
IRS Requests Bitcoin Buyer Records in Broad Tax Evasion Case - aaronhoffman
http://fortune.com/2016/11/20/irs-bitcoin-tax-evasion-case/
======
ryanackley
This was just a matter of time. Welcome to the reality of being involved in
the money business in the USA. Coinbase is concerned with the breadth of the
request. That is actually kind of cute considering that your bank has to
report any transaction over $10000 to the US Dept of Treasury and people are
actively prosecuted on suspicion of making transactions under this threshold
to avoid reporting requirements [1].

Whenever I hear someone talk about the dream of anonymous currency. I kind of
laugh to myself because I know how far the government currently goes to
monitor every little piece of your financial life to make sure you are paying
what you owe in taxes.

[1] [https://www.washingtonpost.com/news/the-
watch/wp/2014/03/24/...](https://www.washingtonpost.com/news/the-
watch/wp/2014/03/24/the-federal-structuring-laws-are-smurfin-
ridiculous/?utm_term=.40575f1e297f)

~~~
jonaf
This, absolutely. I'm actually surprised the government showed their hand so
soon. There must be a lot of money in Bitcoin already. The government WANTS
people to go 100% digital with their capital. It is infinitely easier to track
digital money. Bitcoin is something they're against because the anonymity
factor. I won't be surprised if we see some legislation to block or inhibit
anonymous digital currency.

Let's not forget that the US will really want to "own" or be in control of any
significant digital currency. Since the US dollar is the world reserve
currency, the US wields unprecedented economic power on a global scale. Any
currency that has the potential or shows signs of shaking that up will be on
the radar for the US govt and the Fed, as controlling currency is the means by
which one can control the economic destiny of any nation(s). As we saw with
Egypt, for example, several years ago. A simple change in US monetary policy
can result in the overthrowing of foreign governments!

Interesting side anecdote: A person very close to me purchased Bitcoin on the
stock market, but Bank of America froze the account on suspicion / risk of
money laundering or general FUD. It isn't clear how much of this was due to
the bank or the government, as they are in bed together, but it prevented this
person from being able to trade Bitcoin in his account anymore. Sadly, had his
account not been frozen, he would have doubled his money.

N.B. Citations needed, obviously. Commenting on mobile makes this challenging.

~~~
cloakandswagger
The downvotes on this comment are confusing. Do people dispute that a cashless
society would be a dream come true for the US government & Fed? Or that the US
will do pretty much anything to protect its currency hegemony?

~~~
comex
I would dispute that Bitcoin is likely to ever pose a threat to the US
'currency hegemony', at least as a currency in its own right rather than a
glorified payment network with prices usually delimited in… US dollars.

More practically, I would dispute that the US regulators' concern about
Bitcoin has much to do with speculation on its potential to pose such a threat
in the future, as opposed to its current suitability for tax evasion and
popularity for money laundering, crime, etc. (Please note that I'm not
claiming Bitcoin is only or primarily used for those things, only that people
who want to do those things often use Bitcoin.)

*edited to add tax evasion, which is of course the stated purpose in this instance...

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cableshaft
I buy a small amount (about $20 worth) every paycheck, so I'm really not sure
how to even report that reasonably. With such a volatile price, I don't really
know how much it's gone up or down without some serious calculations. I'm not
really sure what to do about that.

I was just about to sell some of it too, to help cover some recent expenses.

~~~
emddudley
I am not an accountant or tax advisor.

Lots of little transactions are a pain, but I do believe you are required to
track them in order to report your capital gains correctly. You only have
capital gains when you sell, but you need to know your purchase prices and
dates in order to compute it.

I used this website to analyze my CoinBase transactions:
[https://bitcoin.tax/](https://bitcoin.tax/)

The site imports the transactions and computes your capital gains
automatically. Then I entered my information into the IRS capital gains
worksheet and reported the gains on my taxes.

~~~
dbl9
When I visited Istanbul, I passed through a district with an endless number of
exchange shops, and it seemed like a place where you could easily wash money
without any bank account involved. I believe Turkey isn't alone in having such
a culture of buying/selling US dollars by tracking the USD rate.

Do the IRS and say Turkey's tax office tracks these as well? Assuming that you
don't try to deposit the exchanged for bills in a bank.

Couldn't someone offer Bitcoin exchange in existing currency shops or the same
service via Bitcoin ATMs? How would the IRS and its equivalents track that
without requiring identification and registration before use? I suppose a
small amount would be allowed for the tourist aspect but then you could use a
group of friends or employees to wash small amounts. If you require ID for
that, including tourists, then you can track it.

~~~
DennisP
This is not tax advice but from what I've seen in news reports, the IRS has
different rules for currency. The reason bitcoin users have to report every
little gain/loss is that the IRS doesn't consider it currency.

~~~
trendia
And the main reason they don't consider it currency is to impose a tax that
discourages its use.

Without capital gains, if Bitcoin had ~0% inflation and the US got back up to
5%-10% inflation, then Bitcoin would become a better store of value.

However, with capital gains, the US would have to have _significant_
inflation, around 20% or more, before Bitcoin would really be competitive.
(I'm assuming there are significant transaction costs related to the low
acceptance of Bitcoin)

In this manner, the US can (1) gain some additional tax revenue, and (2)
prevent Bitcoin from becoming a competitor to the national currency, which
every nation wants complete control over.

~~~
dbl9
I've been thinking about this and wondering how they could prevent people
moving to a WeChat like app and doing all financial transactions within that.
If you enable anonymity in that there's no need to identify your meat life
persona with your WeChat profile, how would the control be retained? Short of
illegalizing mobile devices that allow installing a banned app like
WeChatAnonEdition and having traffic police carry inspection devices that
would allow them to detect illegally open Android devices in a driver's
pocket, I don't see how it can be prevented. If you sell and buy inside
WeChatAnonEdition and also get your salary inside WeChatAnonEdition, there is
no monitoring and control anymore.

Just to be clear, I'm not agains taxes, because not paying taxes is like
swatting an apartment, and generally taxes make sense to be paid, although
most places also have several unfair tax codes, so I understand the common
perception of taxes as "highway robbery".

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module0000
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 <x> 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.

~~~
wbl
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.

~~~
cloakandswagger
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.

~~~
Amezarak
> do you know how many of them could readily provide carbon copy receipts for
> every single deduction they claimed in the last X years?

So on what basis did they take those deductions in the first place, if they
didn't have the documentation to figure out what their deduction was in the
first place? Did they just guess? Or are you saying they had it for one tax
season and then destroyed it?

~~~
cloakandswagger
Either they had it and destroyed it, lost it or did what lots of small
businesses do and had a credit card or checking account only used for
business, then referred against the statements to determine deductions (sans
receipts)

~~~
ncallaway
Is an e-mail copy receipt sufficient for the IRS? As a small business, we
travel a lot and obviously book travel online (as well as make a number of
other business purchases online).

I've never even considered that the e-mail receipt or purchase history on
Amazon.com might not be sufficient documentation. Is this something I should
spend the next half-hour researching, or am I concerned over nothing?

~~~
johncolanduoni
IANAL, but looks like it's addressed on page 9 here:
[https://www.irs.gov/pub/irs-irbs/irb97-13.pdf](https://www.irs.gov/pub/irs-
irbs/irb97-13.pdf)

I'd be shocked if it wasn't, since invoicing purely by e-mail is pretty common
these days.

------
chollida1
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 knowingly/intentionally lied on your
taxes.

I'm not certain what there is to argue about or push back on here.

It's not like you can create something new like bitcoin and then with a
straight face claim that its not an equity or currency so the law doesn't
apply to you.

Capital gains are taxable, full stop, unless there is a specific law to
override that, like selling your primary residence.

Can someone make the case that this isn't just a cut and dry issue?

~~~
tyingq
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.

~~~
chollida1
> 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](https://www.paypal.com/us/webapps/mpp/irs6050w)

~~~
tyingq
So does coinbase.

------
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?

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

[https://www.irs.gov/uac/newsroom/irs-virtual-currency-
guidan...](https://www.irs.gov/uac/newsroom/irs-virtual-currency-guidance)

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

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ulkesh
I made a whole $50 on Coinbase. I expected some tax form to arrive, and it
never came. Honestly I completely forgot about it until I saw this.

I wonder if that $50 will end up being hundreds owed in some kind of late
fees/etc.

~~~
drcode
I'm pretty sure they'll be overwhelmed by going after larger fish and nothing
will ever come of it for such a small amount.

~~~
_pdp_
Well, unless they scale it - like for example going to Coinbase and asking for
all accounts created between 2013 and 2015 :)

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brentm
I would bet that unless you're a person who willfully hid large capital gains
in bitcoin or faked some kind of large tax deductible expenses by purchase of
Bitcoin you probably will have anything to worry about. If you are among those
two group then you've probably been worrying anyway.

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pjc50
Well, that was kind of inevitable.

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Kinnard
I wonder if this in response to the recent launch of zcash:
[http://z.cash](http://z.cash)

------
thrillgore
I have always reported my virtual currency earnings by providing my deposits
to Coinbase at tax time. Then again, I use Coinbase strictly to buy things
with bitcoin, not as an investment tool.

~~~
emddudley
Purchasing something with bitcoin can trigger capital gains/loss. If you buy 1
BTC at $700, it increases to $800, and you pay 1 BTC for something worth $800,
then you have to report and pay taxes on $100 capital gains.

~~~
627467
May be unrelated... but what happens when I purchase goods with a foreign
currency which I had bought before (and reported the purchase) and said
foreign currency value had increased 15% since the moment I reported its
purchase?

~~~
snark42
Technically you have to report and pay capital gains if the change in value is
more than $200. In your case 15% gain is probably not more than $200 so you
wouldn't have to report it. However if you're talking about $100,000 initial
FX transaction you would have to report the $15,000 as a long or short term
capital gain.

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mr_spothawk
remembering that time, we saw BTC spoke to the ~1000$us mark. my thoughts
about his at the time was that the price spike was largely driven by Chinese
demand for BTC.

Note that the price crashed after Beijing halted BTC exchanges with their
state banks.

It could be part of some larger plan to leverage info against the sorts of
folks who have enough RMB to help drive the price of BTC to +$1000.

~~~
mirimir
I've read that Mt Gox, or someone who compromised it, caused the Nov-13 to
Dec-14 bubble.

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perlpimp
thats why on some level it is better to run your own wallet.

~~~
mhluongo
You still have to buy your bitcoin somewhere, unless you earn it or mine. This
is about Coinbase's brokerage activities, not its wallet services.

~~~
mirimir
OK, so you earn Bitcoin online, as an anonymous consultant. Cashing out is a
risk. But at least, you can fund your anonymous online activity. Long term, I
suppose that you could drop it somewhere as gold or real estate, and then
emigrate. But that's also risky.

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overcast
This should be a good one.

