The IRS collects data on Coinbase account holders

https://www.wsj.com/articles/do-you-own-bitcoin-the-irs-is-coming-for-you-1521192601

by ganlad • 8 years ago

152 156 8 years ago

coldcode• 8 years ago

Why fear a government agency with aging equipment and lack of employees due to continuous budget cuts by politicians who don't want their buddies audited? The IRS can't keep up with tax law changes and collect much of what they are supposed to collect already much less add new and more complex things to track.

jmngomes• 8 years ago

Maybe it's different where you live, but my experience is that the only people that can afford to not fear the IRS are precisely the "politicians and their buddies"...it wouldn't surprise me at all to see task forces being formed just to identify under-reporting via Bitcoin and issue threatening letters (e.g. pay what is due or say goodbye to any assets you have) to whoever comes up on that list.

purple-again• 8 years ago

You are right and wrong. It's not 'politicians and their buddies', the line is much much lower than that but there is absolutely a bright line between who pays the IRS and who hires people like I use to be (I sat across from the IRS times innumerable cutting them to shreds) to make sure they pay almost nothing.

Anyone that can afford accounting services from the Big 4 (PwC, Deloitte, EY, KPMG) is getting this golden glove treatment. I am sure that there are numerous mid market firms with significant amounts of ex big4 staff that are also helping their clients just as much. Small CPA shops will be hit or miss with mostly misses. My results were 20% experience, 20% skill, 50% training by my Big 4 employer, and 10% fear of my employer escalating the situation if they didn't get a sign off from me (I'm not the one that would get sent to represent the client in tax court).

The vast majority of the IRS's work is based on incompetency and fear. Nearly all of the charges they tried to leverage against my clients were false and due to paperwork errors (more often on the client's side than the IRS but not always...not even close to always) that were easy to resolve with minimal penalties and interest.

To be clear, they didn't get to throw the middle finger at the IRS and pay nothing, they paid what they owed which was practically never even in the same ballpark as the bill the IRS came at them with. The people who can't hire a professional Tax CPA to sort it out for them get fucked not because they are the only ones paying what they owe but because they are the only ones paying way fucking more than they owe. That's a whole other ethical problem that should be addressed with the IRS.

patio114• 8 years ago

As HN has a lot of people who have complicated financial situations and will eventually get one, I'd like to point folks in the direction of what the IRS' typical first play is if they think you underpaid taxes.

They do not send you a threatening letter. They do not throw you in prison. They send you a bill; more formally, a CP3219A. (The IRS says it is not a bill, it is a proposal. In practice, it's a bill you can argue with.)

You can see the not-so-hair-raising copy here: https://www.taxaudit.com/irs-letters/irs-letter-cp3219a-samp...

If you ever get one, you will simply call up your accountant and follow their advice. It's less annoying than owning a bank money...

... providing you didn't commit tax fraud.

Here's an example of tax fraud, taken directly from a case where the IRS did, indeed, refer to prosecution: Joe Smith owns a small business. Joe Smith, Inc. paid a Japanese technology company $600k for "technology services", per his tax return.

Joe Smith received a $600k wire from Japan, which he did not declare as income.

Can you guess the nature of the "technology service"? Yep, it was "Mt. Gox, please technologically service me by buying Bitcoin and then wiring the money back to me. Hah hah hah we are so clever hah hah hah."

IAmEveryone3• 8 years ago

So, if you were American, had a coinbase account, and made significant capital gains in the years under investigation, would you not be worried?

Because it seems to me like they are very much capable of enforcement, as exemplified by the article.

Rich people in the US don’t avoid taxes by stymying investigations they give 5% of their income to Republican candidates and PACs, and have the law changed for them.

koboll2• 8 years ago

Coinbase has already issued tax forms for those who owe capital gains taxes because of cryptocurrency sales. So this isn't in any way new or unexpected.

maxerickson2• 8 years ago

Lots of people in the circumstance you describe will have made a good effort to pay appropriate taxes.

matwood2• 8 years ago

I'm not worried because I made best effort to report and pay taxes properly on my crypto holdings just like I do on my other investments.

I really don't see the big deal here. People who were thinking that crypto was going to magically be exempt from taxes were delusional. The only open question is if the IRS may change crypto->crypto trades to like kind. As of today with the current guidance though, no - crypto is property similar to a stock.

pc86• 8 years ago

if you were American, had a coinbase account, and made significant capital gains in the years under investigation, would you not be worried?

Well since I wouldn't have committed tax fraud (and potentially other felonies) by not reporting capital gains, I wouldn't be the slightest bit worried, no.

jjeaff5• 8 years ago

As if tax loopholes are unique to the gop. I would wager they are pretty evenly distributed between Democrat and Republican. Not to mention corporate and wealthy donors.

overcast3• 8 years ago

You're either trolling, or just being completely naive not to fear the IRS. If there is ANY agency you should fear, it's the Internal Revenue Service. They have infinite resources, and it might take a while, but they will get their money in the end.

charlesdm• 8 years ago

If you declare taxes, you have very little to fear. If you use potential loopholes, be aware you might need to consult a tax lawyer and go to court. But again, if you are aware of this, aside from your final legal bill, you have nothing to fear.

pulse7• 8 years ago

My prediction: they will store the history of all Bitcoin transactions and try to identify all wallet owners; when identified they will check if profits were reported and if taxes were paid; if not -> good luck; the same for other countries in the world </end of my prediction>

IAmEveryone3• 8 years ago

How is that even a prediction?

store the history of all Bitcoin transactions

Bitcoin conveniently does this for them

and try to identify all wallet owners

That’s the headline here

check if profits were reported and if taxes were paid

Which is the IRS’ job

zzz157• 8 years ago

Which is the IRS’ job

Ever heard of the 4th Amendment?

verelo• 8 years ago

I’ve got from good sources that in Canada the RCMP is (...was several years ago) already doing exactly this. And it’s very easy to do since the exchange in question requires ID to create your account.

sp3322• 8 years ago

The bitcoin blockchain does not keep a record of trades you make on Coinbase though.

roel_v• 8 years ago

I would say this a very natural and logical thing to do - with the blockchain storing the history of transactions for eternity, you just need to get some programmers to write some code to cross reference a few systems and leave it running for the years to come, catching people as soon as they make a single mistake. The business case and expected ROI for this project must be the easiest one any inspector ever had to write.

overcast3• 8 years ago

I suspect they'll be investigating the large players mostly. They don't like tax evaders, but they REALLY don't like big tax evaders.

orev• 8 years ago

Only a problem if you’re trying to evade paying taxes. Otherwise it’s the same as any other security trading platform.

fwdpropaganda• 8 years ago

But but but. Bitcoin is anonymous! /s

castratikron• 8 years ago

Does that mean Coinbase will give me a 1099 at the end of the year?

fapjacks2• 8 years ago

Just pray they don't give you a 1099 with grossly incorrect values like they generously did for me.

AskewEgret2• 8 years ago

Was it a 1099-K? [1] It reports gross payments, not profits. The IRS knows this; it's their form.

[1] https://www.irs.gov/businesses/understanding-your-1099-k

chanfest223• 8 years ago

They'll start doing this more and more. Just be careful though because the moment you have a single transaction outside of Coinbase, their reports will be incorrect. You may want to consider checking out cross-platform tools like https://www.cointracker.io which help you keep track of all your cost basis across exchanges and wallets automatically.

davidgh2• 8 years ago

One of the tax implications I’ve often thought about is those that heavily trade among different cryptos.

If I buy $10k of Intel, it grows to $15k and I sell it to buy $15k of Google, I owe tax on the $5k gain.

Now, perhaps one could argue that there is no “liquidity” event by trading one crypto for another. But perhaps the IRS argues there is a phantom liquidity event during such a trade. The IRS generally doesn’t like someone to be able to trade assets without recognizing a gain, otherwise it breaks down the fundamental framework upon which the entire tax system is based. The law provides a few provisions for tax free trades, but they are specifically prescribed by the tax law, such as a 1031 exchange between real estate holdings.

If you’ve heavily traded between cryptos over the past year with massively appreciating values, I would be worried that the IRS would claim you should have recognized a tax gain with every trade. For some, the ramifications for such a perspective could be huge.

wyldfire• 8 years ago

one could argue that there is no “liquidity” event by trading one crypto for another. But perhaps the IRS argues there is a phantom liquidity event during such a trade.

This is called a "like-kind trade" which is IMO muddy for cryptocoins [1].

EDIT: oh yes, I see now that you cite 1031, oops.

[1] https://www.forbes.com/sites/tysoncross/2018/02/19/the-truth...

pdshrader• 8 years ago

It's muddy for 2017 and prior years, but the new tax bill limits 1031 "like-kind" exchanges to real estate - so beginning Jan 1, 2018, it's a taxable event every time you sell a cryptocurrency, even if you're receiving another cryptocurrency in return.

The link you cited above covers this on page 4.

Keep in mind also that like-kind exchanges, if you're going to use them this year and for prior year reporting, require you to claim them explicitly on your taxes [1].

[1] https://www.forbes.com/sites/robertwood/2017/11/27/tax-bills...

bpicolo• 8 years ago

I would be worried that the IRS would claim you should have recognized a tax gain with every trade

They explicitly do consider crypto-to-crypto transactions as a taxable event now, as of the recent tax bill. You are required to pay taxes on it.

sp3322• 8 years ago

But that's new with the new tax bill. It wouldn't apply to 2017 taxes.

notheguyouthink2• 8 years ago

If I buy $10k of Intel, it grows to $15k and I sell it to buy $15k of Google, I owe tax on the $5k gain.

For someone who knows nothing about tax law, if I draw the $15k back from Google to USD, would I pay taxes on the full 15k?

This gains growth tax thing seems to make sense, if there is no taxes when converting it to USD. Eg, if I take 10k and make an additional 10k converting from BTC->ETH and pay taxes on that new 10k, that's reasonable to me if I only pay taxes once on those gains. If however, I withdraw the 20k ETH to USD, and pay taxes on the 20k, then effectively I've paid double taxes on the gained $10k.

Is there a way to handle that in tax law? Or are trades among stocks/etc supposed to be double taxed like that?

ISL• 8 years ago

Capital gains taxes are paid only upon the gains, not the principal.

maxerickson2• 8 years ago

Traders in stocks get different tax treatment than investors:

https://www.irs.gov/taxtopics/tc429

Are cybercurrencies not considered securities in that same sense? Has anyone seen tax advice about how the day trader rules apply?

daveguy• 8 years ago

Not an accountant, but I think you should recognize gains with every trade just like Intel and Google trades that liquidate or forex trades.

Key point here is that you also recognize every loss. Which means in effect you are only paying tax on the amount your wealth increased over the tax period.

It could still be huge, but only proportional to huge overall gains.

Not sure about the trading fees for frequent traders. That's definitely a CPA question.

nokcha• 8 years ago

Not sure about the trading fees

I believe they factor into calculating the gain/loss. E.g., if you buy 100 units for $99 plus a $1 fee, then your cost basis is ($99 + $1)/(100 units) = $1.00/unit. If you later sell them all for $111 with a $1 fee, then your capital gain is ($111 - $1) - ($100) = $10.

dnautics• 8 years ago

Think about it this way: you place a trade on December 28th or so that is valued at a few million, then make a series of disastrous trades that bring your account down to 10k in February.

You owe taxes to the feds and state of about 500,000, which you don't have anymore. That is of course carried forward as a loss for the next year, but that only results in reducing taxable income at a potentially lower bracket.

dopamean• 8 years ago

I'm almost certain there was a guy on r/CryptoMarkets (or one of those crypto currency subs) who this happened to. He apparently traded a few bitcoin up to a few hundred in 2017. Then closed out his positions near the end of the year. Reinvested everything after the new year and lost almost all of it. If that's all true he could be on the hook for a lot of money.

krrrh2• 8 years ago

It isn’t 100% clear because there hasn’t been an explicit ruling from the IRS but it’s very unlikely that crypto to crypto would be considered a 1031 like-kind trade. They didn’t even allow trades between precious metals or gold coins with different grades of gold to qualify.

I think the bigger issue for US taxpayers is that the IRS doesn’t allow individuals to carryback losses. From what I’ve read, corporations in the US and individual taxpayers in Canada can carry back losses for up to 3 years. The way the crypto market exploded up until late Dec, and then has crashed hard since then could leave some traders with a big tax liability from 2017 that they could end up having to work off for years. The good news is that they might be able to carry 2018’s losses forward to offset future capital gains, but that could be cold comfort to the kids that lost it all on leverage when the bubble popped.

IANAA IANAL, seek professional advice.

jmalicki4• 8 years ago

As of 2018 it's now statute that it's not a like-kind trade, for 2017 it's still uncertain.

redspectre• 8 years ago

The problem is, USD is the only legal tender. When I sell Intel stock, that where I made profit in USD. I pay tax on that. But if I trade BTC for DOGE, I haven't made any money. All I have done is swap tokens. And just because someone would pay X dollars for tokens, doesn't mean I made any money.

I mean where does it end? If I tell you I'll pay you 10000 dollars for the pocket lint in your pocket, did you just make a gain of 10k? Do you now owe the IRS 10k? If you haven't actually made any legal tender, how can you be taxed on a trade at all? The value of something is completely relative, speculative, and ever-changing.

aggronn2• 8 years ago

Lets say you make a 50% gain on btc. You have made money, but haven't realized the gain. You pay taxes when you realize a gain. You're argument is based on semantics, and not convincing.

At the end of the day, whether you traded BTC for DOGE or for IKEA couches, you were able to buy more of the second thing after you traded your BTC. You sold it. You realized your 50% gain.

Its farcicle to argue that by trading BTC for DOGE you're not realizing your gain. You're no longer tied to BTC, and your purchasing power increased at the time of the trade. Your wealth converted to USD went up. You sold your asset. You owe taxes.

If I tell you I'll pay you 10000 dollars for the pocket lint in your pocket, did you just make a gain of 10k?

Yes. this is exactly how it works. you made a $10k profit. Its not a capital gain, but you made a profit and owe taxes. You dont owe them 10k, but you owe them part of it. If you then go and invest that 10k on physical capital in order to make more lint, then you can deduct that again as a business expense because you've essentially lost 10k on an investment (assuming 100% depreciation).

The value of something is completely relative, speculative, and ever-changing.

This is why the thing that matters is when you realize your gain by selling the asset. It doesn't matter what you sold it for, you either realized a gain or a loss and that has tax implications.

davidgh2• 8 years ago

Profit or gain may be measured in USD, but a transaction does not need to include USD to generate a taxable gain.

The IRS has all sorts of rules involving barters, meaning trading one asset for another without USD being involved in the transaction at all. [1]

Say you buy a car for $10k, let it sit in your garage for 30 years and it now becomes a classic vintage worth $30k. If you go and trade that car for a new motorcycle worth $30k, the IRS requires you to record your $20k gain on the car when you make the trade for the motorcycle.

Where does it end? When you’ve paid the IRS the tax you owe, as per the law.

Regarding the pocket lint, if you tell me you’ll pay $10k for mine, I have no gain. When the sale happens, I recognize the $10k gain and pay the tax. This seems to be a pretty typical transaction for pocket lint or a truckload of butter.

1. https://www.irs.gov/taxtopics/tc420

dmoy2• 8 years ago

If lint is something people are commonly buying, selling, speculating on, sure. Otherwise no.

jabgrabdthrow• 8 years ago

Your comment reads like an insight from an authoritative and trustworthy source, but you have no idea what you’re talking about and your intuitions are totally wrong.

malikNF• 8 years ago

What would happen if someone was to lose access to their wallets? Would they still have to pay taxes? If my memory serves me right, close to 4 million bitcoins are missing.

ng-user• 8 years ago

If I'm correct, I believe you only pay taxes when you realize the gain. So if you never sell you'll never owe taxes? Can someone confirm this?

clay_to_n• 8 years ago

Yes, these are capital gains taxes. If you buy a bunch of crypto in a year, and sell none, you owe no capital gains taxes for that year.

You only pay capital gains taxes on them in the years where you sell.

Keep in mind that in the IRS's eyes, any exchange (like BTC -> LTC) counts as a sale, and so does buying goods with crypto (like buying a video game with BTC).

YCode• 8 years ago

Regardless of whether you lose them you pay taxes when you make a taxable transaction, being either exchanging FIAT to crypto or crypto to a different crypto.

jjeaff5• 8 years ago

If you itemize deductions, and the loss is large enough, you can deduct a loss or theft.

So if you mined and then traded $100k in Bitcoin for Ethereum and then the Ethereum was stolen, you would use form 4684 to claim the loss against your taxable income.

But I haven't heard of anyone doing this yet and I can imagine it would get some scrutiny from the IRS, seeing as it would be hard to prove a loss or theft.

chanfest223• 8 years ago

You'll want to complete form 4684: https://www.irs.gov/pub/irs-pdf/f4684.pdf and speak with a tax professional. See more about which forms to fill out here: https://www.cointracker.io/faq#tax-forms

ulkesh3• 8 years ago

So if I made a whole $32 off of my experiment on Coinbase (invested $50 when the price was around $273.59/bitcoin and then sold when the price was around $459.69/bitcoin), will the IRS really care about their cut? I honestly expected some kind of documentation from Coinbase with respect to taxes, such as a 1099-B. I never received such a document.

I also read somewhere that the IRS is only coming after people who made $20,000 or more. (Note: I couldn't read this article due to the paywall)

Should I be concerned that they'll try to get their $10 from me and then pile on a bunch of penalties?

cdoxsey• 8 years ago

Even if they don't send you a doc you need to pay taxes on your earnings.

ulkesh3• 8 years ago

Of course, it's just what I expected since every other reputable investment business does this.

However, my concern is less from that and more from the $30. Will they care?

alyandon• 8 years ago

The IRS once sent me a letter because I had slightly underpaid my taxes where they informed me of the amount I had underpaid and assessed a 10% penalty.... for a grand total of ~$8.

They weren't jerks about it but they do seem to have a weird attention to detail for certain matters.

CydeWeys• 8 years ago

I've had something similar happen with MD state taxes. They know all your reported sources of income and know exactly what you've paid, and if the arithmetic doesn't add up, their software will come after you even for small amounts. In my case I had accidentally attributed a small amount in January quarterly estimated taxes to the wrong year.

ulkesh3• 8 years ago

I'll be quite happy to pay them $11. :) Here's hoping that's all it would end up being.

Terretta• 8 years ago

For an individual, it’s a detail. At scale, real money.

With 150 million tax payers, if they had a $10 cut off everyone underpaid, that’s a potential loss of $1.5 billion, over half of the annual national parks budget. Not so weird.

icelancer• 8 years ago

> Should I be concerned that they'll try to get their $10 from me and then pile on a bunch of penalties?

No, despite their reputation, the IRS is pretty reasonable about stuff like this, at least in my experience. They're relentless if they think you owe a ton or were malicious, but they don't intentionally trump up penalties on the every day person.

GuB-42• 8 years ago

I guess it makes sense. The IRS is profit-driven. The state wants to maximize the amount of money recovered minus how much it costs.

It makes more sense to go after the targets they can get the most money from. They won't bother you with your $10, it is a waste of their time compared to the thousands they can recover on larger scale, well established fraud.

matwood2• 8 years ago

Probably not a huge concern, but I look at it this way. Is it worth your future time to deal with over ~$10 in taxes? Is it something that can lead to triggering an audit?

Even if the chance of the IRS coming back to me is small, I'd much rather pay the $10 now than deal with them later.

RealAnalysis• 8 years ago

what about $400 in gains?

JumpCrisscross2• 8 years ago

will the IRS really care about their cut?

Just pay the damn tax. If you’re thinking “will the IRS care,” avoid the hassle and pay it. Forgetting $32 of gains is one thing. Wilfully determining the IRS won’t come after you is another.

eximius• 8 years ago

My only concern is that I bought Bitcoin for a friend because he had trouble setting his account up. Now that tax time is coming up, this has me worried that I'll get singled out because what I claim doesn't match my account. He's filing for his portion of things, so it should all work out in the end, but I don't want to be audited to have to explain that.

toomuchtodo• 8 years ago

Talk to a tax accountant. My gut would tell me you should file to match your account transactions, and your friend should write you a check to cover the incurred tax liability.

wheelerwj• 8 years ago

I am not a lawyer or cpa but it sounds like a similar case when someone may have invested in bitcoin and immediately realized they were over extended. So they decided to reduce their position for a small transaction fee. Unfortunately this was enough to make the trade a small loss and ultimately I don’t know many people who pay taxes on losses.

tlrobinson• 8 years ago

Am I missing something? You pay taxes on gains, not losses.

jjeaff5• 8 years ago

It won't matter if it's a small amount. But you will simply need to show it on your tax calculations. Your 1099k will only have gross numbers. You will do the profit calculations. So the Bitcoin you sent to a friend will be deducted when you make your calculations.

lkbm2• 8 years ago

Could the IRS do me a solid and send me what the capital gains on my crypto currency are? I'll pay the taxes--I just don't want to have to calculate the taxes.

I know, I know. Intuit and H&R Block refuse to allow that to happen, but if we could stop prioritizing entrenched industries, that'd be really nice.

otoburb3• 8 years ago

>Could the IRS do me a solid and send me what the capital gains on my crypto currency are? I'll pay the taxes--I just don't want to have to calculate the taxes.

Unlike stocks which seem to be entirely traded on exchanges, bitcoin could have been obtained through mining (unlikely, but possible) or a true person-to-person trade/barter. In order to calculate capital gains, one needs to know the cost-basis (i.e. the price you paid to acquire the asset). If bitcoins are deposited into your Coinbase BTC account, there's no way for Coinbase to know what you paid for them, hence difficult/impossible for them to calculate the capital gains.

godelski2• 8 years ago

Couldn't you use the cost of operation? I figure you could either keep track of it yourself or use a standard depreciation rate on equipment and electricity costs (since probably few people tracked that). Would be like running a business, which you kind of are as a miner. But you do make a point that this is a difficult thing and coinbase can't really track it.

BUT from what I understand, people leave a lot of coins on exchanges and never transfer them back to personal wallets. Coinbase can track that.

jmalicki4• 8 years ago

"Unlike stocks which seem to be entirely traded on exchanges" - no.

You could have bought stock directly from the company, in an IPO or secondary offering (where it does not go through an exchange), from an individual or broker not intermediated by an exchange, etc.

You can keep stock certificates in a safe deposit box, and then later transfer them into your brokerage account, they have no idea what you paid for them.

This is a solved problem, cryptocurrency is not special. If they have the cost basis they can tell you, if not, they can leave it blank.

panarky• 8 years ago

It's the taxpayer's responsibility to substantiate any cost basis greater than zero.

godelski2• 8 years ago

Just a note, but if you don't hold on to them for more than a year then you calculate them like normal income. Long term assets (>= 1 year hold) are calculated at the reduced rate.

But I also agree that you shouldn't have to calculate it. I'm in favor of return free filing.

cmpxchg• 8 years ago

It's not just Intuit and H&R Block. A lot of us small business owners don't want the IRS knowing every detail of our businesses in order to just magically send us a pre-filled return each year.

The current tax system places responsibility on you, the investor, to tabulate all of your gains and losses, but it also gives you the freedom to invest in complex and unusual transactions like coins in the first place. Don't be so quick to assume you could give up the one without giving up the other, were it not for those pesky TurboTax lobbyists.

lovich2• 8 years ago

That sounds like you're arguing that you want the ability to continue avoiding taxes by not letting the IRS know the whole truth. That's fine, but if I have to pick one entity to extract money from me id rather it go to the government which at least has a tiny chance of benefiting me rather than going to a private company who has no reason to do anything to benefit me

Analemma_2• 8 years ago

A lot of us small business owners don't want the IRS knowing every detail of our businesses in order to just magically send us a pre-filled return each year.

For the 99% of us who aren't small business owners, the IRS already has all our information: my W-2's, 1099's, etc. are already sent there by my employer/bank/broker. Making me do my tax returns anyway is literally useless, just busywork for its own sake.

The current tax system places responsibility on you, the investor, to tabulate all of your gains and losses, but it also gives you the freedom to invest in complex and unusual transactions like coins in the first place.

As people have explained countless times, letting the IRS compute your returns for you in no way precludes the ability for you to do it yourself, if you desire. That is how it works in every other country - most people just accept the government's return, the people who have complex financials file their own. Stop making the rest of us do pointless work just because of your paranoia.

s73v3r_2• 8 years ago

You're saying that like they don't already know those details.

And your second paragraph makes no sense whatsoever.

jjeaff5• 8 years ago

I'll calculate my own taxes thank you very much. If big brother doesn't agree, then I'll show my work and sources. Otherwise, the less they know the better.

elif• 8 years ago

Having been there, big brother doesn't care to see your work.

They just send you another bill, plus interest.

I think you'd need to get a lawyer for them to even look at your work.

zimzam• 8 years ago

Big brother already has all of most people’s tax information. Your taxes have already been withheld (for most employees).

The current system is like having to write your own credit card statement, mail it in to the CC company, and getting penalized if you get it wrong.

kerng• 8 years ago

This. It could be so simple. Have the IRS suggest what they think I owe - they can have all the metadata, and I'll happily just pay the taxes. If someone doesn't agree, they can do their own return. The current system is so inefficient and wastes a lot of people's time.

skellera• 8 years ago

That creates a one way correction relationship. You will always let them know if you owe them less but never if you owe them more.

klenwell• 8 years ago

Have the IRS suggest what they think I owe - they can have all the metadata, and I'll happily just pay the taxes.

What's funny is that they will. After the fact. I got a notice last year from the IRS about some back taxes I owed because I forgot to include some stock I sold in my taxes for that year.

They were right. I had overlooked it. But their figure for what I owed was a little higher than what I calculated it to be. I sent back a revised tax return with a check and an explanation for how I arrived at my number and the matter was closed.

So just to reaffirm: the obstacle is more political than technical.

em3rgent0rdr2• 8 years ago

"they can have all the metadata"

How about instead of big-brother style "hand all your metadata over to the state", that instead the state releases an open-source program you can run that collects & analyzes all your metadata and then produces the bill?

chanfest223• 8 years ago

The IRS won't, but tools like https://www.cointracker.io can

pault• 8 years ago

Are you affiliated with cointracker? I only ask because you've linked to it three times in the comments here, and if you are you should disclose that fact. If you just love the service, no worries!

lkbm2• 8 years ago

I've actually been meaning to look into https://github.com/robertwb/bitcoin-taxes but I'll check cointracker.io -- thanks!

agumonkey2• 8 years ago

If IRS all over the world would act as a tax assistant instead of pure penalty seeker I'm sure everybody would love it. Wasted energy IMO.

AboutTheWhisles2• 8 years ago

In many other countries they do act like that.

User23• 8 years ago

The IRS is actually quite helpful, you just have to ask. For example you can request that they give you all the information they have on you. This can make filing or amending old returns significantly easier.

And in my experience at least, their customer service people are courteous and genuinely helpful. It's nothing at all like the standard substandard DMV experience.

Another cool thing is they have an absolutely fantastic record for providing real opportunities (not just busywork) to disabled persons.

AboutTheWhisles2• 8 years ago

"How much do I owe?"

"How much do you THINK you owe?"

"...Hmm, if I have everything correct, I think I owe this much"

"WRONG! Time for consequences!"

styfle• 8 years ago

Worst user experience ever

- Comic book guy

pembrook• 8 years ago

Time for consequences 2 years later when our system finally processes your return and you've long since forgotten where you put that receipt for an $8 taxi ride.

One of the biggest frustrations of modern life is knowing how efficient and easy things could be if these systems were designed better...and then realizing that nothing will be done about it because entrenched interests hold all the power in American government.

awalton• 8 years ago

I'll pay the taxes--I just don't want to have to calculate the taxes.

You, me and most everyone else reasonable. In some countries, taxes are as simple as the tax agency sending you a bill or a check. But, America's love of excess capitalism means our tax code is needlessly complicated and pretty much insists on as many third party businesses to be involved as possible - every company you work for, plus anyone holding your securities, plus Intuit or some other tax preparer, and so forth.

The most sensible requirement, since we're not going to get sensible tax reform ever, would be just making legal exchanges operating in the US have to send out a 1099 variant (maybe 1099-MISC could cover it? Or they could create a new one) so people aren't left scratching their heads all the time. But we'll see if that ever happens...

user5994461• 8 years ago

In France, taxes are impossible to calculate. Every accountant will give you a different number for a few percents.

If the state didn't give a bill, you couldn't figure out what to pay.

Rescis• 8 years ago

But, America's love of excess capitalism means our tax code is needlessly complicated and pretty much insists on as many third party businesses to be involved as possible - every company you work for, plus anyone holding your securities, plus Intuit or some other tax preparer, and so forth.

I don't think it's fair calling this capitalism. Capitalism is the idea the the production of goods is controlled by private entities, whereas what you are talking about is a government over complicating/regulating an industry at the behest of a company. In a capitalist society, regulation is not a thing, whereas in the corporatist society I believe we live in, regulation harms the citizens through capture and reduction in effeciency.

timmonsjg• 8 years ago

without paywall - http://archive.is/cHYve

fpgaminer• 8 years ago

While generally I tend to favor less government involvement, especially when it comes to privacy, I find myself on the other side of the fence here.

Ignoring the arguments about what Coinbases is _legally_ required to hand over, it seems like Coinbase withholding this information from the IRS really only favors criminals. If you're a law abiding citizen you're already giving all this information to the IRS yourself. Every Coin-fiat transaction is taxed and must be reported. So there's not much difference for you. It's only if you aren't following the laws that this has an impact on you. So I find myself in _favor_ of the IRS snooping around in Coinbase's business. More compliance means less average taxes.

That said, there are nuances. What information exactly gets provided to the IRS is important. Exchange/transaction events? Sure. Money in/out? Ehhh, maybe not. Bitcoin address data? Definitely not.

(To be perfectly clear, this is _not_ an instance of "if you have nothing to hide". This is an instance where we're _already_ giving this data to the government, and that's _necessary_ because of our tax laws. There is no equivalence to other privacy cases.)

JumpCrisscross2• 8 years ago

"Chain-splits. These occur when a cryptocurrency branches into two or more versions, as bitcoin and Bitcoin Cash did last year. Investors are often entitled to new coins as a result.

Does this right generate taxable income?"

Huh.

Obi_Juan_Kenobi• 8 years ago

This is probably the biggest open question, with no good answer.

For Bitcoin Cash, if you declare that, what value do you use? Futures price before the fork? Price immediately after? Which exchange? And the price fluctuated wildly, so they all seem arbitrary.

The alternative is to claim a cost-basis of $0 when you actually realize those gains, which makes a hell of a lot more sense to me, but the IRS might disagree. Who knows?

And what about Bitcoin Gold or the dozens of super-shady forks? Technically they have value, but it's value I don't think I'll realize because they're so shady. You have to go through the trouble of clearing your wallet of 'real' Bitcoin, and then import it to whatever 'totally not going to hack you' wallet software you need to use to claim it. Even if you don't lose your 'real' Bitcoin, all the other shady forks could be stolen. It's clearly not 'real' in the way that traditional securities are.

heed• 8 years ago

Further, anyone can fork a coin at any time; there could be dozens a year. Am I supposed to keep track of every single fork of every coin I hold?

Also what if I haven't imported my private key into the forked coin's wallet? Do I have to report the income right away or only until after I've gained control of the coins?

cinquemb• 8 years ago

This is not surprising at all, and it's been a long time coming.

It will be more interesting when the IRS starts trying to get your electric consumption data (assuming people aren't using solar panels, and/or live in a jurisdiction whose electric companies don't have to hand over such information about their customers to another governmental body) because more people are mining (inflationary) cryptocurrencies and trading that for other "assets" without going through 3rd parties like Coinbase (i.e. needing to upload any forms of government ID).

I wonder if this is the kind of stuff the G20 finance ministers will talk about at their upcoming meeting[0], though I kind of doubt it.

[0] https://asia.nikkei.com/Politics-Economy/International-Relat...

KirinDave• 8 years ago

Of course it does?

They're doing a whole KYC thing.

hyprCoin• 8 years ago

Privacy coins and decentralized exchanges will start rewarding individuals who engage in untraceable tax evasion, which will get easier over time. This puts a negative reward signal on honesty.

The current governance system will have to adapt or die. It's not much different than any other disrupted industry, except this one is armed.

dillondoyle• 8 years ago

I've wondered what to do if I won't or can't prove that I control BTC that I transferred out of coinbase wallet into personal wallets?

I will definitely pay my cap gains on the small amount of coin I sold (BTC->USD within coinbase). But I have no idea about first in first out, when is it a wash if I buy more?

I don't even want to think about trying to calculate cap gains on purchases made with BTC since the price is almost always different even if I buy BTC on coinbase and use it to buy server time 60 minutes later..

univalent• 8 years ago

Asking for a friend. If X buys a few bitcoin and then transfers it to a gambling site and proceeds to lose it all does stupid X (the goddamn idiot) owe any taxes? The only way X can show that he/she didn't retain the bitcoin is to show transfers to the gambling website (transfers in and no transfers out, because as I said earlier, X is a dumbass).

patrotor• 8 years ago

I thought it was hilarious that the Coinbase blog announcement of their tax reporting explicitly states that this reporting is completely useless for the 99% of Coinbase users who have transactions on other exchanges and ICO's. https://blog.coinbase.com/new-tax-tools-on-coinbase-4d259854...

I'm founding www.ZenLedger.io to help crypto investors and CPA's to comply with IRS law, aggregate ledgers across exchanges and wallets, and make everything easier. We also undo things like Coinbase falsely classifying all coin movement off their exchange as a taxable sale when they know it's most likely a non-taxable transfer. So, we help you pay less taxes. Check us out please. We have a great team of developers and business/finance professionals working hard to get it all done for you.

crb002• 8 years ago

PSA. 1) Withhold 35% of your gains for tax. 2) Realize any losses before the end of December, and reinvest #1.

The IRS collects data on Coinbase account holders

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