
IRS reminds taxpayers to report virtual currency transactions - AltcoinReport
https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report-virtual-currency-transactions
======
purple-again
Another point everyone should remember because I’ve seen the attitude a lot
recently.

If the reporting requirements seem to be literally impossible to comply with,
this doesn’t mean you conclude “so I don’t have to pay taxes”. It means you
should conclude “I have to pay the maximum taxes possible under the worst case
scenario because I don’t have the records to prove my version of events”.

It has nothing to do with crypto, lose basis in your stock and you assume no
basis (obviously you make best guess and hope To not get audited, but once
audited, you take no basis).

~~~
TallGuyShort
The government needs to fix the problem that it's so difficult to know what
you're required to pay without just paying the maximum guess (and then pay
more ahead of time to avoid penalties). I've reported an instance of 2
conflicting statements in 2 separate IRS forms to the IRS, and rather than
clarifying what was required they referred me to a tax advisor, who also
didn't know the answer to the question. So we took the more liberal guess, and
filed. And then had to rework it anyway because the law for how much tax I was
required to pay in 2017 changed in 2018 anyway. The principles that we
consider "rule of law" don't seem to apply to tax law.

~~~
s73v3r_
It's not the government's fault you lost track of your records.

~~~
TallGuyShort
I'm not even talking about that - parent comment talks about requirements that
are literally impossible to comply with, and I talk about laws that are put
into place after a tax year ends and apply retroactively, and official
documents that contradict one another and the inability to get an official
explanation from the government prior to the filing deadline. How is any of
that even remotely "losing track of my records"?

edit: Let me be even more detailed. I had to have my accountant rework my
taxes 3 times. Once because of a retroactive law change after the end of the
tax year. Once because of the inconsistency I discovered in official
documents. And once because ETrade's documents and my employer's conflicted.
Both of the latter were prepared by professionals. That's pretty typical of my
filings. If it's so complex that all of that is fairly routine, that IS the
government's problem. I have no problem keeping track of my own records; in
fact my own record keeping and fastidiousness led to the discovery of all 3 of
those problems.

~~~
adrianratnapala
> in fact my own record keeping and fastidiousness led to the discovery of all
> 3 of those problems.

Does that mean it might be safer to be less fastidious so that no-one can
uncover records that never existed?

~~~
TallGuyShort
The records exist in all these cases. I operate under the assumption that the
IRS is better at noticing these discrepancies than I am and that the cost of
reworking it with my accountant is less than the cost of getting audited by an
agency that gets off on this.

------
blunte
A tax CPA I used in the past advised me with (hundreds of) short term equity
trades to just present the before and after figures, since that represented
the true income. They explained that in their experience, that was
satisfactory to the IRS.

It is unrealistic to expect people making frequent trades to carefully
document every trade (unless perhaps that is their profession). It's even
worse for cryptocurrencies, since the value of the outcome of a trade is
entirely relative to some other more established asset (such as US Dollars).

If you trade USD for BTC, then some time later trade BTC for XRP, then
liquidate that for something more obscure (like cV), determining the value is
really difficult. You would have to lookup the currency pair rates for each
pair in a given trade, as well as some chain of currencies which can be
associated directly with USD. Not only would that be highly inaccurate, but it
could easily be argued very differently depending on which exchange(s) you
used (since at any given moment, the difference of rates on different
exchanges can be very significant).

I think as far as the IRS is concerned, unless you're obviously getting rich,
if you can just show you made reasonable effort to assess and report what you
earned, they'll be satisfied. But if they think you're trying to fool them,
they make take personal offense and put far more resources into nailing you
than you think it's worth in lost tax revenue.

~~~
kchoudhu
Why is it unreasonable? Your brokerage should be tracking your entry and exit
for each trade and sending you a comprehensive 1099-B come tax time.

If your cryptocurrency brokerage isn't doing that for you, move your money
elsewhere. If you can't find a brokerage that does that for you, maybe you
should start wondering what other important controls are missing from your
brokerage. Just saying.

~~~
tibbon
What brokerage? I don't need any brokerage to trade one crypto for another.
Find someone who wants X, I send them X and they send me Y in return. X and Y
may not be fiat currencies, and the value in USD at the time may be spread by
10% on various markets at the moment. Does the IRS want me to value those
transactions as per GDAX at that moment, or Upbit?

Crypto takes out the need for middlemen like brokers. You _can_ use them, but
you don't have to either. Even with them, unless you're trading for USD at the
time it's a standing question of what the USD value was at the moment. This
isn't like, "use the price in the WSJ that morning".

~~~
spookthesunset
> Even with them, unless you're trading for USD at the time it's a standing
> question of what the USD value was at the moment. This isn't like, "use the
> price in the WSJ that morning".

If you don't know the USD value of what you are trading then you are a pretty
poor trader...

~~~
tibbon
Or have high speed trading bots constantly selling alt currencies against each
other.

------
sergiotapia
Reminded me of this kid that said he bought some bitcoins and then sold to buy
some alt coins.

>At the advice of my friends, I took most of my savings and bought 8 bitcoins
back in early 2017 for about $7200. You can imagine how I felt when it went
up. Around December 2017, I got caught up in the altcoins frenzy and sold most
of my bitcoins (about $120k worth) to buy a bunch of different coins. I didn't
know this back then but it looks like I owe income taxes on those trades,

Thread:
[https://www.reddit.com/r/personalfinance/comments/84huks/i_j...](https://www.reddit.com/r/personalfinance/comments/84huks/i_just_discovered_that_i_owe_the_irs_50k_that_i/)

~~~
jobigoud
I still find it weird that he has to pay taxes in dollars on something that he
doesn't know the value of in dollars since he hasn't converted his
cryptocurrency assets to fiat yet.

~~~
gst
Vanguard allows me to exchange one mutual fund for another mutual fund
(without having to explicitly sell and re-buy). Do you think that's something
that shouldn't be taxable? Where's the difference to the cryptocurrency
example above?

~~~
nashashmi
Depends on the technical contract but per IRS rules are that when you trade
one asset for another, you are virtually selling the asset and buying another.
They did it to keep accounting simple.

------
purple-again
If you are walking down the beach and find a $20 bill on the ground, you are
required to report it as income.

The only way that I know of that you can legally enrich yourself without
paying taxes is via a direct gift and that’s because the giver pays tax
instead of you.

~~~
gxs
Worth mentioning that there exists a $5MM lifetime max that any individual can
gift before paying taxes.

A common misconception is that you have to pay tax on every gift you make, but
as long as you’re under that $5MM all you have to do is report it.

~~~
adanto6840
Not that it would probably ever apply to me, but I'm curious if that's per
"individual gift giver - giver receiver" pair? Or is it the case that it's
solely per individual gift _giver_? As in, would receiving a $500 gift from
Bill Gates (who presumably has met the $5MM lifetime threshold) be fully
taxable? Just random Sunday curiousness. :)

~~~
isostatic
Would have to be per giver, otherwise it would be trivial to avoid (want Dave
to get another $1m, either give $2m and have the taxes taken, or give $1.1m to
Joe Bloggs, who gives $1m to Dave and keeps the rest.

------
njarboe
The problem, if one want to trade crypto currencies, is that you have to
record every transaction. Then one has to figure out if the coins you have
traded have been held for over a year and thus treated at the long term
capital gains tax rate as opposed to the short term rate. Then, I believe with
the new tax bill, one has to, going forward, sell the oldest coins first (if
they are going to be treated like stocks). This makes complying very hard;
impossible if you did not start at the beginning being very careful with your
records. Basically trading a lot, especially algorithmic trading, is not
something illegal, just impossible to do legally, in practice. Same with
stocks. Professionals (of course) have some kind of special rules where they
only have to keep track of net gains (or losses) and not every trade.

A good analogy would be if, when gambling at a casino, one had to keep track
of every bet and report it and the outcome. Then, if one kept chips for over a
year, you would also have to keep track of how old the chips you were betting
were. Cashing out chips you held for longer than a year would have a lower tax
rate. New rules now would say you have to bet with your oldest chips first.
Now report all this activity to the IRS with your taxes each year. Vegas and
other casinos would not exist with such rules and so much pressure would be
against laws treating Vegas style gambling the same way.

~~~
JumpCrisscross
> _if one want to trade crypto currencies, is that you have to record every
> transaction_

This is true for all capital assets. With cryptocurrencies, the data are all
public. There may be room for a service which, given a set of wallets,
produces a sample tax transcript.

~~~
hobofan
You still need the fiat exchange value at the time of buying/selling the
cryptocurrencies (unless you only assume "token for token" trades), which is
not stored on the blockchain.

~~~
JumpCrisscross
Aren’t those data trivial to procure for the common cryptocurrencies? For
uncommon ones, just ask the user to find the price on dates X, Y and Z.

~~~
iamdave
A given day could have multiple instances of open/close price _n_ for any
number of trading intervals though couldn't it?

~~~
JumpCrisscross
The IRS is usually fine with reasonable approximations. Tax lawyers and
preparers are familiar with this problem; their input could inform a compliant
system.

 _Disclaimer: I am neither a lawyer nor a tax expert. This is not legal nor
tax advice. Talk to a CPA about your tax situation._

~~~
iamdave
Ahh okay. Thanks for the correction.

------
tunesmith
I thought you didn't need to unless you sold. If you simply buy or receive,
that also needs to be reported? I have some of those stellar/lumens from when
they awarded them for free for signing up back in 2016, but have never sold or
transferred them.

~~~
bringtheaction
Keep in mind:

\- Trading cryptocurrencies produces capital gains or losses, with the latter
being able to offset gains and reduce tax.

\- Exchanging one token for another — for example, using Ethereum to purchase
an altcoin — creates a taxable event. The token is treated as being sold, thus
generating capital gains or losses.

\- Receiving payments in crypto in exchange for products or services or as
salary is treated as ordinary income at the fair market value of the coin at
the time of receipt.

\- Spending crypto is a tax event and may generate capital gains or losses,
which can be short-term or long-term. For example, say you bought one coin for
$100. If that coin was then worth $200 and you bought a $200 gift card, there
is a $100 taxable gain. Depending on the holding period, it could be a short-
or long-term capital gain subject to different rates.

\- Converting a cryptocurrency to U.S. dollars or another currency at a gain
is a taxable event, as it is treated as being sold, thus generating capital
gains.

\- Air drops are considered ordinary income on the day of the air drop. That
value will become the basis of the coin. When it's sold, exchanged, etc.,
there will be a capital gain.

\- Mining coins is considered ordinary income equal to the fair market value
of the coin the day it was successfully mined.

\- Initial coin offerings do not fall under the IRS's tax-free treatment for
raising capital. Thus, they produce ordinary income to individuals and
businesses alike.

[https://www.cnbc.com/2018/01/30/cryptocurrency-and-taxes-
wha...](https://www.cnbc.com/2018/01/30/cryptocurrency-and-taxes-what-you-
need-to-know.html)

~~~
saosebastiao
> Exchanging one token for another — for example, using Ethereum to purchase
> an altcoin — creates a taxable event. The token is treated as being sold,
> thus generating capital gains or losses.

Which is absurdly difficult for the average person to account for. If I buy
60000 XRP for 4 BTC, what is my cost basis? Do I have to keep track of how
much those bitcoins were worth on a different exchange with Fiat pairings at
the moment I traded on a pure crypto exchange? What if I don't have that data?
How is that calculation supposed to account for actual liquidation costs if I
liquidate to pay my taxes?

~~~
kentm
> If I buy 60000 XRP for 4 BTC, what is my cost basis?

For the BTC? The USD value at the time you bought them.

> Do I have to keep track of how much those bitcoins were worth when I traded?

Yes

> What if I don't have that data?

You can get the transaction date via the block chain or your exchanges
reporting and then lookup the USD value at the time.

> How is that calculation supposed to account for actual liquidation costs if
> I liquidate to pay my taxes?

Liquidating to pay taxes is another taxable event. That’s the same as if you
did this with equities.

~~~
saosebastiao
> You can get the transaction date via the block chain or your exchanges
> reporting and then lookup the USD value at the time.

What if the exchange I traded on doesn't have a USD Fiat pairing? Can I use
any price from any exchange that day? Can I report $0.06/BTC for an xrp sale
on 4/16, the date of the major coinbase flash crash? Does it have to be the
exact price at the exact time? Can I choose the USD value of the KRW/BTC
market on Bithumb?

~~~
rspeer
It kind of sounds like you're trying to think of tax law as some sort of CTF
programming game where you're supposed to find the exploit. That's definitely
not what tax law is.

You should report your taxes as honestly as possible, using reasonable prices
for things.

------
ryanmarsh
This all seems pretty reasonable IMHO. Relevant section:

* _A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property._

* _Payments using virtual currency made to independent contractors and other service providers are taxable, and self-employment tax rules generally apply. Normally, payers must issue Form 1099-MISC._

* _Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2 and are subject to federal income tax withholding and payroll taxes._

* _Certain third parties who settle payments made in virtual currency on behalf of merchants that accept virtual currency from their customers are required to report payments to those merchants on Form 1099-K, Payment Card and Third Party Network Transactions._

But I think this last one is probably the most interesting to us HODLers

* _The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer._

------
mannykannot
There are people who have lost the key to wallets. For most of them, that is
the same as not owning the cryptocurrency, but a small number might get lucky
and remember where they put it, or remember enough of it to eventually recover
it, at some point in the future. I haven't looked in detail, but do the rules
address this scenario?

~~~
floatingatoll
Lost assets are commonly reported on this form, which you should file if you
knowingly hold coins and then lose access to them:

[https://www.irs.gov/pub/irs-pdf/i4684.pdf](https://www.irs.gov/pub/irs-
pdf/i4684.pdf)

If you recover the property in the future after filing it as lost, pay a tax
professional to advise you.

------
my_username_is_
They still haven't issued guidance on how to treat forks like BTC/BCH, have
they?

~~~
kentm
It’s still ambiguous but the most straightforward way is to treat it as
miscellaneous income, which is how I reported it.

~~~
ryanmarsh
If Apple's stock were to split and then "moon" would you claim the difference
in portfolio value as misc income? That sounds nonsensical to me. The IRS
guidance states it can be treated as a capital asset. You're still HODLing
right? Right?

~~~
kentm
I did the research a few months ago and don’t remember the details, so sorry
if this is vague.

There are certain criteria that are required for something to be treated as a
split and IIRC coin forks were really iffy in this case. The usual case in a
stock split is that you get either more of the same security or something of
similar likeness (a non voting class of shares in the case of the google
split), which is arguable in the case of crypto.

You could argue it’s a split to save money and if you had a huge amount in BTC
at the time of the split it’d be worthwhile. My tax savings were going to end
up being trivial so I went with what was “safe”.

Edit: noticed your comment about Apple stock “moon”-big. If we’re reporting
the fork as income then it’d be income at the value at the time of the fork.
So if you had one BTC then the BCH income would be $277 or so and that would
become the cost basis going forward. I didn’t have a lot of BTC so the actual
tax cost was very low. If you’re holding thousands of BTC at the time then the
story would be different and you’d be incentivized to argue a different tax
treatment.

Apologies for the wordiness here!!

------
kumarski
Built an app to solve this issue:

[http://zenledger.io](http://zenledger.io)

Companies like blockseer.com are being used by regulatory folks to find people
skirting the rules.

------
droopybuns
Do I get to report my misplaced cryptocurrency wallet password as a loss?

------
spiraldancing
So, reading through this discussion, I'm seeing a lot of "IRS tax law is
confusing, complicated, and even contradictory on cryptocurrencies", and a lot
of other people saying, in effect "well tough, it's the law, deal with it".

What I'm getting out of it all is, people who did not make money on
cryptocurrencies this past year are getting some satisfaction from the
difficulties of those that did.

------
cft
Can someone explain how a "property payment" is reported and taxed:

"A payment made using virtual currency is subject to information reporting to
the same extent as any other payment made in property."
[https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-
report...](https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report-
virtual-currency-transactions)

~~~
kentm
Treat it as if you sold the crypto for USD (and pay capital gains). So if you
bought a crypto for $10, the price appreciated to $110, and then you bough
something worth $110, then you have to pay taxes on $100 of income. It’s the
same place you repot capital gains for equity (I don’t remember the form
number)

~~~
cft
What if I bought 1BTC at $10, then I bought 1BTC at $200, then I bought
something with 1BTC when BTC dropped to $100/1BTC? Which BTC was used for the
purchase- the one I bought at $10 or the one at $200?

It sort of kills the use of cryptocurrency as "currency" in the US. Imagine if
in the end of the year we had to report every dollar transaction (e.g. buying
a coffee and a bagel), trace how you earned that dollar and calculate capital
gains/loss.

~~~
isostatic
If I bought 1 ton of gravel at $10, then bought one ton of gravel at $200,
then swapped one ton when it was $100 for a meal out. Which ton was used for
the purchase, the one I bought at $10 or the one at $200?

~~~
Mtinie
I’m unclear if you were asking this tongue-in-cheek, or if you really were
interested and simply used an arbitrary asset for your example, but in case it
was the later, here’s my understanding:

Do you account typically report FIFO or LIFO?

You can register a capital loss of $100 if you account last-in-first-out, but
will be on the hook when you sell your $10 gravel on the future at any price
higher than $10.

You’d register a capital gain of $90 over cost if you account first-in-first-
out.

AFAIK, in either case you have to account for all of your transactions the
same way, for the year in question. It’s not pick and chose to gain the best
benefit.

Tax rate in either case would be calculated based on how long you held your
gravel.

~~~
isostatic
Arbitrary asset, my assumption was that bitcoin is no different to any other
asset. Now you mention it, I do remember LIFO, FIFO and AvCo from when my
mother was doing accountancy courses when I was a wee lad in the 90s.

------
freech
"Income from virtual currency transactions", not "virtual currency
transactions".

------
mtgx
The make it easy and simple to report them. Expecting regular people that
can't afford expensive accountants to report potentially thousands of
transactions a year is kind of crazy.

But America likes its tax system to be super complicated and complex.

------
akeck
If someone pays me for a service in bitcoins (e.g. GPU rental), what dollar
amount do I report for income? The dollar value of the bitcoin at the time I
was paid? The dollar value on 12/31/2017 at 23:59?

~~~
heptathorp
You owe income tax on the value at the time you earned the income...

If you later sold it for more, you owe tax on the gains.

------
roddux
"No", respond taxpayers.

How do they intend to record this?

~~~
kentm
Coinbase and other crypto exchanges report to the IRS for one. There’s also
forensic accounting where large unexplained cash flows (i.e. buying a house
for money far above your income level) establish probable cause, which allows
them to go fishing.

~~~
markonthewall
It's actually trivial to dodge US taxes. The most basic and effective way to
accomplish that is to establish fiscal residency in a friendly european
country. It becomes /really/ easy when you have dual citizenship.

Same applies for crypto gains, if you avoid using US based crypto-exchanges
you are probably OK for the foreseeable future.

I have found that many americans overestimate the reach, competence, and sheer
willpower of the IRS.

You would be surprised at what /doesn't/ happen if you stop filing taxes.

~~~
chx
> You would be surprised at what /doesn't/ happen if you stop filing taxes.

You are right: the sun would still rise everything morning, life would
continue pretty much unchanged, no one would break down the door to haul you
away for not filing your return. This is not Hollywood. But a little envelope
could show up in a year, two years -- or twenty years. If you do not file
there is no time limit on collection of taxes, interest and penalties.
[https://www.irs.gov/irm/part5/irm_05-001-019](https://www.irs.gov/irm/part5/irm_05-001-019)
Maybe you are living in a van now and getting cash on the nail and can't care
less. But... what if you clean up in ten years and want to live better? Even a
zero return is better than no return.

And if you do not live in a van but have an actual income with a paper trail,
the IRS might just file a Substitution for Return on your behalf and then, if
you do not respond, they will, with the full force of the law, come after what
they think you owe them, putting a federal tax lien on your real property,
garnishing your wages and so on.

Once you or they filed a return, there's a ten year time limit on collecting
the money, but, again, that doesn't apply if you do not file.

What really doesn't happen is criminal tax evasion charges. That's truly rare
and reserved for the heavy hitters.

------
vkdelta
good read on 1031 Like-Kind exchange for those who are thinking about it.

[https://www.mdmfinancialservices.com/cryptocurrency-and-
like...](https://www.mdmfinancialservices.com/cryptocurrency-and-like-kind-
exchanges/)

------
kureikain
If I invest but didn't cash out, then do I have to report? And if yes, then
report what?

~~~
loeg
As usual, you report income. If you bought something and did not sell it, you
didn't receive any income. Replace "something" with any kind of asset.

------
k-ian
why don't we just... link directly to the memo...
[https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-
report...](https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report-
virtual-currency-transactions)

~~~
sctb
OK! We've updated the link from [https://altcoinreport.co/irs-warns-taxpayers-
to-file-cryptoc...](https://altcoinreport.co/irs-warns-taxpayers-to-file-
cryptocurrency-gains/).

------
whataretensors
-

~~~
matthewmacleod
What isn't sane around "report your income"?

