
The IRS collects data on Coinbase account holders - ganlad
https://www.wsj.com/articles/do-you-own-bitcoin-the-irs-is-coming-for-you-1521192601
======
lkbm
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.

~~~
otoburb
_> >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.

~~~
jmalicki
"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.

~~~
otoburb
Thanks for the clarification. To whit, the few retail equity US and Canadian
trading platforms I've used (Schwab's, Interactive Brokers, Scottrade before
they became TD Ameritrade, Questrade) also do not provide an explicit feature
that purports to calculate capital gains, so Coinbase seems to be exhibiting
feature parity with equity retail exchanges. Coinbase and other retail equity
trading platforms _do_ provide an easy to calculate gains/losses made from
your trades, but as we are both saying, gains/losses shown in the accounts may
not necessarily correspond to the actual capital gains at the end of the year
in certain situations.

 _> >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._

We're in agreement - this is a solved problem that the retail investor or
their accountant needs to calculate manually via aggregation of the entire
lifecycle of the asset(s) to properly account for capital gains (or losses).

~~~
patio11
_To whit, the few retail equity US and Canadian trading platforms I 've used
(Schwab's, Interactive Brokers, Scottrade before they became TD Ameritrade,
Questrade) also do not provide an explicit feature that purports to calculate
capital gains_

You should probably call the IRS tipline and say "I think [Schwab] isn't
filing their 1099-Bs, you know the thing which reports cost bases and short-
term/long-term capital gains for retail investors, and accordingly they're on
the hook for billions of dollars of penalties, but to keep the math easy just
write me a check for a billion dollars rather than what the law actually says
you owe me for this hot tip."

Or, in the alternative, you could look again.

~~~
otoburb
>> _Or, in the alternative, you could look again._

I checked again, and you're right. Interactive Brokers is the only platform I
still infrequently use but it does have a list of pre-filled tax forms
available for download. Worksheet 8949 is also pre-filled, but this is
probably where one would need to submit a revised version if previous cost-
basis amounts need to be adjusted as in the specific edge cases we're talking
about above.

Coinbase seems to have sent 1099-K documents to eligible customers which isn't
as detailed as 1099-Bs since I believe the Ks only report gross transaction
volumes over $20K[1].

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

~~~
jmalicki
Your memory may be due to this information being new as of 2011 for most
brokers.

[https://www.irs.gov/businesses/small-businesses-self-
employe...](https://www.irs.gov/businesses/small-businesses-self-
employed/cost-basis-reporting-faqs)

------
davidgh
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.

~~~
redspectre
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.

~~~
davidgh
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](https://www.irs.gov/taxtopics/tc420)

~~~
dmoy
Or actually if it was literally pocket lint, y'all could probably get away
with having the payer file form 709 and the seller doing nothing, and nobody
would owe any tax.

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

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

~~~
fapjacks
Just pray they don't give you a 1099 with _grossly incorrect values_ like they
generously did for me.

~~~
AskewEgret
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](https://www.irs.gov/businesses/understanding-your-1099-k)

~~~
fapjacks
I know that this is the total transactions and not profits, and the numbers
are way, way off. I have a local copy of all my trades, of course, and they
match perfectly with the transaction history available on GDAX. But the
numbers that Coinbase reported on this 1099-K are completely wrong. They
literally put the wrong numbers in the 1099-K. And as one would expect,
dealing with Coinbase support is about as much fun as being set on fire. I
fear that Coinbase is going to end up costing me a lot of time and money
because of their botched accounting.

------
fpgaminer
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.)

------
patrotor
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...](https://blog.coinbase.com/new-tax-tools-on-
coinbase-4d2598544d9e)

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.

------
cinquemb
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...](https://asia.nikkei.com/Politics-Economy/International-
Relations/G-20-finance-chiefs-to-discuss-fair-trade-cryptocurrencies)

------
pulse7
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>

~~~
IAmEveryone
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
>Which is the IRS’ job

Ever heard of the 4th Amendment?

~~~
IAmEveryone
Sure. And so has the IRS, which “persuaded a federal judge”, according to the
article.

I guess they thought it was a _reasonable_ request to get the data of the
25,000 US citizens who made significant profit with bitcoin in those years,
when only a few hundred reported such earnings in total.

~~~
chrisco255
That's an estimate at best. How many if tbise who profitted actually cashed
out?

~~~
koolba
It's not just a matter of tracking those that cashed out as taxes are on the
net profits of individual trades. Even converting between coins (ex: sell BTC,
buy ETH) is a taxable event.

------
ulkesh
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?

~~~
alyandon
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.

~~~
Terretta
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.

------
JumpCrisscross
"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
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
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?

------
dillondoyle
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..

------
malikNF
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.

~~~
YCode
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.

~~~
jjeaff
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.

------
eximius
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.

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

------
univalent
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).

------
timmonsjg
without paywall - [http://archive.is/cHYve](http://archive.is/cHYve)

------
crb002
PSA. 1) Withhold 35% of your gains for tax. 2) Realize any losses before the
end of December, and reinvest #1.

------
hyprCoin
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.

------
KirinDave
Of course it does?

They're doing a whole KYC thing.

------
fwdpropaganda
But but but. Bitcoin is anonymous! /s

------
coldcode
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.

~~~
IAmEveryone
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.

~~~
koboll
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.

~~~
pmorici
I don't think that is correct. They are issuing 1099-K's for people who are
accepting Bitcoin payments through Coinbase. They haven't issued any 1099's
for people who only have a capital gain from buying and selling.

~~~
dmeeker
True, but they did add some tools to the tax center tab to make it easy to
calculate your gains/losses for tax purposes.

