Topic: [2020-12-17] IRS is trapping bitcoin and altcoin investors on 2020 tax form (Read 401 times)

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.

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/

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

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.

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.

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"

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.

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.

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.

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.

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.

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?"

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.

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?

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.

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?
 

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.

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.

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. 

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.

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.

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.

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.

some indeed do, with differing degrees of success (and differing degrees of opting out). The state often (not always) pursues them for taxes on services they did not use. The speculation as to why the state reacts that way is that more and more people might begin to rationalize how their taxes are spent, and would want to at least get more control over what they are spent on, to encourage public spending they deem wise and discourage that of which they disapprove. This would remove alot of state decision making power (and probably several layers of state bureaucracy also)

It would also be more democratic, which I heard was the name of the game we are (supposedly) playing.

Like it or not, alot or people take seriously how their money is spent in the name of the public good, and strongly dislike not being able to prevent spending on areas that have consistent 100% bipartisan approval (e.g. war or corporate tax breaks). These people are attracted to Bitcoin, as it seem like a way to exert the control they seek.


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.

Fortunately, it is so, otherwise, it would be anarchy and we would return to the time of the far west with the cowboys.
In modern society, you need a leader to lead (no matter what politic you apply).

No matter who's sitting in the White House it's impossible to make everybody happy. There will always be a group of people who think that the state is not doing its job (the opposition). Perhaps a coalition politic should be mandatory to work together.
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

Because they can't claim, if there is something to pay they opt out but if there is money to take there are here. Would they return the stimulus check, I guess no

Look, some people were preaching for Bitcoin to be regulated to help the mass adoption. Now there are taxes they want to opt-out


That's a geopolitical side, the colonial countries were much more devastating than that. Then what? we shouldn't pay our taxes? If the person leading the country is not the right person to do it, it's another story. In this case, there is something simple called the elections.
But those who pay their taxes correctly have not to be penalized by those who do not pay.

if only. they haven't made any substantive changes to the reporting requirements since 2011 when they began requiring the extremely tedious form 8949.

i can think of 3 reasons why they added this question to schedule 1 last year, and now to the main form this year: 1. people are generally fearful of the taxman and seeing this question will simply scare a lot of casual tax avoiders into ponying up. 2. they wanna use this question in combination with 1099s and similar means to quickly flag noncompliance so they can send taxpayers a bill with penalties, and 3. the perjury/falsified return angle pointed out in the OP. they can fine you up to $250k if you falsify info on your return and they catch you.


the IRS is known for making the tax code overly complex and trapping people for noncompliance. also, not to go off on too much of a tangent, but that general attitude towards taxation is up for debate. they use our tax money to bomb children, subsidize all sorts of horrible shit, etc.

Not really a trap but a way to stop you from trying to weasel your way out and not just because of one answer, think over a longer period of time.
You answer yes, yes, and then no and you have no profits to declare, what happened to all your coins? Somewhere two lines of code will flag you instantly for a cavity search. You had no coins for 10 years, you have no income and then you suddenly sold 100BTC, let's check this guy!

Of course, it will work as a reminder also for some and we all know that in most cases it's the fear of the consequences that drives people into paying taxes rather than their sense of civic duty or whatever you can call it.


And this doesn't stop thousands if not hundreds of thousands to try and do both on a regular basis 
Btw, is lying multiple times in a row to the IRS considered an aggravated form of perjury? Does it come with bonus time?

this depends on your perspespective

the entire concept of the nation state is predicated on whether the potential subjects/citizens agree to be governed, it's right there, written in the original philosophies of the modern nation state


if you don't feel that the state is fulfilling their side of the relationship, then you're more than entitled to opt out. What possible other way do people have to defend themselves against governments overstepping the line?

That's what they are trying to combat here. There are hundreds of thousands of people who don't declare everything they should on their tax returns, and bitcoin is no different. In previous years, the question was on the Schedule 1 part of the 1040 form rather than the standard 1040 form itself. You only have to complete a Schedule 1 if you have "Additional Income or Adjustments to Income", so presumably the IRS think people were either unaware of the requirements and not filing a Schedule 1 to declare their cryptocurrency activities, or were purposefully omitting a Schedule 1 if they had no other reason to file it so they could avoid answering the question.

By putting it at the top of the main 1040 form, everyone has to answer it, one way or another.

I don't see where is the trap for "the coming years". If you answer 'No', it's because you didn't buy/send/receive, if you reply 'Yes' it's because you did and so you know you have to report your capital gains. But you're supposed to already doing that by the way.
I believe the IRS tried to make the reporting easier and intuitive since it can be a pain in the ass just to fill the taxes paper.

Yes, there are only 2 answers (yes or no) but well what other answers could they give "I'm not sure Sir, maybe yes maybe no".
If taxpayers try to conceal cryptocurrency transactions they can't call this a trap because the IRS wants to make the rules fair for every citizen. They should report and pay the taxes coming with. Trying to cheat the IRS is not much different than cheating other citizens, including their friends and family.

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.



The Internal Revenue Service (IRS) is making it harder for taxpayers to conceal cryptocurrency transactions — whether intentionally or not — by adding a new question about it near the top of the new Form 1040.

The form released last week asks: “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” The only option is to mark yes or no.

If you answer inaccurately, you could find yourself in hot water with Uncle Sam who is rooting out tax evaders, tax professionals warned.

When you sign the form, it’s under the penalty of perjury,” said Ryan Losi, a certified public accountant and executive vice president of PIASCIK, a tax firm. “The IRS is just gathering the data, changing the forms to expressly say you did or didn’t, and setting the trap, so in the coming years, the hammer can come down.”

Read in full https://money.yahoo.com/irs-bitcoin-and-virtual-currency-tax-form-193503386.html