[2020-12-17] IRS is trapping bitcoin and altcoin investors on 2020 tax form

Sithara007

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Quote from: o_e_l_e_o on December 23, 2020, 08:19:22 AM

Although these are records for the US government, this is by no means unique to the US. Other countries and other governments are employing blockchain analysis and forcing exchanges to hand over customer details. Don't assume you will be safe simply because you are not a US citizen.

Agreed. I am not under a false impression that I am safe, just because I am living outside the United States. With the exchange rates rising so rapidly, the tax authorities in other countries will also be very interested in high-volume exchange users from their jurisdictions and they may hire the same Blockchain analytics companies such as Elliptic and go after the users who are residing within their borders.

bbc.reporter

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Israel's government tax collection agency has also begun their own inquiries about their own citizens. I speculate that this might only be the beginning. We might also witness somehing similar across Europe and Asia where the government would demand their share of your money. I am shaking my head. This might be an argument to hold anonymous coins and only trade in grey markets without KYC.

The revenue collector, the Israel Tax Authority (ITA) has reportedly sent notifications to dozens of Israelis who own digital currencies asking them to fully disclose their assets and be taxed accordingly. In addition to sending letters to local citizens, the tax body has also sent inquiries to cryptocurrency exchanges operating in Israel and those based outside the country.

Reports of the notifications and inquiries being sent by the revenue collector were preceded by Israeli media speculation that tax assessors across the country were exerting “pressure on the digital currency market.” However, as Globes is now reporting, the ITA wants to “obtain information about Israelis trading in these currencies.” Before sending notices and inquiries to crypto exchanges, the Israeli revenue collector had been receiving “data about the Europe-based funds and accounts held by Israelis.”

Source https://news.bitcoin.com/israeli-tax-authorities-notify-cryptocurrency-owners-to-disclose-their-holdings-for-taxation-purposes/

malevolent

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Quote from: o_e_l_e_o on December 21, 2020, 09:22:49 AM

Quote from: Coin-Keeper on December 20, 2020, 06:32:07 PM

My concerns on the Tax question is that it will place citizens on a list of those that have virtual currency.

I'm pretty sure that's the pont. They don't ask questions like this about gold, silver, stocks, shares, or any other commodity or investment. They specifically want a list of everyone who owns or uses crypto, regardless of whether or not you owe any tax on it.

Yes, but these don't really get exchanged for physical cash, except occasionally for smaller amounts of gold or silver, and they either know or can easily find out an individual's exposure to given investments. Cryptocurrencies in theory elude them, in practice with most people not only using the legacy financial system to buy or sell cryptocurrencies, but also with them willingly supplying exchanges and intermediaries with their detailed private info, in addition to having low consciousness of privacy when making transactions involving cryptocurrencies all translate into the user serving themself on a silver in front of the tax office.

People have been sentenced for their involvement in DNMs after 7-8 years, it will likely be similar when it comes to taxes.

https://www.cnbc.com/2019/07/23/man-accused-of-laundering-millions-in-bitcoin-from-silk-road.html
https://www.justice.gov/usao-sdny/pr/dark-web-narcotics-trafficker-sentenced-3-years-prison-connection-laundering-more-19

Coin-Keeper

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Quote from: o_e_l_e_o on December 22, 2020, 12:26:43 PM

Quote from: Coin-Keeper on December 21, 2020, 06:34:48 PM

"IF" I would have conducted any coin activity this year it would have been on segregated wallets because

Even so, "if" you sent a single transaction, regardless of what wallet it was part of or even if it was just a transaction to yourself, the IRS would expect you to answer yes to that question.

Quote from: Sithara007 on December 22, 2020, 12:39:03 AM

There are hundreds of small transactions in my main wallet and I guess if the tax authorities go after the Bitcoin users, then I probably need to move my coins to a fresh wallet using a good Bitcoin mixer.

This may or may not help you. If the addresses in your main wallet are already linked to your real details, as they would be if the coins have come from an exchange you have completed KYC on, then mixing them doesn't really help. The IRS will still know that you owned x amount of coins. The question won't be "Do you own crypto?" but rather "What have you done with all the crypto we know you bought?"

Quote from: Sithara007 on December 22, 2020, 12:39:03 AM

But is it even practical for the tax authorities to go after millions of Bitcoin wallets? They may be able to trace a few of them to individuals. But is it going to be worth the time and effort?

Yeah, they can't investigate everyone, but they will go for the low hanging fruit, primarily people who have completed KYC on large exchanges which freely hand over data to the IRS.

Sticking with my "IF" qualifier here; --- "If" a US citizen had some reasonable BTC from long ago and it was entirely acquired without any KYC/AML and was kept fully anonymously in unique wallets it would be untraceable if the connection issues were all handled well. Then "if" that user had made 2020 transactions/exchanges but they are small by overall standards to the total holdings, that user could decide that if need be those coins would be forever lost in the blockchain effectively disappearing from his/her/their possession. Such a user could decide that they would rather surrender/lose those coins than answer YES on a tax form. Effectively kicking the can down the road for a future decision not fully knowing the consequences of answering YES. At some point in the future those lost coins could be found again given a proper circumstance. "If" I were in that position and if I was a US citizen that would be a very tough call to make.

Karartma1

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Quote from: Carlton Banks on December 23, 2020, 09:55:23 AM

Quote from: o_e_l_e_o on December 23, 2020, 08:19:22 AM

Don't assume you will be safe simply because you are not a US citizen.

this year has absolutely proved (whatever your stance on the specifics of the issue) that when a big international agency makes sufficiently big pronouncements, then nearly every newspaper, corporation and government gangster across the entire globe jumps to unified attention.

It wouldn't surprise me in the least if some international agency (funded by banks, and with zero citizen mandate to operate) announces international cryptocurrency regulation in 2021. Don't be surprised either.

Whatever it may be, I will give them nothing. "A coward dies a thousand deaths. The soldier dies but one"

If you take the travel rule you can think that a kind of international regulation on the matter is already being deployed. FATF started pushing hard on this topic and I too may fear that international regulation is upon us.
I like your attitude but you never know when confronted by the real world what you will be doing.

Carlton Banks

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Quote from: o_e_l_e_o on December 23, 2020, 08:19:22 AM

Don't assume you will be safe simply because you are not a US citizen.

this year has absolutely proved (whatever your stance on the specifics of the issue) that when a big international agency makes sufficiently big pronouncements, then nearly every newspaper, corporation and government gangster across the entire globe jumps to unified attention.

It wouldn't surprise me in the least if some international agency (funded by banks, and with zero citizen mandate to operate) announces international cryptocurrency regulation in 2021. Don't be surprised either.

Whatever it may be, I will give them nothing. "A coward dies a thousand deaths. The soldier dies but one"

o_e_l_e_o

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Quote from: Sithara007 on December 23, 2020, 12:36:11 AM

And I agree that there is a chance that the IRS may hire blockchain analytics firms to trace the high-volume individuals.

There is not just a chance of this happening. It is already happening, and in significant volumes. And it's not just the IRS who are hiring blockchain analysis companies - lots of different government departments are involved in this too.

Here are the records between the US governmet and Chainalysis - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22CHAINALYSIS+INC.%22

You'll see contracts from the IRS, the DEA, the FBI, Homeland Security, Secret Service, etc. for up to $2 million each. Here are the records for a few other blockchain analysis companies, showing the same patterns:

Elliptic - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22ELLIPTIC+INC.%22
Ciphertrace - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22CIPHERTRACE%2C+INC.%22
Coinbase - https://www.fpds.gov/ezsearch/fpdsportal?indexName=awardfull&templateName=1.5.1&s=FPDS.GOV&q=VENDOR_FULL_NAME%3A%22COINBASE%2C+INC.%22

Although these are records for the US government, this is by no means unique to the US. Other countries and other governments are employing blockchain analysis and forcing exchanges to hand over customer details. Don't assume you will be safe simply because you are not a US citizen.

Sithara007

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Quote from: bbc.reporter on December 22, 2020, 10:51:11 PM

It might not be practical for the tax authorities to do this themselves, however, this will cause a very productive relationship between blockchain analytics companies and the government. There might also be some exchanges who would cooperate with the IRS similar to Coinbase.

Being a resident of India, my question is how much impact will be there for the non-US users? The exchanges may cooperate with the IRS and may provide information on the American users. And I agree that there is a chance that the IRS may hire blockchain analytics firms to trace the high-volume individuals. But this should be limited to the American users, at least in the near future.

bbc.reporter

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Quote from: Sithara007 on December 22, 2020, 12:39:03 AM

Quote from: Coin-Keeper on December 21, 2020, 06:34:48 PM

Fortunately for me I have kept BTC from years ago (>5 years) "static" in every way. I put them on very secure hardware wallet configurations. "IF" I would have conducted any coin activity this year it would have been on segregated wallets because, as has always been my policy, no overlap transactions with any existing wallet not even different addresses in an existing wallet are permitted. This allows me to move coins on a single BTC address via the web without having to use mpk's for all to see. i.e. there is no way to relate one transaction with another without a 3rd party being able to see a mpk. Handling IP's and all other connection issues is child's play for me. Hope that makes sense.

Back in the day this was much easier because there was no KYC or AML pervasively present.

Good for you. There are hundreds of small transactions in my main wallet and I guess if the tax authorities go after the Bitcoin users, then I probably need to move my coins to a fresh wallet using a good Bitcoin mixer. But is it even practical for the tax authorities to go after millions of Bitcoin wallets? They may be able to trace a few of them to individuals. But is it going to be worth the time and effort?

It might not be practical for the tax authorities to do this themselves, however, this will cause a very productive relationship between blockchain analytics companies and the government. There might also be some exchanges who would cooperate with the IRS similar to Coinbase.

Vishnu.Reang

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Quote from: o_e_l_e_o on December 22, 2020, 12:26:43 PM

Yeah, they can't investigate everyone, but they will go for the low hanging fruit, primarily people who have completed KYC on large exchanges which freely hand over data to the IRS.

This is a big issue. A lot of the users here (including myself) have undergone KYC process in various exchanges, so that we can convert our bounty tokens to either BTC or ETH. I haven't used any of these exchanges since 2018. But as far as I know, the IRS is digging up data from 2013-14 onwards. The primary exchange that I used was Cryptopia, where I stored considerable amount of BTC, ETH and altcoins/tokens. Now I need to be extra careful, while applying for the fund recovery/reimbursement from that exchange.

o_e_l_e_o

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Quote from: Coin-Keeper on December 21, 2020, 06:34:48 PM

"IF" I would have conducted any coin activity this year it would have been on segregated wallets because

Even so, "if" you sent a single transaction, regardless of what wallet it was part of or even if it was just a transaction to yourself, the IRS would expect you to answer yes to that question.

Quote from: Sithara007 on December 22, 2020, 12:39:03 AM

There are hundreds of small transactions in my main wallet and I guess if the tax authorities go after the Bitcoin users, then I probably need to move my coins to a fresh wallet using a good Bitcoin mixer.

This may or may not help you. If the addresses in your main wallet are already linked to your real details, as they would be if the coins have come from an exchange you have completed KYC on, then mixing them doesn't really help. The IRS will still know that you owned x amount of coins. The question won't be "Do you own crypto?" but rather "What have you done with all the crypto we know you bought?"

Quote from: Sithara007 on December 22, 2020, 12:39:03 AM

But is it even practical for the tax authorities to go after millions of Bitcoin wallets? They may be able to trace a few of them to individuals. But is it going to be worth the time and effort?

Yeah, they can't investigate everyone, but they will go for the low hanging fruit, primarily people who have completed KYC on large exchanges which freely hand over data to the IRS.

Sithara007

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Quote from: Coin-Keeper on December 21, 2020, 06:34:48 PM

Fortunately for me I have kept BTC from years ago (>5 years) "static" in every way. I put them on very secure hardware wallet configurations. "IF" I would have conducted any coin activity this year it would have been on segregated wallets because, as has always been my policy, no overlap transactions with any existing wallet not even different addresses in an existing wallet are permitted. This allows me to move coins on a single BTC address via the web without having to use mpk's for all to see. i.e. there is no way to relate one transaction with another without a 3rd party being able to see a mpk. Handling IP's and all other connection issues is child's play for me. Hope that makes sense.

Back in the day this was much easier because there was no KYC or AML pervasively present.

Good for you. There are hundreds of small transactions in my main wallet and I guess if the tax authorities go after the Bitcoin users, then I probably need to move my coins to a fresh wallet using a good Bitcoin mixer. But is it even practical for the tax authorities to go after millions of Bitcoin wallets? They may be able to trace a few of them to individuals. But is it going to be worth the time and effort?

Coin-Keeper

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Quote from: o_e_l_e_o on December 21, 2020, 09:22:49 AM

Quote from: Coin-Keeper on December 20, 2020, 06:32:07 PM

My concerns on the Tax question is that it will place citizens on a list of those that have virtual currency.

I'm pretty sure that's the pont. They don't ask questions like this about gold, silver, stocks, shares, or any other commodity or investment. They specifically want a list of everyone who owns or uses crypto, regardless of whether or not you owe any tax on it.

Quote from: Coin-Keeper on December 20, 2020, 06:32:07 PM

Technically I am absolutely answering honestly by saying NO to the question regarding 2020.

Only if you have had zero interaction with bitcoin all year, and even then I think you would be pushing the boundaries of what the IRS deem acceptable. The question includes the word "send", which I'm sure they would take to mean even transactions between your own wallets. You could try to argue that you didn't "acquire" any financial interest in 2020 since you acquired it several years ago, but as I said, I don't think the IRS would buy that excuse. They presumably are not using the word "own" since people might try to claim they don't actually own any coins which are left on centralized exchanges.

Fortunately for me I have kept BTC from years ago (>5 years) "static" in every way. I put them on very secure hardware wallet configurations. "IF" I would have conducted any coin activity this year it would have been on segregated wallets because, as has always been my policy, no overlap transactions with any existing wallet not even different addresses in an existing wallet are permitted. This allows me to move coins on a single BTC address via the web without having to use mpk's for all to see. i.e. there is no way to relate one transaction with another without a 3rd party being able to see a mpk. Handling IP's and all other connection issues is child's play for me. Hope that makes sense.

Back in the day this was much easier because there was no KYC or AML pervasively present.

acquafredda

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Quote from: o_e_l_e_o on December 21, 2020, 09:22:49 AM

Quote from: Coin-Keeper on December 20, 2020, 06:32:07 PM

My concerns on the Tax question is that it will place citizens on a list of those that have virtual currency.

I'm pretty sure that's the pont. They don't ask questions like this about gold, silver, stocks, shares, or any other commodity or investment. They specifically want a list of everyone who owns or uses crypto, regardless of whether or not you owe any tax on it.

Quote from: Coin-Keeper on December 20, 2020, 06:32:07 PM

Technically I am absolutely answering honestly by saying NO to the question regarding 2020.

Only if you have had zero interaction with bitcoin all year, and even then I think you would be pushing the boundaries of what the IRS deem acceptable. The question includes the word "send", which I'm sure they would take to mean even transactions between your own wallets. You could try to argue that you didn't "acquire" any financial interest in 2020 since you acquired it several years ago, but as I said, I don't think the IRS would buy that excuse. They presumably are not using the word "own" since people might try to claim they don't actually own any coins which are left on centralized exchanges.

First of all let's build a list of all who simply own these thingies. Then let's see how the behave: if they don't change their lifestyle and nothing crazy goes in/out, all good; otherwise let the dogs out for them.
That is phase 1, what phase 2 will be?
Undecided

o_e_l_e_o

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Quote from: Coin-Keeper on December 20, 2020, 06:32:07 PM

My concerns on the Tax question is that it will place citizens on a list of those that have virtual currency.

I'm pretty sure that's the pont. They don't ask questions like this about gold, silver, stocks, shares, or any other commodity or investment. They specifically want a list of everyone who owns or uses crypto, regardless of whether or not you owe any tax on it.

Quote from: Coin-Keeper on December 20, 2020, 06:32:07 PM

Technically I am absolutely answering honestly by saying NO to the question regarding 2020.

Only if you have had zero interaction with bitcoin all year, and even then I think you would be pushing the boundaries of what the IRS deem acceptable. The question includes the word "send", which I'm sure they would take to mean even transactions between your own wallets. You could try to argue that you didn't "acquire" any financial interest in 2020 since you acquired it several years ago, but as I said, I don't think the IRS would buy that excuse. They presumably are not using the word "own" since people might try to claim they don't actually own any coins which are left on centralized exchanges.

bryant.coleman

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Is this even legal? How can the IRS ask foreign users of American cryptocurrency exchanges to pay taxes? If this measure is implemented, then it means that the foreign users who use exchanges such as Binance US needs to pay taxes twice - first to the IRS, and then to their own national tax authority. I guess people like me will simply stop using those cryptocurrency exchanges, which are based in the US.

Coin-Keeper

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My concerns on the Tax question is that it will place citizens on a list of those that have virtual currency. As a long term HODL person I only buy and collect coins banking on its success for my future retirement (not coins alone but a sizeable part of my plan). Therefore I have no taxation issue for this year or several years in the future. I don't want to be on a "list". I have concerns over Gov't confiscation at some point if coins become $250K or something along that order (if only, LOL). There is no transaction that leads to me in any way for 2020 because my coins are from YEARS ago. Technically I am absolutely answering honestly by saying NO to the question regarding 2020. My concerns are IF the question on future 1040's asks whether or not the individual even OWNS virtual currency.

Theb

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Quote from: bbc.reporter on December 16, 2020, 10:32:43 PM

I am afraid that the IRS might not stop on their own citizens and it might begin taxing foreign users of American exchanges.

Lawyers and legal experts. Is trading in an American exchange a taxable activity for people who do not reside in that country? I might have traded in an American exchange hehehe. I also reckon we should begin to educate all users about this.

Foreign Users can be counted as a taxable person under non-resident aliens but it doesn't clearly fit in the description to persons who are engaged in a trade/business for income. Yeah they certainly earn from these US crypto exchanges but it is not classified as income but it is classified as capital gains which is also on another kind of tax rate. When we are talking about if what they are doing is right I don't think they have the power to tax people who aren't even their resident. Plus the post above pointed out that if the IRS plans to tax capital gains to foreign users then the user might just experience a double taxation for his capital gain which is simply unjust, for me I don't see them having "stricter regulations" when we are talking about additional kinds of taxes being introduce.

Harlot

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Won't this be counted as double taxation already if they did this? If they taxed the capital gains of the foreign users then the users will also be paying their capital gains tax on their own domestic country which would certainly be unfair for the foreign users. IRS should think about a just way on implementing some kind of tax not a way to burden them with the same kind of tax which the users will literally won't earn anything because of it, they might not even have this kind of jurisdiction when it comes to taxing foreign users.

acquafredda

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Quote from: Carlton Banks on December 18, 2020, 04:54:59 PM

Quote from: LeGaulois on December 18, 2020, 04:15:51 PM

When someone feels the right to opt-out then it's ok but they should also opt-out for the free school their kids get, the electricity in streets, welfare, the swimming pools in the city, the roads, the retirement pension, any infrastructures paid by other citizens who agree to pay the taxes

Satoshi (and the other cypherpunks) absolutely knew that this would be one of the most disruptive aspects of decentralized money: it was a design goal. I hope everyone's prepared for the full implications of this, regardless of their own perspective.

Cioran probably wrote the best essay to destroy so-called democracy: once one read that there is no space for democracy ever.
I would also suggest to have a look at Gaetano Mosca's writing on the matter http://www.ijpl.eu/assets/files/pdf/2009_volume_1/Martinelli%20-%20Mosca%20Theories.pdf

Sorry fro the detour but to comment your lines I can only say that there can never be complete freedom unless nation-states are in place. Because who is in charge of the monopoly of the legitimate use of physical force tend to rule us all: and there is no bitcoin that can save us from that. We can only be able to choose the least intrusive nation-state.
I do not buy neither citadels nor else.

Topic: [2020-12-17] IRS is trapping bitcoin and altcoin investors on 2020 tax form (Read 365 times)