6 ms·

Paying taxes on free money isn't the end of the world.

pawelmurias 5y ago
It's likely those people might already have had a fuck ton of preexisting free crypto-pyramid scheme money lying around.
ashtonkem 5y ago
It’s not, but “give us our money back or we’ll report you to the IRS” strongly implies that they were willfully assisting in tax avoidance before. It might even legally be blackmail, if they’re aware of any crimes their customers have committed.
- yial 5y ago
  I think that trying to obtain goods or services through threat of initiating criminal proceedings is usually illegal. Wash. Rev. Code §§ 9A.56.110, 9A.56.130, 9A.04.110 For example
  - dnautics 5y ago
    founder is clearly an asshole but "reporting it as income to the IRS" probably doesn't count as "threat of initiating criminal proceedings" as it's likely something that they are enjoined to do anyways.
    - runnerup 5y ago
      > something that they are enjoined to do anyways. Indeed, this is the key to make it "not blackmail".
- duxup 5y ago
  Amusing as the founder then would be outright saying he knows what criminal activity has been going on and exactly who is up to it ... and is willing to use that info if he see fit. That would seem to present all sorts of risks for his users, and himself, legal and otherwise.
- fossuser 5y ago
  Yeah I got a kick out of that too. “Send the money back or we’ll follow the laws we were supposed to be following anyway!” Patio11 had a thread on Twitter better than this article.
  - blfr 5y ago
    I believe it starts here https://twitter.com/patio11/status/1443738002065268736 https://twitter.com/patio11/status/1443738002065268736
    - kevinpet 5y ago
      Interesting. Except that recent events regarding Citigroups incorrect $900M payout on the Revlon bond shows that in fact grown up finance will sometimes say, actually, the law is the law and the contract doesn't cover this, so thanks for the money. This was a case where the bond holders did have some claim to the money, but it was clearly an error.
      - JadeNB 5y ago
        > This was a case where the bond holders did have some claim to the money, but it was clearly an error. You refer to recent events, and I don't know how recent, so maybe I missed something; but my understanding was that the finding was that it was reasonable for Revlon to believe when they received the fund that it was a legitimate payment, not just an error. Of course in retrospect (e.g., when Citigroup calls and says so!) it is clear that it was an error, but the legal argument, whether or not you buy its truth, was that it was not clear at the time. I think that this sort of finding in which both grown-up financiers decide not to be chummy about misplaced funds, and the law sides with them in not requiring them to do so, is comparatively rare.
        jjeaff 5y ago
        I'm a little foggy on details, but I remember reading that the bond holders had been kind of mistreated before all this. Something to do with reorganizing or splitting off valuable parts of the company. The bond holders weren't too happy as it was beginning to look like they might not get their money back. So it makes sense why they would not be quick to cooperate and return what they initially thought were early payments.
- chucksmash 5y ago
  > [...] strongly implies that they were willfully assisting in tax avoidance before. It does nothing of the sort. It's a enormous leap based on an assumption of bad faith to go from expecting protocol users to sort out their own personal tax situation to "willfully assisting in tax avoidance."
  - JadeNB 5y ago
    > It does nothing of the sort. It's a enormous leap based on an assumption of bad faith to go from expecting protocol users to sort out their own personal tax situation to "willfully assisting in tax avoidance." There are obviously lots of subtleties here, including places where no-one knows how the legal implications will shake out, but "expecting … users to sort out their own personal tax situation" isn't always an option; for example, my bank isn't allowed to assume I'll sort out my own personal tax situation and must report my interest earned, whereas, say, Amazon is allowed to make that assumption, and so need not report the items that they have sold to me. It could be that this is a more Amazon-y situation, but it could also be that it's a more traditional-bank-y situation. Probably even the IRS and Leshner, but definitely those of us who aren't involved in the situation, don't know which it is.
    - chucksmash 5y ago
      > There are obviously lots of subtleties here. Precisely, which is why the jump to "strongly implies willfully assisting in tax avoidance" comes off so poorly. In my opinion, it not only mischaracterizes what is happening, it imputes ill intent to boot. Guidance for DeFi apps is poor currently and policy in this area is actively being legislated. In the meantime, shifting the onus for tax reporting back onto individual users !== willful assistance in tax avoidance any more than companies not witholding income taxes from payroll pre-WW2 was willful assistance in tax avoidance. Further, since these transactions are all captured on a public ledger, anyone using this for tax avoidance is really just electing to pay their taxes later with massive penalties and possible jail time once the IRS gets around to tying addresses with unreported transactions to fiat on/off ramp transactions that are KYC'd.
- deleted 5y ago
  [deleted]
- bpodgursky 5y ago
  Not sure that makes any sense... if users held the assets before, they have an asset with unrealized gains. When it transfers ownership, those gains are realized.
- SilasX 5y ago
  Not really? There are things that you're not required to report to the IRS that others can use to underreport income -- for example, the identity of which contractor you made small cash payments to. Reporting their identities to the IRS is not illegal, but neither is failing to. (Also, I assume you mean tax evasion? Avoidance is the legal one.)
cesarb 5y ago
> Paying taxes on free money isn't the end of the world. Playing devil's advocate: it's not exactly "free money", it's free "tokens" of some kind, which might not be convertible to money at the same rate which was used to estimate the tax. If the tax amount was assessed at the value the tokens were supposed to have today (based on what they recently traded for at some exchange somewhere), but you were too slow and only traded the next day and the price paid for these tokens has fallen heavily, you might have to pay more in tax than the money you can get from these "free tokens". So yes, it's not hard to imagine a situation in which paying tax on that "free money" can be "the end of the world" for some.
- TedDoesntTalk 5y ago
  In the US, you only pay taxes on income and gains. In other words, you’re not going to pay taxes on those tokens until you redeem them for fiat currency. The tax is an percentage of the fiat currency you receive, not the token value. Just like stocks (you don’t pay for any changes in value to the stock until you sell it for fiat currency).
  - fossuser 5y ago
    There are some exceptions like exercising stock options where you’re taxed for the difference between the strike price and the fair market value at the time of exercise (I’m not sure why the law is this way).
    - Retric 5y ago
      Because your trading thing A for thing B. Suppose you could trade stock for a Yacht without income taxes applying. That’s the kind of loophole everyone buying a yacht would use, especially if you could use a near cash equivalent like gold instead of barter. The difference between stock and stock options might not seem like enough to matter, but it’s simply the same generic rule applying.
      - fossuser 5y ago
db65edfc7996 5y ago
It might even be the best way to legitimize (legally launder?) the money. If I receive $XX, would happily pay %Y of that to stay above board. If the IRS wanted to audit me, my personal war chest is now $XX-%Y greater than it was before and more than adequate to cover whatever past (accidental) tax errors I may have had in the past.
- dragonwriter 5y ago
  > If I receive $XX, would happily pay %Y of that to stay above board But paying taxes on it doesn't make it legal if it was illegal for non-tax reasons, it just makes it not-tax-evasion.
  - 8note 5y ago
    in this case, the rules of the crypto made it legal?

It's likely those people might already have had a fuck ton of preexisting free crypto-pyramid scheme money lying around.

ashtonkem 5y ago

It’s not, but “give us our money back or we’ll report you to the IRS” strongly implies that they were willfully assisting in tax avoidance before. It might even legally be blackmail, if they’re aware of any crimes their customers have committed.

yial 5y ago
I think that trying to obtain goods or services through threat of initiating criminal proceedings is usually illegal. Wash. Rev. Code §§ 9A.56.110, 9A.56.130, 9A.04.110 For example
- dnautics 5y ago
  founder is clearly an asshole but "reporting it as income to the IRS" probably doesn't count as "threat of initiating criminal proceedings" as it's likely something that they are enjoined to do anyways.
  - runnerup 5y ago
    > something that they are enjoined to do anyways. Indeed, this is the key to make it "not blackmail".
duxup 5y ago
Amusing as the founder then would be outright saying he knows what criminal activity has been going on and exactly who is up to it ... and is willing to use that info if he see fit. That would seem to present all sorts of risks for his users, and himself, legal and otherwise.
fossuser 5y ago
Yeah I got a kick out of that too. “Send the money back or we’ll follow the laws we were supposed to be following anyway!” Patio11 had a thread on Twitter better than this article.
- blfr 5y ago
  I believe it starts here https://twitter.com/patio11/status/1443738002065268736 https://twitter.com/patio11/status/1443738002065268736
  - kevinpet 5y ago
    Interesting. Except that recent events regarding Citigroups incorrect $900M payout on the Revlon bond shows that in fact grown up finance will sometimes say, actually, the law is the law and the contract doesn't cover this, so thanks for the money. This was a case where the bond holders did have some claim to the money, but it was clearly an error.
    - JadeNB 5y ago
      > This was a case where the bond holders did have some claim to the money, but it was clearly an error. You refer to recent events, and I don't know how recent, so maybe I missed something; but my understanding was that the finding was that it was reasonable for Revlon to believe when they received the fund that it was a legitimate payment, not just an error. Of course in retrospect (e.g., when Citigroup calls and says so!) it is clear that it was an error, but the legal argument, whether or not you buy its truth, was that it was not clear at the time. I think that this sort of finding in which both grown-up financiers decide not to be chummy about misplaced funds, and the law sides with them in not requiring them to do so, is comparatively rare.
      - jjeaff 5y ago
        I'm a little foggy on details, but I remember reading that the bond holders had been kind of mistreated before all this. Something to do with reorganizing or splitting off valuable parts of the company. The bond holders weren't too happy as it was beginning to look like they might not get their money back. So it makes sense why they would not be quick to cooperate and return what they initially thought were early payments.
chucksmash 5y ago
> [...] strongly implies that they were willfully assisting in tax avoidance before. It does nothing of the sort. It's a enormous leap based on an assumption of bad faith to go from expecting protocol users to sort out their own personal tax situation to "willfully assisting in tax avoidance."
- JadeNB 5y ago
  > It does nothing of the sort. It's a enormous leap based on an assumption of bad faith to go from expecting protocol users to sort out their own personal tax situation to "willfully assisting in tax avoidance." There are obviously lots of subtleties here, including places where no-one knows how the legal implications will shake out, but "expecting … users to sort out their own personal tax situation" isn't always an option; for example, my bank isn't allowed to assume I'll sort out my own personal tax situation and must report my interest earned, whereas, say, Amazon is allowed to make that assumption, and so need not report the items that they have sold to me. It could be that this is a more Amazon-y situation, but it could also be that it's a more traditional-bank-y situation. Probably even the IRS and Leshner, but definitely those of us who aren't involved in the situation, don't know which it is.
  - chucksmash 5y ago
    > There are obviously lots of subtleties here. Precisely, which is why the jump to "strongly implies willfully assisting in tax avoidance" comes off so poorly. In my opinion, it not only mischaracterizes what is happening, it imputes ill intent to boot. Guidance for DeFi apps is poor currently and policy in this area is actively being legislated. In the meantime, shifting the onus for tax reporting back onto individual users !== willful assistance in tax avoidance any more than companies not witholding income taxes from payroll pre-WW2 was willful assistance in tax avoidance. Further, since these transactions are all captured on a public ledger, anyone using this for tax avoidance is really just electing to pay their taxes later with massive penalties and possible jail time once the IRS gets around to tying addresses with unreported transactions to fiat on/off ramp transactions that are KYC'd.
deleted 5y ago
[deleted]
bpodgursky 5y ago
Not sure that makes any sense... if users held the assets before, they have an asset with unrealized gains. When it transfers ownership, those gains are realized.
SilasX 5y ago
Not really? There are things that you're not required to report to the IRS that others can use to underreport income -- for example, the identity of which contractor you made small cash payments to. Reporting their identities to the IRS is not illegal, but neither is failing to. (Also, I assume you mean tax evasion? Avoidance is the legal one.)

cesarb 5y ago

> Paying taxes on free money isn't the end of the world. Playing devil's advocate: it's not exactly "free money", it's free "tokens" of some kind, which might not be convertible to money at the same rate which was used to estimate the tax. If the tax amount was assessed at the value the tokens were supposed to have today (based on what they recently traded for at some exchange somewhere), but you were too slow and only traded the next day and the price paid for these tokens has fallen heavily, you might have to pay more in tax than the money you can get from these "free tokens". So yes, it's not hard to imagine a situation in which paying tax on that "free money" can be "the end of the world" for some.

TedDoesntTalk 5y ago
In the US, you only pay taxes on income and gains. In other words, you’re not going to pay taxes on those tokens until you redeem them for fiat currency. The tax is an percentage of the fiat currency you receive, not the token value. Just like stocks (you don’t pay for any changes in value to the stock until you sell it for fiat currency).
- fossuser 5y ago
  There are some exceptions like exercising stock options where you’re taxed for the difference between the strike price and the fair market value at the time of exercise (I’m not sure why the law is this way).
  - Retric 5y ago
    Because your trading thing A for thing B. Suppose you could trade stock for a Yacht without income taxes applying. That’s the kind of loophole everyone buying a yacht would use, especially if you could use a near cash equivalent like gold instead of barter. The difference between stock and stock options might not seem like enough to matter, but it’s simply the same generic rule applying.
    - fossuser 5y ago

db65edfc7996 5y ago

It might even be the best way to legitimize (legally launder?) the money. If I receive $XX, would happily pay %Y of that to stay above board. If the IRS wanted to audit me, my personal war chest is now $XX-%Y greater than it was before and more than adequate to cover whatever past (accidental) tax errors I may have had in the past.

dragonwriter 5y ago
> If I receive $XX, would happily pay %Y of that to stay above board But paying taxes on it doesn't make it legal if it was illegal for non-tax reasons, it just makes it not-tax-evasion.
- 8note 5y ago
  in this case, the rules of the crypto made it legal?