
U.S. bill to exempt small virtual currency transactions from CGT [pdf] - cyclone02
https://coincenter.org/files/2020-01/delben-049-xml-final.pdf
======
jotakami
This provision already applies to transactions in foreign currency; that is,
if I take a trip to Japan and exchange $1000 for yen, I don’t have to report
gains every time I buy something as the exchange rate has fluctuated since the
time I made the initial conversion.

This bill would include digital currency under that rule, so buying a cup of
coffee with Bitcoin would no longer trigger recognition of capital gains
income.

I think the headline should be modified to make it clear that 95% of purchases
of goods and services using digital currency would be exempt from gains, but
that most crypto transactions are for trading and investing purposes anyway so
gains would still be recognized.

~~~
david_draco
If that's true, that makes a huge difference. AFAIK, the fraction of
transactions for goods is minuscule.

~~~
jotakami
Yeah I’m not 100% on it, but I seriously doubt that selling your Bitcoin in
small chunks to keep the capital gains under $200 in each transaction would
fly.

The intention of the original law is exactly like the example I provided; we
don’t want people to have to account for trivial gains and losses every time
they travel overseas and spend in a foreign currency. The law is not intended
to provide a loophole to recognize tax-free gains in currency trading, and if
you tried that you would probably lose in court.

~~~
RandomBacon
I imagine if the total was over $10,000 it would violate laws against
structuring.

~~~
jdmichal
Structuring laws are _any_ attempt to evade reporting. There's no dollar limit
on it; the limits depend on the reporting laws or policies. You're thinking
$10,000 because that is the limit for deposit reporting. But if this law has a
limit of $200 for reporting, then that is the limit for structuring.

~~~
mattferderer
So if someone bought 3 BTC in say 2015 for $200 each, they now would have
roughly $25,000.

If I understand right, they could then use that without paying any taxes on
all transactions under $200?

I assume you would still have to account for that somewhere? Even if only in
your personal accounts, in case you do some larger transactions or trading.
For example if you decide to sell $5,000 of your BTC for US dollars. That now
becomes a capital gain tax. You need to list the date you purchased it (date
in 2005) & the date you sold it (now).

Your accounting software or books would still need to keep record of when you
bought/sold/lost/used BTC though to properly mark which ones are long term
gains and which are short and which were used for small transactions.

Please correct me if I'm wrong.

~~~
ska
sort of (if i'm reading you right), the $200 doesn't apply to the basis you
bough things at, but the capital gain. So your purchase price is irrelevant.

If you bought 3 at 100 and sold them at 150, you would have a net capital gain
of 3x(150-100) = 150 and wouldn't have to report it.

If you sold them at 1100 gain is 3x(1100-100) = 3000 and you would report as
capital gain on your taxes. Right now you have to do this for any amount.

Structuring is a separate issue. Typically that would mean that you can't
break up a large gain into a bunch of < 200 gains to take advantage of this.

Note that the language is pretty specific though, and I don't think it applies
to any transaction.

~~~
mattferderer
I had to read up on structuring. Thank you for that. It's nice to have a term
to search for when trying to understand a topic.

What's still not clear to me is at what point does it become structuring. I've
found plenty of obvious examples such as splitting two deposits of $8,000 into
a bank after selling an item for $16,000.

But what about someone who just buys their groceries and fills their vehicle
up with gas with BTC that is worth much more than they paid for it years ago?
Is it structuring if you're spending this money in multiple transactions that
only add up to $1,000/month every month for the rest of your life?

After reading up on a few structuring cases all, my conclusion is that there
is no black & white rule on this & it is up to the prosecution to show that
the accused knew that they were structuring & that it was illegal. If that's
the case, I would assume the above example could be found guilty.

Side note, I'm in no way able to benefit on this. I just have an interest in
IRS rules and politics.

~~~
ska
IANAL _or_ a tax accountant, but believe you have the right general idea
except in most cases for tax (and some other financial) purposes the onus is
on you to demonstrated that you did _not_ structure transactions, not on them
to demonstrate that you did.

You are right that it is all a bit fuzzy because real life use is complicated.

Exceptions on reporting like this are meant to make "normal life" transactions
less burdensome. For example in general you have to report gains/losses made
on foreign exchange, but typically countries have an allowance so that you
don't have to calculate this every time you go on vacation.

The proposed amendment would add virtual "currency" transactions to that.

~~~
mattferderer
I'm 100% behind this being passed as I can't see digital currencies being
useful as a US citizen with the current reporting requirements.

At the same time, I also think this is an incredibly difficult policy to get
right.

I think structuring could become a common thing among those who have done well
with digital currencies to either avoid taxes or purely out of convenience &
without ill intent.

------
mrleiter
In non-legal terms: if you gain less than $200 from personal transactions,
this amount is not included in your gross income, hence not subject of capital
gains tax. If it is more, the whole amount is taxable.

So if you gain $199, it‘s tax free. If you gain $201, the whole $201 is
treated as gross income and hence taxable.

~~~
HenryKissinger
Why couldn't a crypto millionaire simply automate every transaction in chunks
of $199 and avoid taxes then?

~~~
profquail
That’s known as “structuring” and is illegal:

[https://en.m.wikipedia.org/wiki/Structuring](https://en.m.wikipedia.org/wiki/Structuring)

~~~
Ajedi32
This conversation reminds me of
[https://xkcd.com/1494/](https://xkcd.com/1494/)

~~~
SkyBelow
And yet you can hire a lawyer who can show you similar looking loopholes that
are completely legal. Structuring to avoid taxes is illegal but the double
Irish method isn't? There are many other such loopholes and telling the legal
from the illegal appears mostly arbitrary.

------
throwaway_tech
If you were interested in tax free trading of cryptocoins, one hack is to set
up a self-directed IRA LLC, so you have checkbook control. Then you could fund
the LLC through your IRA and the LLC crypto trades are tax free (subject to
IRA compliance of course).

~~~
LiquidSky
A good general rule of thumb is if you think you've found some clever simple
"hack" to get around tax or other regulations, it's probably not as clever as
you think and has already been accounted for.

~~~
throwaway_tech
Another good general rule, especially when law is concerned, is there are
always exceptions to the rule.

Self-directed IRA LLCs are nothing new, but using them for tax free crypto
trading is (obviously)...though I welcome any specific concerns.

------
petercooper
Does the US have any sort of capital gains allowance? In the UK you can make
£12000 (about $16000) of capital gains every year tax free so this covers most
smaller investors, etc.

~~~
dannyw
The long term capital gains rate is 0% if your income is $0 to $39,375; so
essentially your first $40k of capital gains is exempt if you have no income.

For the purposes of this calculation, your cap gain is added to your income to
work out your bracket.

~~~
anon73044
I would expect that 50% or more of hackernews readers make over $39,375

~~~
abstractbarista
Certainly, but what OP actually meant is that capital gains from $0-$39375 is
taxed at 0% (if you're a single filer). Then your next $395175 is taxed at
15%. Anything over that is taxed at 20%.

It's similar to our tax brackets. Going to a higher bracket doesn't suddenly
mean that all the money fitting in the prior bracket is taxed at that higher
rate.

------
awt
When are they going to stop using fixed dollar amounts in laws as if they
didn’t know in a decade $200 will be worth way less than it is now? Kind of a
slap in the face.

------
dang
Proposed bills rarely go anywhere, and so are not on topic for HN unless there
is something else that's significant about them. The only reason they ever
seem to get attention is because of something sensational in the proposal, and
those are invariably the least likely proposals to get enacted.

If something comes of this, we can discuss it then. On HN there's no harm in
waiting.

------
gbronner
The headline should be amended to emphasize that de minimus and economically
insignificant transactions would be exempt.

I doubt compliance is high now, and the reporting burden exceeds any likely
amount of races collected, especially as it would force filers to use
differentirs forms.

------
mnemotronic
Does an Electronic Funds Transfer (EFT) qualify as using a "virtual currency"?

‘virtual currency’ means a digital representation of value that is used as a
medium of exchange and is not otherwise currency under section 988.

~~~
paulmd
no, because it's currency under section 988

no court in the world is going to find that a bank account denominated in
dollars is not "currency" just because you're not holding actual canvas bags
with dollar signs on them.

"we see a lot of programmers here..."
[https://xkcd.com/1494/](https://xkcd.com/1494/)

~~~
mnemotronic
I don't mean the bank accounts on either end of the EFT; I mean the actual EFT
itself. My thinking is that an end-to-end transfer of asset value via bitcoin
is essentially the same thing as doing it via EFT; while the sum to be
transferred is not in the source or destination accounts; it's just bits on a
wire.

------
ainiriand
Seems reasonable, I think in Spain is 400Euro for common shares.

------
jklein11
If I am a merchant who accepts crypto as pent what is my tax liability? How do
I determine my cost basis if I only price my goods in crypto?

~~~
sokoloff
Your cost basis is in notional USD as a US taxpayer. It’s not different than
if you bartered for sacks of wheat and priced everything in sacks of wheat.
(Actually, it’s probably more clear what the BTC/USD cross is than what the
SoW/USD cross is.) If you took the midpoint of any spread, you’d almost surely
be safe. You could also probably argue to use a different point in the spread
as long as you do it consistently.

------
albntomat0
What's an investor's ability to do do a large number of $200 transaction,
rather than one large transaction?

~~~
spir
As a technical matter, it will be cheap and convenient for an Ethereum user to
buy $200 of an asset one hundred times instead of $20,000 of that asset once.

Programmatic money has a blurring effect on the definition of a "transaction".

~~~
paulmd
And that would be structuring which the exchange will note and report to the
IRS and will end with you in a court room and/or jail cell.

~~~
Sargos
Why would you do this on a centralized exchange in the first place? They are
good for changing USD into crypto and vice versa but any kind of trading is
much easier on a dex such as Uniswap or the like.

------
unlinked_dll
I don't see why income can't be treated as income no matter where it comes
from.

~~~
afthonos
The tax system in the US is commonly used to encourage behaviors the state
finds desirable and discourage others. Capital gains are taxed lower because
of the perception that that money will get reinvested and that investments are
good for the economy.

~~~
dannyw
The other way to interpret this is that lobbying by wealthy interests have cut
their own tax rates by half as compared to the working class, perpetually
creating a class of wealth-holders and a class of renters through systematic
distortions in the tax system.

Is it really fair that a wealthy investor pays 15% tax, while a doctor pays
35%?

~~~
chii
> Is it really fair that a wealthy investor pays 15% tax, while a doctor pays
> 35%?

no. But then the wealthy's capital gains could come from gains in stock or a
company, and those gains have already had company tax paid on them, e.g., if a
company makes a profit of $100, they'd have to pay $21 in tax, and the
company's equity gain is then $79. If you then charge a 35% tax on top of the
$79, then that means you've taxed the $100 profit at 56%, which is a lot
higher than the normal amount. So by reducing capital gains tax to 15%, you'd
end up charging only 36% in total.

It makes sense.

However, why this doesn't apply to a bank's interest payment is beyond me. So
may be it is rigged...

~~~
jcranmer
The counterargument here is that the officers of the company can make most of
their income not from being paid oodles of cash, but from being given oodles
of stock that they later sell back to the company, which is now capital gains
and not ordinary income.

From a matter of tax form simplicity, it is much easier--and probably better
for society--just to count everything as ordinary income and tax it as such.
Fewer potential for loopholes that drive your effective tax rate down to 0;
easier to actually do your taxes yourself; etc.

~~~
paulmd
> The counterargument here is that the officers of the company can make most
> of their income not from being paid oodles of cash, but from being given
> oodles of stock that they later sell back to the company, which is now
> capital gains and not ordinary income.

Unless the stock option gains value (which is capital gains), no, the option
itself is treated the same as if they had been paid cash.

> In general, the tax treatment for stock received as compensation for your
> services -- that is, stock in lieu of pay -- is the same as for regular pay.
> You must pay income taxes on the fair market value of the stock you
> received. Say an employer gave you 100 shares of stock in lieu of pay, and
> on the day you received the shares, the stock was trading at a price of $40.
> You've received the equivalent of $4,000 in income, so you'll be responsible
> for paying taxes on $4,000 in income. How much that tax will be depends on
> your tax bracket.

[https://finance.zacks.com/tax-stock-lieu-
pay-11287.html](https://finance.zacks.com/tax-stock-lieu-pay-11287.html)

------
thomascgalvin
Sounds like a senator just bought a bunch of bitcoin.

~~~
dexterdog
Or somebody with a lot of Bitcoin just bought a senator or two.

~~~
Melting_Harps
Both reasonable possibilities, but I'm going to side with the former; all
politicians are the same, regardless of perceived affiliation, and self-
interest is chiefly what got them where they are and what drives most, if not
all, of their actions.

So, this is looking a lot like post-Maidan revolution Ukraine, a lot of the
political class championed a ton of favourable legislation for Bitcoin. As it
turned out later, a lot of them had accumulated BTC over that time. Surprise!

I think we should see that as a variable in the equation at this point,
considering we've plateaued in adoption as all of the tech inclined have
either already on-boarded or have dismissed it off entirely as a passing
fad/ponzi scheme and are waiting for its constantly-touted 'demise.'

We need to focus on getting the curious and motivated, but not entirely tech-
savvy, introduced to this tech and having the threat of yet another tax burden
to deal with if they use it to buy their morning latte is and was always going
to put them off.

Personally, I don't think crypto was ever intended to be used for such
transactions, but this the standard by which everyone asks if/when they ask
what can it buy.

In my opinion, given what we saw in Hong Kong with UBS stealing the crowd-
sourced funds of protestors, focusing on on-boarding a movement like
Extinction Rebellion would be a better fit, perhaps seeing a well-versed Greta
Thunberg at Davos speaking about the pitfalls of fractional reserve banking,
quantitative easing and rehypotheication (and that of War and the impacts it
has on climate change and resource mismanagement) would do much more good than
getting shaked down by every politician waiting for the crypto rich to get a
law introduced.

Also worth noting, though I'm not sure if its positive, the ex-ceo of Bakkt is
now a Senator for Georgia: [https://www.newsbtc.com/2019/12/04/a-bitcoiner-in-
the-senate...](https://www.newsbtc.com/2019/12/04/a-bitcoiner-in-the-senate-
is-bakkt-ceo-in-us-govt-good-or-bad-for-crypto/)

~~~
IfOnlyYouKnew
You are really taking this bad attempt at humor seriously?

A single Senator has no power. And, as the rest of the threat makes clear,
this change does not allow anyone to save any sort of relevant money.

These everyone-is-corrupt-takes may (sometimes) make you look oh so smart,
cynical, and contrarian. And I'm over asking people to bring evidence when
accusing others.

But _at least_ reserve them for the times where the scheme makes some sort of
sense in theory.

The problem, otherwise, is that it stops making sense for politicians to be
honest. Because why bother, when everyone is going to yell "liar" or "kill the
corrupt bastard" at you, completely independent of any actual things you did?

~~~
Melting_Harps
> The problem, otherwise, is that it stops making sense for politicians to be
> honest. Because why bother, when everyone is going to yell "liar" or "kill
> the corrupt bastard" at you, completely independent of any actual things you
> did?

No, that is the Nature of the profession and merely a perk of the job. I'll
never understand what compels Humans to want to rule over other Humans, it
seems altogether like a defect of Human Social Order; so, no I don't accept
your politician-apologists position, if you don't like being seen as a corrupt
crony of the State, then find a more honorable job, there are plenty more.
These people are not the bastion of Social order, and are often exposed for
their predatory behaviour, especially when they fall out of favor of the
Media; but that is some how excused because its part of the 'legislative
process.'

The world can do with less politicians, I'm sure we will cope.

As for the Bakkt CEO, I'm not sure what to make of it... I'm one of he few
people in my social circle that is completely detached from the circus people
call modern politics--it doesn't amuse me, it actually makes me despondent to
think this is what modernity has afford us in order to maintain the illusion
of civilization/society when we can and should do so much more as a Species in
what is the Greatest period of Human existence.

------
EGreg
DID THIS BILL PASS??

It took me a moment to realize CGT was Capital Gains Tax.

Is this per country or summed over all countries? Is it per transaction? If
per transaction, this is a pretty massive loophole.

