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IRS sends warning letters to more than 10k cryptocurrency holders

wsj.com

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Re: IRS sends warning letters to more than 10k cryptocurrency holders

#161

Post by bilbo0s »

modeless wrote: post #52

> One version of the letter recently uploaded to the IRS website asks recipients who believe they have followed the law to sign a statement Does anyone have a link to the letters? It drives me mad that journalists refuse to link to primary sources.

>One version of the letter recently uploaded to the IRS website asks recipients who believe they have followed the law to sign a statement...

Just a word of advice to anyone who may be receiving letters like this in the future. Do not, under any circumstances, sign a statement that you have followed the law without consulting with qualified counsel first. You should know that every time you sign off on something to the federal government, if it turns out not to be true, they got you on a count of Lying to the Federal Government. (Yes, each signature is a separate count. At least that's the way our lawyers explained it to us when advising us on FDA approval for our product.) So you can easily rack up years behind bars in this situation right? There's the original forms in you return. How many times did you sign papers there? Then there's this statement that they want you to sign. That's another potential count.

What's worse, you may have made an honest mistake, and you really do believe that you are in compliance. So you go ahead and sign such a statement. Only you weren't in compliance. Now what? I hate to say this, but just don't. Don't sign it. Get everything looked over by the experts first. Maybe they can even negotiate with the IRS on your behalf if you have made a mistake.

But you don't want to be in the position of having signed something like that with honest mistakes potentially out there in your documentation.

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#162

Post by FlyingAvatar »

crypto_throwa wrote: post #142
fortran77 wrote: post #4

This is no different from any other profit or gain. The Government isn't specifically targeting these people; it just wants them to make sure they realize it's like any other investment.

Here's one situation where it is very different. Say I get paid 100 BTC for doing a job worth $100/BTC at the time or $10000. Now, say BTC drops to $1/BTC. I owe income tax on the $10000. Let's say I owe $2000 (20%) in taxes. However, I only have $100 now. My effective tax rate is 2000%. This does allow for a small deduction of capital gains each year. However you can only deduct $3000 a year in capital gains. In a l…

And easily mitigated by converting the amount you owe in tax at the time your are paid. I don't see how this would be different than getting paid in any other currency.

The problem in your scenario is not really to do with tax, it's that one has effectively expended $10,000 worth of effort for $100.

If someone was worried about this, they shouldn't be accepting BTC as payment, or they should convert it to fiat currency immediately upon receipt.

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#163

Post by seren »

buzzert wrote: post #134
yellowstuff wrote: post #117

Earlier quoted context omitted.

Two reasons: * H&R Block and Intuit have good lobbyists who prevent it from happening. * Republicans want to make filing taxes difficult so that people won't like taxes. In particular Grover Norquist has managed to get essentially all federal level Republican politicians to sign a pledge not to raise taxes, and Norquist considers making filing simpler to be effectively raising taxes. https://www.politico.com/agenda/s…

I'm sure those aren't the only reasons. Quite a lot of people get away with tax fraud. If the IRS really knew everything and filing taxes was just a pointless exercise, why is fraud so prevalent?

Speaking from a European country, employers are reporting salaries to the revenue service. The banks are reporting capitial gains from taxable accounts.

So basically the only reasons for filing taxes are for exotic revenues (for example crypto !) or to ask for exemptions. Free lancers still have report their revenue themselves but I would say that for a very very vast majority of people, they already have all the information needed.

Actually we receive our forms with some fields (salary for example) pre filled, you only have to check if this is correct.

The tax form is just some kind of confirmation, most of the time.

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#164

Post by duxup »

whatshisface wrote: post #128
jeffk_teh_haxor wrote: post #98

Earlier quoted context omitted.

At the very worst it is a blight on the environment. 27kWh of energy burned per transaction, with a maximum scaling limit on the order of 5 or 6 transactions per second. If everybody in the world used Bitcoin, then you'd be entitled to your one transaction every few decades.

If cryptocurrencies saw serious use, Bitcoin would self-limit at a sustainable level and new currencies would be invented to deal with those issues. The biggest problem with cryptocurrencies is that US dollars are actually pretty good.

>and new currencies would be invented to deal with those issues

That seems like a pretty big hassle.

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#165

Post by Gibbon1 »

jedberg wrote: post #34
hcurtiss wrote: post #13

I'm sure there's a lot to know about this topic, but it's odd to me that they'd treat a "currency" as an appreciating asset. If I'm given a dollar (or peso) as change, and if between the time I receive the dollar and the time I spend it the currency purchasing power increases, I do not pay taxes on that gain. I can just buy more stuff with that dollar (including other currencies). In this instance, where it's increas…

This is the IRS's way of saying that it isn't a currency. It's the government's way of saying that only the US government makes valid currency in the US, and everything else is an investment. They even treat foreign currency that way now. If you buy a bunch of Euros and then convert back to dollars later, you're supposed to pay tax on the gain.

Yeah the IRS is treating it as unsecured paper. Which is essentially what it is.

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#166

Post by navigatesol »

colecut wrote: post #100
refurb wrote: post #57

Earlier quoted context omitted.

But your gains and losses are just a sum of all your transactions. If you had 100 shares of GOOG and sold one share each day, over 100 transactions, your gains and loses are the sum of each individual transaction.

Where things get bad is when you buy a coin, it goes up 10x, at the beginning of the next tax year you sell and buy some other coin, it goes down to where you bought the first coin, and now instead of being where you started, you owe 2-4x..

How is this any different than selling a house for $1 million, putting that $1 million into a different house, and then the value of that new house falls to $100k?

If you sell the second house for $100k, you're on the hook for the tax on the net capital gains.

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#167

Post by whatshisface »

duxup wrote: post #164
whatshisface wrote: post #128

Earlier quoted context omitted.

If cryptocurrencies saw serious use, Bitcoin would self-limit at a sustainable level and new currencies would be invented to deal with those issues. The biggest problem with cryptocurrencies is that US dollars are actually pretty good.

>and new currencies would be invented to deal with those issues That seems like a pretty big hassle.

That's what the research is now, and many partial solutions already exist.

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#168

Post by heed »

Scoundreller wrote: post #89

So how does BitCoin Cash distribution get handled in USA? Is it like a dividend? A stock split? A spin-off? What about all of these airdropped tokens? Are they dividends, with tax payable even if you didn’t “collect” them in some way? Or splits? Can you deduct the Day1 value of the new token from the capital gain on the first token? Or do you assume the cost of the new token was $0 and any sale is a total capital gai…

Forks are a unique economic situation. I think a slightly more accurate metaphor is if someone printed money and mailed it to you.

A cost basis of 0 on a sale is the most "fair" way to account for forks/drops/etc. imo. Otherwise there's too much burden on the individual to keep track of all the many forks that occur.

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#169

Post by tyre »

crypto_throwa wrote: post #142
fortran77 wrote: post #4

This is no different from any other profit or gain. The Government isn't specifically targeting these people; it just wants them to make sure they realize it's like any other investment.

Here's one situation where it is very different. Say I get paid 100 BTC for doing a job worth $100/BTC at the time or $10000. Now, say BTC drops to $1/BTC. I owe income tax on the $10000. Let's say I owe $2000 (20%) in taxes. However, I only have $100 now. My effective tax rate is 2000%. This does allow for a small deduction of capital gains each year. However you can only deduct $3000 a year in capital gains. In a l…

This is not different.

Coincidentally, I was the engineer at Zenpayroll (now Gusto) who was working on enabling employees to be paid in crypto back in 2013/2014. We never got to the implementation phase because of precisely this scenario. Bitcoin is so volatile that it's a very scary way to be paid. The downside risk (you can't pay rent because bitcoin did something weird that week) is really really bad for users and most people don't understand those or the tax implications. So we scrapped the feature.[0]

A parallel would be stock options issued by companies. Let's say you get 100 stock options with a strike price of $1/per share. You wait a year to exercise and by that point the common stock is valued at $2.50 per share. If you exercise, you still pay $100 for the 100 shares but you owe taxes on the $150 gain, even though you might think that your compensation was always $100.

If you acquire an asset at one price and sell it at another, you owe taxes on the difference. If you acquire an asset for less than it's worth, you owe taxes on that.

[0]: this is one reason why I will never understand people defending btc as "a store of value". That's a terrible store of value!

Re: IRS sends warning letters to more than 10k cryptocurrency holders

#170

Post by mullen »

hcurtiss wrote: post #63
mikeash wrote: post #22

Earlier quoted context omitted.

Regular foreign currency also gets taxed if you make a profit trading it.

Fair enough, but if I convert a bunch of dollars to pesos and then the value of a peso increases and it allows me to buy a nicer car (in pesos) than I could have when I received the peso, is that taxable? If it is, is the dollar the only exception to this rule? Because I know for a fact nobody pays taxes (or carries forward losses) on the increased purchasing power of their cash held in dollars.

Your point is moot, buying and selling Bitcoin is not like buying and selling currency. The IRS classifies it like buying and selling gold, which you pay taxes on when you make a profit.
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