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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

#341

Post by BeetleB »

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…

It's not different at all. Copying from my other comment:

When my RSU stocks vest, I pay (regular income) taxes on the vested amount. It's treated as if my company gave me the money to buy these stocks I now have. Later when I sell them, I'll pay capital gains tax on the gain/loss.

What you describe is exactly this, with stocks instead of BTC. If my employer gives me any stocks, I have to pay income tax on the value of the stock calculated on the day I received it.

Now I know stocks are volatile. If I decide not to sell them immediately (at essentially 0% capital gains tax), I am deciding to take the risk in price fluctuations.

BTW, if your BTC drops to $100 value in under a year, simply sell them and claim the loss. It will typically be taxed at the same rate as your income, and you'll effectively only pay income tax on $100.

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

#342

Post by bduerst »

logfromblammo wrote: post #296
gnulinux wrote: post #188

Earlier quoted context omitted.

What if you get paid in meat, $100k worth of meat, but then you spoil all of them so they're now worth $0. It's not government's problem if your currency is volatile. You can find a job that doesn't pay you in BTC.

The problem there is that meat doesn't come in dollars; it comes in kilograms. If you are paid in meat, you get something like 100 kg of pre-formed frozen ground beef patties. That doesn't have a dollar value unless you can find a buyer for it. Which is pretty easy to do if it's a commodity. So let's try a more broken example. You get paid in sandstone triangular prisms machined to be 31 mm on the two longer sides, 1…

Whether the unit of measure is kg or bits or unicorns doesn't make a difference since the value at the time of the transaction is what is taxed.

Also your example is very convoluted, and with all due respect, I can't tell if it's satire or not.

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

#343

Post by BeetleB »

blhack wrote: post #317

To highlight how nuts this could be: I travel to India every year, and I always carry with me a few hundred USD worth of rupees (the local currency). It would be insane for me to try and track the value of the rupees (in USD) for every time I bought something, and calculate the deltas between that and what I originally gave to the money changer. It is completely impractical to do that, and while I'm not an accountant…

>And yet this is what people using cryptocurrencies are expected to do.

Maybe because the IRS declared years ago that cryptocurrencies will be treated similar to other commodities?

And while I don't know the tax code, I suspect if you convert your USD into rupees, and those rupees suddenly increased value tenfold, and you started buying Mercedes with them, the IRS likely will come after you there as well :-)

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

#344

Post by [deleted] »

criley2 wrote: post #199
bilbo0s wrote: post #161

Earlier quoted context omitted.

> 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), e…

[deleted]

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

#345

Post by fortran77 »

jpmattia wrote: post #194
crypto_throwa wrote: post #142

Earlier quoted context omitted.

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 agreemen…

I chose NOT to exercise options and let them simply expire because they will illiquid and I didn't expect the company to every be worth anything. (It turns out that was wrong!)

This is why I was annoyed when Congress bailed out these dot-com specu-vesters. They knew the risks, or should have. I chose not to exercise because of the tax consequences. They were no secret. Anyone buying stock options should know what they are and how they're taxed.

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

#346

Post by bduerst »

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?

Believe it or not, those really are the main reasons why taxes still suck in the U.S.

There's a recent Planet Money podcast on it. The regulatory lock in for tax filing is ridiculously profitable, and companies like Intuit certainly rent-seek to solidify their revenue stream.

https://www.npr.org/sections/money/2017/03/22/521132960/epis...

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

#347

Post by i_cant_speel »

logfromblammo wrote: post #296
gnulinux wrote: post #188

Earlier quoted context omitted.

What if you get paid in meat, $100k worth of meat, but then you spoil all of them so they're now worth $0. It's not government's problem if your currency is volatile. You can find a job that doesn't pay you in BTC.

The problem there is that meat doesn't come in dollars; it comes in kilograms. If you are paid in meat, you get something like 100 kg of pre-formed frozen ground beef patties. That doesn't have a dollar value unless you can find a buyer for it. Which is pretty easy to do if it's a commodity. So let's try a more broken example. You get paid in sandstone triangular prisms machined to be 31 mm on the two longer sides, 1…

If there is no inherent conversion rate then how does the government define how much you owe?

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

#348

Post by ISL »

jandrese wrote: post #62
umvi wrote: post #45

Earlier quoted context omitted.

I hate that people treat currencies as an "investment". In my mind, crypto concurrency is the perfect value-store (like gold used to be), not an appreciating asset. Yet because people treat it like stocks, it behaves like stocks.

Isn't the idea of gold as a good store of value that it's price doesn't change rapidly over time, allowing you to ride out downturns by converting your money into something that can't be dragged down as quickly as other forms of investment. Cryptocurrencies seem to offer the exact opposite experience. Wild swings in value that are extremely difficult to predict and may or may not follow other markets.

The idea, your mileage may vary, is that gold's value in, say, hamburgers may fluctuate less than fiat currency. In the strongest gold-bug case, one might argue that a loss of trust in the dollar could make an ounce of gold worth more hamburgers than it could be traded for today.

If preserving value, priced in dollars, is your only goal, holding dollars is guaranteed lossless (modulo tiny costs).

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

#349

Post by sjy »

parliament32 wrote: post #313
sjy wrote: post #306

Earlier quoted context omitted.

Surely this is not true? It doesn't seem consistent with the IRS's guidance [1], anyway. You would simply value the expense in USD at the time of the transaction. There is no capital gain or loss. [1]: https://www.irs.gov/individuals/international-taxpayers/fore...

Any time you "realize" a currency or commodity (that is, sell it or trade it for something else) you need to pay tax on the capital gain, if there is one. At some point, you purchased those CAD. If the value of CAD is higher when you use it to pay for your coffee, there was a capital gain, and you just realized it. Say you purchased X amount of CAD a few years back for $0.70 USD. It doesn't matter how much you purcha…

I did not realise you were assuming that the taxpayer already held the CAD for some period of time before the coffee purchase. So US tax law provides no exception for trivial capital gains on personal use assets? Clearly it makes sense to bring forex gains and losses to account when dealing with large transactions and investments expected to produce a return (eg. cryptocurrency). But in my country, a small balance in a foreign bank account held for the purpose of personal expenditure while in that country would not be regarded as a capital asset where every transaction is taxable.
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