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IRS Requests Bitcoin Buyer Records in Broad Tax Evasion Case

fortune.com

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Re: IRS Requests Bitcoin Buyer Records in Broad Tax Evasion Case

#31

Post by cloakandswagger »

wbl wrote: post #14
module0000 wrote: post #8

It's really tempting to say that the IRS won't be able to do anything - you can't prove I spent/received this for type of activity.... but that's not how the IRS works. Once the IRS decides to audit, you are guilty until proven innocent. They will be elbow-deep into your figurative financial rectum, and you will (almost always) lose.

That's because they are very good at picking who to audit. If you can document all your deductions, and have all your sources of income declared, and stored it all together an audit consists of hitting print, handing the scanned copies to them, and waiting.

US tax law is so dense and complicated that they can effectively implicate anyone they choose. Having worked with numerous small businesses in the past, do you know how many of them could readily provide carbon copy receipts for every single deduction they claimed in the last X years?

I think there is a valuable discussion to be had about the power of a federal agency that can so easily zero their sights on anyone they choose, especially when that same agency has admitted to targeting for political purposes in the past.

Re: IRS Requests Bitcoin Buyer Records in Broad Tax Evasion Case

#32

Post by ChemicalWarfare »

What's interesting here is that bitcoin is both an "investment" and "currency" (since you can pay for [some] goods and services with btc directly).

From the "currency" point of view - exchange rate (FX) gains/losses technically only apply to officially recognized foreign currencies.

So that is an interesting can of worms. If I buy bitcoin at price point X, it goes up to X+Y, but instead of selling it I use that Y to pay for something - was that Y a taxable gain?

Re: IRS Requests Bitcoin Buyer Records in Broad Tax Evasion Case

#33

Post by optimuspaul »

tyingq wrote: post #12
chollida1 wrote: post #4

I think this is a pretty reasonable request if they only want Americans who traded bitcoin. The IRS and SEC have the power to compel brokerages to turn over trading records for people who bought/sold stocks on the stock market so the precedent is not only set but well established long, long, long ago. I mean if you traded bitcoin but didn't claim the income on your taxes, then you just blatantly and almost certainly…

Conflating coinbase with a brokerage seems a stretch to me. Many people used it more like Paypal, a conduit to make or receive payments for sales of goods or services. With the conversion of bitcoin to regular currency happening very quickly. No buy/hold/trade activity, etc.

Well it is a currency exchange and does broker currency transactions. Seems like a brokerage to me.

Re: IRS Requests Bitcoin Buyer Records in Broad Tax Evasion Case

#34

Post by jdmichal »

cableshaft wrote: post #29
tedd4u wrote: post #26

Earlier quoted context omitted.

The note from the IRS about Bitcoin I read on CoinBase's site said it's similar to a security. So until you trade it out (sell it) you don't realize a gain. When you do your gains are considered similar to capital gains / capital losses (if you held for more than 1 year). Otherwise considered income.

Well again, I was about to sell some, and figuring out exactly how much I 'gained' from so many tiny buy transactions I imagine would be difficult (but might not be, I'm not sure).

It shouldn't be difficult, unless you don't have access to the proper information. The bitcoins you are selling need to be tied to specific bitcoins that were bought. Once you do that, then you have a cost basis for your sale. Subtract the amount you sold them for from your cost basis and that's your gains. If the source transaction was older than a year, it's capital gains. Otherwise, it's income.

(This is for the US.)

Re: IRS Requests Bitcoin Buyer Records in Broad Tax Evasion Case

#35

Post by mhluongo »

ryaniscool wrote: post #27
mhluongo wrote: post #25

Earlier quoted context omitted.

My point stands. Coinbase already has bank-level scrutiny, both directly and from its banking partners ("know your customer's customer"). I completely agree that anonymity in finance is at odds with many of the government's methods to enforce taxation, and that this is only the beginning. But Coinbase has been the white knight in this space in the US dealing with the regulations, and I don't think they're naive to pu…

If your point is that it has a bank's level of scrutiny, then no it clearly does not stand. I mean isn't that the point of the government request? A bank's level of scrutiny would mean the government could reasonably guess if you are holding out on taxes which is clearly not the case here. Does the IRS regularly subpoena Chase and BofA's customer records. No, because there is no need. Thanks to the CTRs, they can cru…

To your point about SARs / CTRs- SARs at banks are usually triggered by cash deposits and withdrawals at a much lower level, and every bitcoin transaction is roughly equivalent to a cash transaction. Thus "bank-level scrutiny".

> I mean isn't that the point of the government request?

It's not clear to me whether they actually need this at all, considering Coinbase's existing reporting requirements. It's common enough from other branches to make overreaching requests to set a precedent (eg the DoJ / Apple iPhone) so I wouldn't just assume it's business as usual.

Re: IRS Requests Bitcoin Buyer Records in Broad Tax Evasion Case

#36

Post by chollida1 »

tyingq wrote: post #12
chollida1 wrote: post #4

I think this is a pretty reasonable request if they only want Americans who traded bitcoin. The IRS and SEC have the power to compel brokerages to turn over trading records for people who bought/sold stocks on the stock market so the precedent is not only set but well established long, long, long ago. I mean if you traded bitcoin but didn't claim the income on your taxes, then you just blatantly and almost certainly…

Conflating coinbase with a brokerage seems a stretch to me. Many people used it more like Paypal, a conduit to make or receive payments for sales of goods or services. With the conversion of bitcoin to regular currency happening very quickly. No buy/hold/trade activity, etc.

> Many people used it more like Paypal, a conduit to make or receive payments for sales of goods or services. With the conversion of bitcoin to regular currency happening very quickly. No buy/hold/trade activity, etc.

I'm glad you brought this up because it just strengthens my point. Paypal reports US account transactions to the IRS once they go over a certain size.

https://www.paypal.com/us/webapps/mpp/irs6050w

Re: IRS Requests Bitcoin Buyer Records in Broad Tax Evasion Case

#37

Post by csomar »

wbl wrote: post #14
module0000 wrote: post #8

It's really tempting to say that the IRS won't be able to do anything - you can't prove I spent/received this for type of activity.... but that's not how the IRS works. Once the IRS decides to audit, you are guilty until proven innocent. They will be elbow-deep into your figurative financial rectum, and you will (almost always) lose.

That's because they are very good at picking who to audit. If you can document all your deductions, and have all your sources of income declared, and stored it all together an audit consists of hitting print, handing the scanned copies to them, and waiting.

Not in the US. Been 7 years into business. It's practically impossible to be 100% clean on deductions, receipts, reporting, etc... That, and I'm very strict by any standards.

Re: IRS Requests Bitcoin Buyer Records in Broad Tax Evasion Case

#38

Post by mhluongo »

ChemicalWarfare wrote: post #32

What's interesting here is that bitcoin is both an "investment" and "currency" (since you can pay for [some] goods and services with btc directly). From the "currency" point of view - exchange rate (FX) gains/losses technically only apply to officially recognized foreign currencies. So that is an interesting can of worms. If I buy bitcoin at price point X, it goes up to X+Y, but instead of selling it I use that Y to…

The IRS has already released guidance on this [1]. It might be interesting to think about, but right now it's straightforward in practice.

IANAL, etc.

Edit: Well, for some definition of straightforward :)

[1] - https://www.irs.gov/uac/newsroom/irs-virtual-currency-guidan...

Re: IRS Requests Bitcoin Buyer Records in Broad Tax Evasion Case

#39

Post by GrinningFool »

ChemicalWarfare wrote: post #32

What's interesting here is that bitcoin is both an "investment" and "currency" (since you can pay for [some] goods and services with btc directly). From the "currency" point of view - exchange rate (FX) gains/losses technically only apply to officially recognized foreign currencies. So that is an interesting can of worms. If I buy bitcoin at price point X, it goes up to X+Y, but instead of selling it I use that Y to…

The IRS views crypto currency as property. In that context, they provided this recently:

https://www.irs.gov/uac/newsroom/irs-virtual-currency-guidan...

Which links to: https://www.irs.gov/pub/irs-drop/n-14-21.pdf

TL;DR - it's not currency, it's property, and as taxed as such in all ways (including recognizing gain/loss).

Specifically re: your question:

> Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?

> A-6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain.

Re: IRS Requests Bitcoin Buyer Records in Broad Tax Evasion Case

#40

Post by unreal37 »

tyingq wrote: post #19
criley2 wrote: post #15

Earlier quoted context omitted.

If you made money on ebay, deposited to your PayPal, and then spent elsewhere, and did not claim that money on your American taxes, you would be evading taxes by not reporting taxable income. Same here.

But the IRS has not asked for Paypal to dump their entire database of all payments and customers.

In fact they do.

"Since 2011, PayPal has been required by the IRS to report the sales of goods and services for customers who, in a single year receive:

More than $20,000 USD, AND 200 or more payments."

[1] https://www.paypal.com/us/selfhelp/article/How-does-PayPal-r...

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