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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 n

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.

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.