amending the return as appropriate, and have remitted additional tax. We request an abatement for penalties for tax underpayment on the grounds that IRS guidance at the time was unclear and we're coming in voluntarily before you asked us to." You'd possibly get the abatement of penalties; you're likely to pay very modestly more than you would have if you had been more diligent about your obligations, because they don't frequently waive interest. This is the "middle class Americans screw up their taxes all the time; we like to encourage voluntary compliance" answer. If you're talking about mountains of money, on the other hand... expect rather less leniency. Other things that increase your risk: any hint of other-than-tax illegality around the business ("I underpaid on the capital gains I inadvertently generated in my drug smuggling business -- sorry about that, really didn't set up to be a currency speculator, I'm simply an honest drug smuggler") or the Bitcoins being used in a manner which was clearly straight-up tax fraud, like the prosecuted cases where someone's company paid a Bitcoin exchange $X00,000 for "technology services" and expensed it, took the Bitcoin over to Gox, cashed out, and then repatriated the money. (The Bitcoin here are just a red herring; this is a conspiracy to hide $X00,000 in income from the government. They take a dim view of that.)
  - toomuchtodo 10y ago
    Excellent advice!
  - mschuster91 10y ago
    > If you're talking about mountains of money, on the other hand... expect rather less leniency Well, according to Wikipedia, you can at least declare income from illegal activities, so that the feds can't jail you for tax evasion in addition to the crime itself. https://en.wikipedia.org/wiki/Taxation_of_illegal_income_in_the_United_States https://en.wikipedia.org/wiki/Taxation_of_illegal_income_in_...
    - h4nkoslo 10y ago
      However you cannot deduct most costs arising from illegal activity, which typically causes taxes to exceed your profit margin.
  - lojack 10y ago
    Any clue where the cutoff for declaration of capital gains lies?
    - briHass 10y ago
      The short answer is that there is no cutoff. There are certain cases based on the time you held the asset (long-term) and you having a low income, but most likely, tax is due on all capital gains, and regardless, they must be reported. https://www.irs.gov/uac/ten-important-facts-about-capital-gains-and-losses https://www.irs.gov/uac/ten-important-facts-about-capital-ga...
donatj 10y ago
I basically expected as much. Wish the article wasn't subscriber only.
- bunburying 10y ago
  Click the "web" link above, between "past" and [...] comments.
- deftnerd 10y ago
  This seems to be a better link anyway: http://www.coindesk.com/bitcoin-judge-approved-irs-coinbase-users/ http://www.coindesk.com/bitcoin-judge-approved-irs-coinbase-...
- wheelerwj 10y ago
  https://www.google.com/amp/www.wsj.com/amp/articles/court-rules-irs-can-seek-information-on-bitcoin-customers-1480569311 https://www.google.com/amp/www.wsj.com/amp/articles/court-ru...
  - bunburying 10y ago
    Following this link doesn't work. Presumably Google needs to be the referrer.
bunburying 10y ago
As at least one person has already struggled with this (subthread now deleted), hopefully the following will help others. To read the article in full, please click the "web" link above, between "past" and "[...] comments". WSJ articles can be read in full, if you click through from Google search results. Note: simply copying the Google link and pasting it here won't work. Presumably Google needs to be the referrer.
- kybernetyk 10y ago
  Why do we allow WSJ submissions here if they don't want us to read their content? I mean sure, you can go the "click web, then the right Google result" route. But that's like submitting a link to Adobe's most recent Photoshop update and then tell people "you can download Photoshop for free by starting your Bittorent client". WSJ wants to hide behind a paywall. That's fine for them. But HN shouldn't be sending them traffic and enable that behavior.
  - grzm 10y ago
    Some HN users subscribe to the WSJ, others find the content valuable enough to use the web link. The submitter and those who up-vote the submission also believe the article has value. The paywall is part of the WSJ's business model. HN submissions include the source of the article. If you choose not to support the WSJ or their business practices, you have the choice of not reading their articles.
    - existencebox 10y ago
      I think the (fair) complaint that in situations like this where similar articles are written by a slew of sites, better good could be done sourcing from a site without a paywall; both in accessibility and in supporting non-paywalled news. Even with the web links, that often doesn't work with WSJ any more with how they cookie; so I'm very supportive of non-paywalled links as a preference.
      - grzm 10y ago
paulsutter 10y ago
You can't omit Bitcoin transactions from your tax return just because they seem anonymous. Concealment is the very definition of tax evasion, "Evasion... involves deceit, subterfuge, camouflage, concealment, some attempt to color or obscure events or to make things seem other than they are" Quoting in full since its among the most misunderstood yet important distinctions in tax: http://www.irs.gov/irm/part9/irm_09-001-003.html http://www.irs.gov/irm/part9/irm_09-001-003.html 9.1.3.3.2.1 (05-15-2008) 26 USC §7201 – Avoidance Distinguished from Evasion 1. Avoidance of taxes is not a criminal offense. Any attempt to reduce, avoid, minimize, or alleviate taxes by legitimate means is permissible. The distinction between avoidance and evasion is fine, yet definite. One who avoids tax does not conceal or misrepresent. He/she shapes events to reduce or eliminate tax liability and, upon the happening of the events, makes a complete disclosure. Evasion, on the other hand, involves deceit, subterfuge, camouflage, concealment, some attempt to color or obscure events or to make things seem other than they are.
- Fluxenein 10y ago
  So, if an individual buys BitCoin with some capital to not pay taxes for said amount of capital ,is he evading or avoiding?
  - paulsutter 10y ago
    IANAL but example taxable transactions might be to sell bitcoins for a gain, or to use appreciated bitcoins in a barter transaction. Losses are also taxable transactions, but in a good way. Mining is awkward, since I believe mined coins are taxed as income on the day they are mined, even if you don't transact. Best to talk to an accountant, of course, and not rely on the advice of a random HN commenter like me.
    - justin66 10y ago
      > Mining is awkward, since I believe mined coins are taxed as income on the day they are mined, even if you don't transact. The IRS has indicated that bitcoins are property and taxed as such, so that seems unlikely. Do you have a source for this?
mindcrime 10y ago
The solution to this is obvious: eliminate the IRS. And the income tax. And most of the federal government. Spin off the actually useful bits as private non-profit foundations (or possibly even for-profit companies depending on the scenario) and let them earn their own keep based on the value they provide. A sufficiently small government can be funded without an income tax, as history shows us.
- deleted 10y ago
  [deleted]
- delegate 10y ago
  Of course. Taxes are the basis of state, which uses taxes to develop and maintain its capability to threaten you with violence if you dont't pay taxes. It's a recursion which has plagued the world for centuries. The whole system can in theory be replaced with non-profit investments funds, which crowdfund social projects. You dont even have to elect 'leaders', because citizens will be involved full time in running things (by guarding their investments) similarily to how they now waste time on Facebook. But good luck changing anything without a nuclear apocalypse :) There are a lot of people who like the system the way it is and they won't give it up because us idealists want a better world for their children..
  - mindcrime 10y ago
    There are a lot of people who like the system the way it is and they won't give it up because us idealists want a better world for their children It really is an old argument. The arrogance of thinking that a small handful of elites should "run things" for the stupid commoners dates back at least as far as Plato's era and the idea of the "philosopher king".
    - delegate 10y ago
      > The arrogance of thinking that a small handful of elites should "run things" for the stupid commoners dates back Not sure if you're calling me arrogant or not, by all means I'm all for a new society in which people govern themselves as much as is technologically possible. I believe that the system of 'elites' has been taken to an extreme globally and is one of the main reasons for the dire state of the whole system, including climate change, pollution, financial bubbles, etc. What I'm saying though is that the 'old' system is built to perpetuate itself - they have power - military, police, justice... And they won't give it up for some shiny new ideas, even if it means self-destruction.
throwawayqwer 10y ago
Say someone bought Bitcoins from Coinbase and transferred them to their own wallet outside of Coinbase. They haven't sold them, so there's no taxes to pay and nothing to report to the IRS, right? How is the IRS going to know the difference between that situation, where they have done nothing wrong, and someone who sold them outside of Coinbase and didn't pay taxes on it? Are they just going to audit everyone over some threshold, or are they going to use this information in existing investigations (or in conjunction with other red flags)
- rebuilder 10y ago
  I guess we'll find out in due time what the IRS is going to do. As for your example, it seems to hinge on whether you're required to report holdings or just capital gains to the IRS.
- koliber 10y ago
  It's difficult to guess how the IRS would treat it. How are they going to know the difference? For one, you can tell them. I don't know what the proper form for this would be, but I am sure an accountant can help out. Scaremongering aside, I've found dealing with the IRS rather sane. I would think that the IRS would treat a transfer of coins from a wallet you own to a wallet you do not own as a taxable event. They would take difference in value of the coins between when you acquired them and transferred them away, and if it is positive, would call it a profit. On the other hand, if you declared that you owned both the source and destination wallet, I would imagine that the IRS would not treat this as a taxable event, in the same was as transferring USD between your checking and savings account is not a taxable event. The IRS relies in a huge part on you self-reporting things. They do get a lot of info from the source (bank transaction records, 1099's, W2's). In many cases, the onus is on the taxpayer to tell the IRS the information that they need. By default, the IRS takes self-reported information at face value and believes you. However, sometimes, they may decide to investigate. This is called an audit, and then the onus is on you to prove that what you provided is true.
- normandoorman 10y ago
  Every transaction on the block chain is a taxable event. You need a program to calculate capital gains or losses for the tax year. That is my understanding. So you have a daily value, transaction fees, capital gain or loss.
nullc 10y ago
So-- IRS seeks _all_ transaction records for all coinbase customers. Not just buying and selling Bitcoin but also people using their wallet services, which would mostly be users moving around their own funds (not a taxable event). They're doing this on the basis that there might be evidence of tax evasion in there somewhere. Which is plausible, I suppose. Thing is: All this same data was also emailed to the customers (as coinbase does email notification), likewise for their competitors. Which means that the IRS could likely get the same data but more comprehensively by simply demanding Google turn over every single email for every user. I can guarantee this would include much more evidence of tax evasion. So why is a coinbase dragnet a viable demand where a Gmail one-- which would include the same data plus even more tax evasion evidence-- not one? Or is it simply the case that the Gmail demand will show up after this one clears the courts? :)
- JumpCrisscross 10y ago
  Material transactions are already, for the most part, reported. This action isn't putting special attention on Bitcoin ceteris paribus. It is bringing it into alignment with U.S. dollar custom and law.
  - throwawayqwer 10y ago
    So shouldn't they only require Coinbase hand over "material transactions"?
- tn13 10y ago
  I am not surprised that IRS needs to work with coinbase to find tax evaders but a `John Doe summons` ? Again, I fail to see any legal rational in the court's verdict. This is a bad precedent and I seriously hope Coinbase gets support from other tech giants to take it to Supreme Court. This clearly seems like violation of 4th amendment. I have no doubt that Gmail will be next.
jrockway 10y ago
Oh good, another list I'm on. I'm going to have to start making a list of the lists. Bitcoin seems obviously like money to me. But I wonder when the IRS is going to start cracking down on other electronic money you can earn. Think about computer games where you can buy credits, or earn them by playing. That sounds like income tax evasion to me; you're getting paid in Green Rupees instead of US Dollars, but you should still be paying income tax on that! And don't forget about frequent flyer miles. (Which are not counted as income because you "can't" sell them, but anyone who reads flyertalk knows that's not the case.) It's all very interesting. People have been using alternative currencies outside of the IRS's radar for quite a while, and they've mostly ignored them.
- ryanackley 10y ago
  In the linked article, the IRS is quoted as saying they are treating BitCoin like property. Essentially, they are looking to tax people who made a profit from selling Bitcoins using Coinbase. They don't seem concerned with the currency aspect at all.
  - reddytowns 10y ago
    The problem is that this is no dividing line. If after you receive bitcoin, the price of bitcoin goes up, and then you buy something with them, that is a taxable event.
  - smokeyj 10y ago
    Say I buy two bitcoins, A and B, and combine them into a wallet C. Bitcoin A was purchased for $100 and Bitcoin B was purchased for $1000. If I sell half of wallet C for $500 - can I pick "which" bitcoin was sold? Because depending on which coin was sold the tax implication may change.
    - olegkikin 10y ago
      I think you have to count the earliest purchase first for taxes. So you can't use the $500 base until you exhaust all of the $100 when counting buy-sell events.
god_bless_texas 10y ago
I initially cringed when I saw this, so I went to go download my transactions from coinbase. I realized after looking through them that some of my BTC outbound transfers were to btc-e, and some of those were to cryptsy. So, considering cryptsy kicked the bucket with much of my coin, and I can't get their records...now what? Those outbound transfers are financial losses, and in the grand scheme I lost money due to Cryptsy; but will the IRS settle for that?
- AtheistOfFail 10y ago
  You should have filed a loss with the IRS for the money so you could get the tax write-off.
  - Declanomous 10y ago
    You can file amended tax returns for 3(?) years I think. I don't know how that works for capital losses though, I've only had to file amended returns for other types of deductions.
digler999 10y ago
I get that taxes are one of the few certainties of life, but this article makes me think of yesterdays "how to hide $400m" article about tax sheltering and offshore incorporation. I wish there were a way to ruin tax sheltering for the wealthy by finding out the exact formula for what they're doing (say register a business in the Cook Islands ), then commoditizing that via an online service (like Wordpress does for websites), and using bitcoin. Now the masses can pay $29.95 to have a VPS on the Cook Islands, set up their bitcoin wallet on it, and have their own little tax-exempt haven. Try to structure the system the exact same way the rich people do it, so that authorities necessarily have to shut down the rich at the same time.
- soggypretzels 10y ago
  Making legal tax evasion accessible to the masses may be the only way to get the government to close those loopholes.
- PKop 10y ago
  Simplify the law, remove sheltering opportunities/loopholes, and lower rates? Lower them to a point at which it isn't worth the cost to shield, and get more out of them than what we are losing to the sheltering.
transfire 10y ago
Few people know that federal taxation is primarily a way to spy on people. There are numerous alternative places to apply taxation within the economy that are not remotely as intrusive, time consuming or costly. Tax preparation is a $10 billion dollar industry and the IRS has a $12 dollar budget.
- pc86 10y ago
  On its face ("the more money you make, the more taxes you pay") it's a good system. However, like most things, it doesn't seem to work exactly the way it's described.
normandoorman 10y ago
There is a huge flaw in this logic from the IRS. If it is a possession, then I can give it away. Like a fudgable dollar I gift away, you cannot tax me on every transaction that doller is engaged in.if I give away the wallet and the dollar, nothing changes. The USA is just trying to stop bit coin with taxes.
- FireBeyond 10y ago
  That's kinda close to "I'm not going to pay you for what I bought. But I am going to transfer ownership of my wallet here which just happens to have cash in it to cover what you were asking for. But be clear, I'm giving you the wallet. Not paying you."
normandoorman 10y ago
Their goal might be to harasss people into not using bit coin. This is a tax nightmare well outside of most peoples understanding.
hnburnsy 10y ago
What if I buy something with appreciated Bitcoin? Is this a taxable event? If the IRS considers Bitcoin property, am I just bartering with Dell when I buy a laptop with Bitcoin?
- pc86 10y ago
  > Is [buy[ing] something with appreciated Bitcoin] a taxable event? According to the IRS, yes. > If the IRS considers Bitcoin property, am I just bartering with Dell when I buy a laptop with Bitcoin? Yes, so if you buy 1 BTC for $750, the price increase dramatically and you buy a top-end gaming system from Dell (lol) then you're bartering and the excess value is taxable.

99 points by siavosh 10y ago

throwawaydfsgs 10y ago

So how would one go about settling up with the IRS on this?

bitJericho 10y ago
It's your responsibility to correctly fill out your taxes. You can file a tax amendment to fix mistakes.
patio11 10y ago
The short and useful answer is talk to an accountant. The longer and less useful answer is that it depends heavily on circumstances. Two relevant ones are "What sort of income do you have here?" and "How much are we talking about?" If we assume the answers are "You have capital gains because you happened to purchase some Bitcoin, they appreciated, and you sold them, but you weren't conceivably operating a business while doing this" and "Enough money to matter but not enough that your failure to get better advice was clearly negligent" then your resolution is going to be fairly simple. Your CPA will calculate how much money you owe, file a 1040-X (amended return) for the years at issue, and say "On routine review of a prior year tax filing we found that we inadvertently understated income. We're amending the return as appropriate, and have remitted additional tax. We request an abatement for penalties for tax underpayment on the grounds that IRS guidance at the time was unclear and we're coming in voluntarily before you asked us to." You'd possibly get the abatement of penalties; you're likely to pay very modestly more than you would have if you had been more diligent about your obligations, because they don't frequently waive interest. This is the "middle class Americans screw up their taxes all the time; we like to encourage voluntary compliance" answer. If you're talking about mountains of money, on the other hand... expect rather less leniency. Other things that increase your risk: any hint of other-than-tax illegality around the business ("I underpaid on the capital gains I inadvertently generated in my drug smuggling business -- sorry about that, really didn't set up to be a currency speculator, I'm simply an honest drug smuggler") or the Bitcoins being used in a manner which was clearly straight-up tax fraud, like the prosecuted cases where someone's company paid a Bitcoin exchange $X00,000 for "technology services" and expensed it, took the Bitcoin over to Gox, cashed out, and then repatriated the money. (The Bitcoin here are just a red herring; this is a conspiracy to hide $X00,000 in income from the government. They take a dim view of that.)
- toomuchtodo 10y ago
  Excellent advice!
- mschuster91 10y ago
  > If you're talking about mountains of money, on the other hand... expect rather less leniency Well, according to Wikipedia, you can at least declare income from illegal activities, so that the feds can't jail you for tax evasion in addition to the crime itself. https://en.wikipedia.org/wiki/Taxation_of_illegal_income_in_the_United_States https://en.wikipedia.org/wiki/Taxation_of_illegal_income_in_...
  - h4nkoslo 10y ago
    However you cannot deduct most costs arising from illegal activity, which typically causes taxes to exceed your profit margin.
- lojack 10y ago
  Any clue where the cutoff for declaration of capital gains lies?
  - briHass 10y ago
    The short answer is that there is no cutoff. There are certain cases based on the time you held the asset (long-term) and you having a low income, but most likely, tax is due on all capital gains, and regardless, they must be reported. https://www.irs.gov/uac/ten-important-facts-about-capital-gains-and-losses https://www.irs.gov/uac/ten-important-facts-about-capital-ga...

donatj 10y ago

I basically expected as much. Wish the article wasn't subscriber only.

bunburying 10y ago
Click the "web" link above, between "past" and [...] comments.
deftnerd 10y ago
This seems to be a better link anyway: http://www.coindesk.com/bitcoin-judge-approved-irs-coinbase-users/ http://www.coindesk.com/bitcoin-judge-approved-irs-coinbase-...
wheelerwj 10y ago
https://www.google.com/amp/www.wsj.com/amp/articles/court-rules-irs-can-seek-information-on-bitcoin-customers-1480569311 https://www.google.com/amp/www.wsj.com/amp/articles/court-ru...
- bunburying 10y ago
  Following this link doesn't work. Presumably Google needs to be the referrer.

bunburying 10y ago

As at least one person has already struggled with this (subthread now deleted), hopefully the following will help others. To read the article in full, please click the "web" link above, between "past" and "[...] comments". WSJ articles can be read in full, if you click through from Google search results. Note: simply copying the Google link and pasting it here won't work. Presumably Google needs to be the referrer.

kybernetyk 10y ago
Why do we allow WSJ submissions here if they don't want us to read their content? I mean sure, you can go the "click web, then the right Google result" route. But that's like submitting a link to Adobe's most recent Photoshop update and then tell people "you can download Photoshop for free by starting your Bittorent client". WSJ wants to hide behind a paywall. That's fine for them. But HN shouldn't be sending them traffic and enable that behavior.
- grzm 10y ago
  Some HN users subscribe to the WSJ, others find the content valuable enough to use the web link. The submitter and those who up-vote the submission also believe the article has value. The paywall is part of the WSJ's business model. HN submissions include the source of the article. If you choose not to support the WSJ or their business practices, you have the choice of not reading their articles.
  - existencebox 10y ago
    I think the (fair) complaint that in situations like this where similar articles are written by a slew of sites, better good could be done sourcing from a site without a paywall; both in accessibility and in supporting non-paywalled news. Even with the web links, that often doesn't work with WSJ any more with how they cookie; so I'm very supportive of non-paywalled links as a preference.
    - grzm 10y ago

paulsutter 10y ago

You can't omit Bitcoin transactions from your tax return just because they seem anonymous. Concealment is the very definition of tax evasion, "Evasion... involves deceit, subterfuge, camouflage, concealment, some attempt to color or obscure events or to make things seem other than they are" Quoting in full since its among the most misunderstood yet important distinctions in tax: http://www.irs.gov/irm/part9/irm_09-001-003.html http://www.irs.gov/irm/part9/irm_09-001-003.html 9.1.3.3.2.1 (05-15-2008) 26 USC §7201 – Avoidance Distinguished from Evasion 1. Avoidance of taxes is not a criminal offense. Any attempt to reduce, avoid, minimize, or alleviate taxes by legitimate means is permissible. The distinction between avoidance and evasion is fine, yet definite. One who avoids tax does not conceal or misrepresent. He/she shapes events to reduce or eliminate tax liability and, upon the happening of the events, makes a complete disclosure. Evasion, on the other hand, involves deceit, subterfuge, camouflage, concealment, some attempt to color or obscure events or to make things seem other than they are.

Fluxenein 10y ago
So, if an individual buys BitCoin with some capital to not pay taxes for said amount of capital ,is he evading or avoiding?
- paulsutter 10y ago
  IANAL but example taxable transactions might be to sell bitcoins for a gain, or to use appreciated bitcoins in a barter transaction. Losses are also taxable transactions, but in a good way. Mining is awkward, since I believe mined coins are taxed as income on the day they are mined, even if you don't transact. Best to talk to an accountant, of course, and not rely on the advice of a random HN commenter like me.
  - justin66 10y ago
    > Mining is awkward, since I believe mined coins are taxed as income on the day they are mined, even if you don't transact. The IRS has indicated that bitcoins are property and taxed as such, so that seems unlikely. Do you have a source for this?

mindcrime 10y ago

The solution to this is obvious: eliminate the IRS. And the income tax. And most of the federal government. Spin off the actually useful bits as private non-profit foundations (or possibly even for-profit companies depending on the scenario) and let them earn their own keep based on the value they provide. A sufficiently small government can be funded without an income tax, as history shows us.

deleted 10y ago
[deleted]
delegate 10y ago
Of course. Taxes are the basis of state, which uses taxes to develop and maintain its capability to threaten you with violence if you dont't pay taxes. It's a recursion which has plagued the world for centuries. The whole system can in theory be replaced with non-profit investments funds, which crowdfund social projects. You dont even have to elect 'leaders', because citizens will be involved full time in running things (by guarding their investments) similarily to how they now waste time on Facebook. But good luck changing anything without a nuclear apocalypse :) There are a lot of people who like the system the way it is and they won't give it up because us idealists want a better world for their children..
- mindcrime 10y ago
  There are a lot of people who like the system the way it is and they won't give it up because us idealists want a better world for their children It really is an old argument. The arrogance of thinking that a small handful of elites should "run things" for the stupid commoners dates back at least as far as Plato's era and the idea of the "philosopher king".
  - delegate 10y ago
    > The arrogance of thinking that a small handful of elites should "run things" for the stupid commoners dates back Not sure if you're calling me arrogant or not, by all means I'm all for a new society in which people govern themselves as much as is technologically possible. I believe that the system of 'elites' has been taken to an extreme globally and is one of the main reasons for the dire state of the whole system, including climate change, pollution, financial bubbles, etc. What I'm saying though is that the 'old' system is built to perpetuate itself - they have power - military, police, justice... And they won't give it up for some shiny new ideas, even if it means self-destruction.

throwawayqwer 10y ago

Say someone bought Bitcoins from Coinbase and transferred them to their own wallet outside of Coinbase. They haven't sold them, so there's no taxes to pay and nothing to report to the IRS, right? How is the IRS going to know the difference between that situation, where they have done nothing wrong, and someone who sold them outside of Coinbase and didn't pay taxes on it? Are they just going to audit everyone over some threshold, or are they going to use this information in existing investigations (or in conjunction with other red flags)

rebuilder 10y ago
I guess we'll find out in due time what the IRS is going to do. As for your example, it seems to hinge on whether you're required to report holdings or just capital gains to the IRS.
koliber 10y ago
It's difficult to guess how the IRS would treat it. How are they going to know the difference? For one, you can tell them. I don't know what the proper form for this would be, but I am sure an accountant can help out. Scaremongering aside, I've found dealing with the IRS rather sane. I would think that the IRS would treat a transfer of coins from a wallet you own to a wallet you do not own as a taxable event. They would take difference in value of the coins between when you acquired them and transferred them away, and if it is positive, would call it a profit. On the other hand, if you declared that you owned both the source and destination wallet, I would imagine that the IRS would not treat this as a taxable event, in the same was as transferring USD between your checking and savings account is not a taxable event. The IRS relies in a huge part on you self-reporting things. They do get a lot of info from the source (bank transaction records, 1099's, W2's). In many cases, the onus is on the taxpayer to tell the IRS the information that they need. By default, the IRS takes self-reported information at face value and believes you. However, sometimes, they may decide to investigate. This is called an audit, and then the onus is on you to prove that what you provided is true.
normandoorman 10y ago
Every transaction on the block chain is a taxable event. You need a program to calculate capital gains or losses for the tax year. That is my understanding. So you have a daily value, transaction fees, capital gain or loss.

nullc 10y ago

So-- IRS seeks _all_ transaction records for all coinbase customers. Not just buying and selling Bitcoin but also people using their wallet services, which would mostly be users moving around their own funds (not a taxable event). They're doing this on the basis that there might be evidence of tax evasion in there somewhere. Which is plausible, I suppose. Thing is: All this same data was also emailed to the customers (as coinbase does email notification), likewise for their competitors. Which means that the IRS could likely get the same data but more comprehensively by simply demanding Google turn over every single email for every user. I can guarantee this would include much more evidence of tax evasion. So why is a coinbase dragnet a viable demand where a Gmail one-- which would include the same data plus even more tax evasion evidence-- not one? Or is it simply the case that the Gmail demand will show up after this one clears the courts? :)

JumpCrisscross 10y ago
Material transactions are already, for the most part, reported. This action isn't putting special attention on Bitcoin ceteris paribus. It is bringing it into alignment with U.S. dollar custom and law.
- throwawayqwer 10y ago
  So shouldn't they only require Coinbase hand over "material transactions"?
tn13 10y ago
I am not surprised that IRS needs to work with coinbase to find tax evaders but a `John Doe summons` ? Again, I fail to see any legal rational in the court's verdict. This is a bad precedent and I seriously hope Coinbase gets support from other tech giants to take it to Supreme Court. This clearly seems like violation of 4th amendment. I have no doubt that Gmail will be next.

jrockway 10y ago

Oh good, another list I'm on. I'm going to have to start making a list of the lists. Bitcoin seems obviously like money to me. But I wonder when the IRS is going to start cracking down on other electronic money you can earn. Think about computer games where you can buy credits, or earn them by playing. That sounds like income tax evasion to me; you're getting paid in Green Rupees instead of US Dollars, but you should still be paying income tax on that! And don't forget about frequent flyer miles. (Which are not counted as income because you "can't" sell them, but anyone who reads flyertalk knows that's not the case.) It's all very interesting. People have been using alternative currencies outside of the IRS's radar for quite a while, and they've mostly ignored them.

ryanackley 10y ago
In the linked article, the IRS is quoted as saying they are treating BitCoin like property. Essentially, they are looking to tax people who made a profit from selling Bitcoins using Coinbase. They don't seem concerned with the currency aspect at all.
- reddytowns 10y ago
  The problem is that this is no dividing line. If after you receive bitcoin, the price of bitcoin goes up, and then you buy something with them, that is a taxable event.
- smokeyj 10y ago
  Say I buy two bitcoins, A and B, and combine them into a wallet C. Bitcoin A was purchased for $100 and Bitcoin B was purchased for $1000. If I sell half of wallet C for $500 - can I pick "which" bitcoin was sold? Because depending on which coin was sold the tax implication may change.
  - olegkikin 10y ago
    I think you have to count the earliest purchase first for taxes. So you can't use the $500 base until you exhaust all of the $100 when counting buy-sell events.

god_bless_texas 10y ago

I initially cringed when I saw this, so I went to go download my transactions from coinbase. I realized after looking through them that some of my BTC outbound transfers were to btc-e, and some of those were to cryptsy. So, considering cryptsy kicked the bucket with much of my coin, and I can't get their records...now what? Those outbound transfers are financial losses, and in the grand scheme I lost money due to Cryptsy; but will the IRS settle for that?

AtheistOfFail 10y ago
You should have filed a loss with the IRS for the money so you could get the tax write-off.
- Declanomous 10y ago
  You can file amended tax returns for 3(?) years I think. I don't know how that works for capital losses though, I've only had to file amended returns for other types of deductions.

digler999 10y ago

I get that taxes are one of the few certainties of life, but this article makes me think of yesterdays "how to hide $400m" article about tax sheltering and offshore incorporation. I wish there were a way to ruin tax sheltering for the wealthy by finding out the exact formula for what they're doing (say register a business in the Cook Islands ), then commoditizing that via an online service (like Wordpress does for websites), and using bitcoin. Now the masses can pay $29.95 to have a VPS on the Cook Islands, set up their bitcoin wallet on it, and have their own little tax-exempt haven. Try to structure the system the exact same way the rich people do it, so that authorities necessarily have to shut down the rich at the same time.

soggypretzels 10y ago
Making legal tax evasion accessible to the masses may be the only way to get the government to close those loopholes.
PKop 10y ago
Simplify the law, remove sheltering opportunities/loopholes, and lower rates? Lower them to a point at which it isn't worth the cost to shield, and get more out of them than what we are losing to the sheltering.

transfire 10y ago

Few people know that federal taxation is primarily a way to spy on people. There are numerous alternative places to apply taxation within the economy that are not remotely as intrusive, time consuming or costly. Tax preparation is a $10 billion dollar industry and the IRS has a $12 dollar budget.

pc86 10y ago
On its face ("the more money you make, the more taxes you pay") it's a good system. However, like most things, it doesn't seem to work exactly the way it's described.

normandoorman 10y ago

There is a huge flaw in this logic from the IRS. If it is a possession, then I can give it away. Like a fudgable dollar I gift away, you cannot tax me on every transaction that doller is engaged in.if I give away the wallet and the dollar, nothing changes. The USA is just trying to stop bit coin with taxes.

FireBeyond 10y ago
That's kinda close to "I'm not going to pay you for what I bought. But I am going to transfer ownership of my wallet here which just happens to have cash in it to cover what you were asking for. But be clear, I'm giving you the wallet. Not paying you."

normandoorman 10y ago

Their goal might be to harasss people into not using bit coin. This is a tax nightmare well outside of most peoples understanding.

hnburnsy 10y ago

What if I buy something with appreciated Bitcoin? Is this a taxable event? If the IRS considers Bitcoin property, am I just bartering with Dell when I buy a laptop with Bitcoin?

pc86 10y ago
> Is [buy[ing] something with appreciated Bitcoin] a taxable event? According to the IRS, yes. > If the IRS considers Bitcoin property, am I just bartering with Dell when I buy a laptop with Bitcoin? Yes, so if you buy 1 BTC for $750, the price increase dramatically and you buy a top-end gaming system from Dell (lol) then you're bartering and the excess value is taxable.