Why the IRS Fears Bitcoin(nytimes.com)
nytimes.com
Why the IRS Fears Bitcoin
https://www.nytimes.com/2018/01/22/opinion/irs-bitcoin-fear.html?
5 comments
> Bitcoin is not anonymous.
This is true and massive mistake on the reporters part.
However the overall concept of the article could be easily applied to coins such as Zcash and Monero that do have anonymous transaction methods.
In my comment [1] I argue that even then, these types of trades are not a concern for the IRS.
[1] https://news.ycombinator.com/item?id=16216069
This is true and massive mistake on the reporters part.
However the overall concept of the article could be easily applied to coins such as Zcash and Monero that do have anonymous transaction methods.
In my comment [1] I argue that even then, these types of trades are not a concern for the IRS.
[1] https://news.ycombinator.com/item?id=16216069
Yeah, at best Bitcoin is pseudonymous (through mixing or obfuscating through exchanges). But really, what person committing tax fraud or other underground activity wouldn't just use an actual privacy focused crypto such as Monero (as you said)?
When reading articles like this I substitute "Bitcoin" for "Cryptocurrency" and it makes more sense. The public has just recently normalized Bitcoin and so that's what they write about. Give it a year or so and they'll catch on.
When reading articles like this I substitute "Bitcoin" for "Cryptocurrency" and it makes more sense. The public has just recently normalized Bitcoin and so that's what they write about. Give it a year or so and they'll catch on.
Bitcoin transactions are not anonymous, but services such as Satoshi Dice do break the chain of transactions. Also, exchanging between various crypto currencies makes money very hard to trace.
> Bitcoin is not anonymous.
I get what you're saying, and I've been saying the same myself. Then again, maybe it is anonymous in the literal sense that transactions don't include your name. Without outside information, you can't look at a transaction, or a history of transactions, and tell to whom they belong.
PS: Never mind. I don't think I am making an important point.
I get what you're saying, and I've been saying the same myself. Then again, maybe it is anonymous in the literal sense that transactions don't include your name. Without outside information, you can't look at a transaction, or a history of transactions, and tell to whom they belong.
PS: Never mind. I don't think I am making an important point.
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?
Quite simply they can ask you to prove the origin of the bitcoins when you eventually want to use them/convert them to fiat/etc. Didn't buy them on an exchange or from another person? Well, then you probably mined them and they'll be taxed as income.
[deleted]
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.
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.
> 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).
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).
>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.
No, just no.
> 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.
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.
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.
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.
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.
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.
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.
> 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.
Could you provide a source on this? It was my understanding that this was not the case. See https://www.reddit.com/r/CryptoCurrency/comments/7nzqky/2017...
Could you provide a source on this? It was my understanding that this was not the case. See https://www.reddit.com/r/CryptoCurrency/comments/7nzqky/2017...
This shows how invasive the income tax is. I would argue that any effective enforcement scheme for taxes on entirely digital exchanges would require banning public key cryptography.
In any case, these types of transactions are extraneous to those tax authorities tax now, so I don't see tax revenue declining as a result of these going untaxed.
In any case, these types of transactions are extraneous to those tax authorities tax now, so I don't see tax revenue declining as a result of these going untaxed.
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.