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IRS sends warning letters to more than 10k cryptocurrency holders

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

#191

Post by anonymous5133 »

bilbo0s wrote: post #161
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…

Exactly. It falls in line with similar to "don't talk to the police". Just keep quiet. This applies to everything when dealing with any government agency. The government is not your friend.

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

#192

Post by ska »

nostrademons wrote: post #152
nradov wrote: post #31

Earlier quoted context omitted.

From a legal standpoint, it's a commodity not a currency. And US citizens who trade foreign currencies are subject to tax on their gains.

From a legal standpoint, it's muddled. The CFTC claims jurisdiction over Bitcoin and Ethereum as commodities. The IRS claims that cryptocurrency is "property" and doesn't elaborate further, except to say that it falls under existing capital gains rules. The SEC claims that most other tokens are securities and fall under its jurisdiction, but does not claim jurisdiction over Bitcoin and Ethereum because the CFTC has a…

From a tax perspective it isn’t muddy though, the IRS opinion is the only one you need to understand. It may change over time, but that doesn’t affect your tax liability today.

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

#193

Post by [deleted] »

rolltiide wrote: post #20

Having talked to many people I do believe there is low tax compliance, but having read how the IRS rationalized the Coinbase subpoena to the judge I realize they have no idea to tell if they have compliance or not. They merely did a search string for 2015 for "bitcoin" in tax filings and found 800 people filed that way. So I checked my 2015 tax filings and saw I had manually entered "LTC" for closing a litecoin trade…

[deleted]

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

#194

Post by jpmattia »

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…

> Here's one situation where it is very different.

Good god, no it is not different.

When the internet bubble collapsed in 2000, it literally bankrupted some people who had been compensated with stock options because of taxes. Exercising the options not only had resulted in greater income, but it caused AMT to kick in.

Moreover, some of the exercised options yielded stock that was still in lock-up due to IPO agreements. (People were anxious to start the long-term capital gains clock.) Shares plummeted even before they could be sold to pay off the taxes due.

The moral of the story is: Make sure to set aside money (liquid, USD) for taxes if you get hit with a sudden windfall. (edit addition, JumpCrisscross comment below has it right.)

Here's a couple of links to that history:

https://www.chicagotribune.com/sns-tech-taxes-story.html

https://www.mercurynews.com/2008/11/10/rescue-bill-offers-re...

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

#195

Post by anonymous5133 »

lizknope wrote: post #43
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…

How practical is bitcoin as a currency for day to day use. I thought the transaction time was 10 to 30 minutes. I get frustrated at the checkout counter when my credit card takes longer than 10 seconds. 10 to 30 minutes seems a lot closer to how long it takes for a stock sale to go through on E-Trade so I can see why the IRS would classify it more like a stock than currency.

It's completely useless basically, unless you are paying online for something. For day-to-day purchases, it seems most people are just buying gift cards with their BTC. That seems to get the job done very effectively.

Also keep in mind, there are other cryptos that exist where the transaction fee is basically free and the transaction confirms in under 2 seconds. Nano is one that comes to mind.

Bitcoin is definitely falling into the "e-gold" category if you ask me.

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

#196

Post by 171243 »

teej wrote: post #25
ilovecaching wrote: post #5

So under the current laws does a person only pay taxes when converting to and from fiat to crypto, or does it apply to crypto transactions of any kind?

I believe this is where a lot of the confusion comes from. If you use Coinbase to directly trade crypto (e.g. BTC for ETH) this is a taxable event on your BTC even though you never touch fiat in the process.

Didn't this recently change? Prior to 2018 was it not considered a "like for like" transaction?

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

#197

Post by JumpCrisscross »

banachtarski wrote: post #159
a_bitcoin wrote: post #115

Sure, it makes sense to tax earnings from cryptocurrency trading. But aren't there bigger fish to fry, richer people more flagrantly evading taxes? Let's sort that out first, k

There are two separate matters here. Defining the law and enforcing the law. Misreporting capital gains on crypto violates existing law and is illegal today. Tax evasion by legitimate means (401ks, IRAs, writing off losses) is perfectly legal, and if you or I have complaints, this should be taken up with policy makers and at voting booths.

> Tax evasion by legitimate means

Tax avoidance is legal. Tax evasion is illegally not paying taxes. (The distinction is purely legal.)

If you don't like someone's tax avoidance, you change the law. If you don't like someone's tax evasion, you prosecute them.

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

#198

Post by refurb »

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..

You can carryover the loss in future years.

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

#199

Post by criley2 »

bilbo0s wrote: post #161
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…

Another word of advice: The standards of the FDA and the IRS are very different, and the FDA is used to corporations acting maliciously while limiting liability for those involved.

The IRS on the other hand with these kinds of notices is not out to get you, and I don't believe I've ever heard of someone being charged with perjury for signing an IRS document that wasn't true (and they genuinely thought it was true), especially from the perspective of a small time residential investor who is making an effort to be compliant with tax law.

I think a more sane proposition is this, if you only have a few thousand USD in crypto, you probably don't need to hire a tax lawyer or tax accountant (or both) to review your documents and compliance.

But if you're at 5 figures or above (10k USD+) then spending hundreds of dollars, up to a thousand or more, just to retain a lawyer and/or accountant could be a smart move for you to ensure that everything has been handled appropriately.

And it's not "hire a lawyer to review this one document", it's hire a lawyer and/or accountant to review your compliance with all tax laws and investment laws federal and local, and it's something you should do regardless of receiving a letter like this. If you have a lot of money in crypto and have never spoken with a lawyer or accountant about it, you should probably consider doing that sooner rather than later.

Even if you do "lie" to the IRS, and they think you have, they aren't going to have you charged for lying and put you in jail, they're just going audit you or determine you owe them money without you admitting it, then send you a bill and enforce that bill over time through wage garnishment, account levy, tax lien, etc. They would much rather tell you that you have debt and garnish your wages than lock you up.

Generally they save the courts for extremely egregious and offensive cases of intentional tax evasion (like people who use the 861 argument)

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

#200

Post by anonymous5133 »

cwkoss wrote: post #138

As far as I understand it, IRS wants cryptocurrency traders to report USD profit on every trade. This gets extremely ugly if you are trading one cryptocurrency for another, as these trades are unclear as to whether they are an entry or an exit. Now, I simply recommend that everyone only trades USD-to-crypto and back, never crypto-to-crypto if you want to comply with tax law - it gets very complicated fast.

Also with the crypto->crypto trades there are many exchanges that don't track anything. There are some that are completely decentralized and work based on using smart contracts. Who knows how the IRS is going to tackle that issue. It is very small segment of the overall market though.
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