
Why the IRS Fears Bitcoin - artur_makly
https://www.nytimes.com/2018/01/22/opinion/irs-bitcoin-fear.html?
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toomim
Bitcoin is _not_ anonymous. (Reporter needs to get a clue.) Once you link an
individual to a single transaction, you can trace them through every other
transaction to and from that address.

In practice, this means that if you use coinbase, or any large web merchant,
that merchant can link your identity to the wallet you use, and then to almost
every other transaction you spend.

The bitcoin UTXO transaction graph adds in _some_ anonymity, because it's hard
to be sure which part of a transaction's output is going to the merchant, and
which is coming back to the user in the form of change. However, in practice,
forensics are quite good, and are certainly good enough for the government (if
they hired any decent tech person) to figure out.

On the other hand, coins like Zcash and Monero _are_ anonymous, and the IRS
might have reason to actually fear those.

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Mc_Big_G
Let's say I bought bitcoin on coinbase. Two days later, I sell it to a friend.
He gives me cash, I give him the private key. Then he does whatever he wants.
Am I now responsible for every transaction he makes from that address? Also,
if I mined bitcoin, how would the IRS know?

~~~
UncleMeat
> I give him the private key

Why would you do this? Why would anybody ever accept a private key in a
transaction. Now the key is no longer private!

~~~
Mc_Big_G
I didn't say it was smart...it's just possible.

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josephagoss
I don't think the IRS fears Bitcoin. The examples in this piece are quite easy
for the IRS to get around.

For tax purposes one of the key concepts in mining Bitcoin and trading Bitcoin
is the use of a third party. If you have moved coin to a third party to
execute a trade and the IRS audits you, it's up to you to prove that these
addresses are owned by third parties.

So then you need to supply the entities individual or corporate name. If
you're lying and cannot produce the identity of the exchanger, then you're
going to be a world of trouble. Even if it's a decentralized exchange, you're
going to need to show the transaction that execute the trade.

Even if you're doing these trades with shielded Zcash transactions (these are
completely anonymous transactions) once you supply addresses A, B, C, etc...
to the IRS (or the ATO in my case) and you get audited, you need to show who
these third parties are.

Honestly, cryptocurrency is not an issue for the tax office, even
cryptocurrency such as Zcash and Monero are not an issue.

~~~
JumpCrisscross
> _cryptocurrency is not an issue for the tax office_

The IRS budget is limited. If enough people try to flout the law, it could
become burdensome. We may require a tweak to the Code making individuals who
seem to go out of their way to make life for the IRS difficult liable for the
investigation cost they foist upon the public (if it is found they evaded
taxes).

~~~
oreo81
>We may require a tweak to the Code making individuals who seem to go out of
their way to make life for the IRS difficult liable for the investigation cost
they foist upon the public (if it is found they evaded taxes).

No, just no.

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ajsharp
> More likely, the United States would take a tougher approach and attempt to
> ban cryptocurrencies.

This article is pure conjecture.

If the government has an opportunity to collect tax revenue, it will.
Collecting tax on cryptocurrencies is theoretically straightforward: Require
exchanges to report in the same way stock brokers do, or they're banned from
operating in the US. As an investor, you get taxed on your realized capital
gains / losses.

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DennisP
I doubt their scheme for dodging taxes would be effective. You sold your
bitcoin for $15,500 to B? Ok, show me where it went into your bank account.
You didn't make a $10,000 gain when you sold a coin for $25K? Ok, where did
this extra $10K in your bank account come from?

On top of that, for Bitcoin itself the scheme would be especially clear, if
you don't make good use of mixers, since it'd be the same identifiable coin
moving around.

Still, if someday we're running a large part of the economy on strongly-
anonymous cryptocurrencies, we could always tax things we can track more
easily. There are all sorts of options, and some, like carbon taxes, would be
more beneficial anyway.

~~~
bbbbbbbb3421
You are forgetting that capital gains tax applies to cypto-to-crypto trades.
Meaning, if you buy 10 ETH with 1 BTC, then sell the 10 ETH later for 1.2 BTC,
you need to pay capital gains tax on whatever the dollar value of 0.2 BTC was
at the time of the trade. This is super hard for the government to track.

~~~
gamblor956
You are forgetting that the government doesn't need to track your capital
gains, you do.

Any gains you can't prove are capital gains (or more specifically, are long-
term capital gains, or collectibles gains) are treated as ordinary income.

Moreover, the government doesn't need to track your initial purchase price.
You do. If you can't, you are treated as having paid $0 for the cryptos and
are taxable on all gains.

