Topic: Does Bittrex report to the IRS? (Read 3930 times)
Now that bittrex international has a usd wallet, if I KYC'ed as EU citizen, will they report to tax authorities?
Where, in US law, does it say that an exchange like Bittrex which doesn't deal in fiat, is classified as a "money transmitter" ?
The relevant laws are published here:
https://www.law.cornell.edu/cfr/text/31/1022.380
https://www.law.cornell.edu/cfr/text/31/1010.100
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(5)Money transmitter -
(i)In general.
(A) A person that provides money transmission services. The term “money transmission services” means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means. “Any means” includes, but is not limited to, through a financial agency or institution; a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both; an electronic funds transfer network; or an informal value transfer system; or
(B) Any other person engaged in the transfer of funds.
(i)In general.
(A) A person that provides money transmission services. The term “money transmission services” means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means. “Any means” includes, but is not limited to, through a financial agency or institution; a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both; an electronic funds transfer network; or an informal value transfer system; or
(B) Any other person engaged in the transfer of funds.
If USDT isn't "value that substitutes for currency" then I don't know what is. According to Tether LTD, each USDT is backed by one USD held in reserve by Tether LTD, and may be redeemed as such. Further, the SEC has stated that their interpretation of the law is that cryptocurrency transactions should be treated as cash transactions. Bittrex allows deposit/withdrawal/exchange among different users in both a USD derivative and cryptocurrency. So, the bold sections seem to imply they are a money transmitter.
Clearly Bittrex's legal team believes they are a money services business, since they registered as one with FINCEN. That's an open admission that they feel required under the BSA (and related laws) to perform KYC among other AML requirements.
Whether or not you agree with their legal interpretation, that's why they require KYC.
That's what I thought at first until a friend sent me this video:
https://www.youtube.com/watch?v=q5VCq3pX3ys
Now i'm not sure what to believe and my accountant has no idea how to go about it.
https://www.youtube.com/watch?v=q5VCq3pX3ys
Now i'm not sure what to believe and my accountant has no idea how to go about it.
I'm just confused by the new tax law. If every trade is taxable how in the world are day traders going to keep track of every single trade? They want it at USD price too.
Every trade is taxable in theoretical sense. What matters here is that you declare your holdings and profits at each new tax year as totalling number. If you are a senior day trader and have like 50 trades per day on average, which means 365x50=18,250 trades per year, it doesn't mean that you have to declare all your 18,250 trades. You just declare your total holdings and profits for that year in fiat terms, and done you are. If you made profit, you pay tax over your wealth and profits, and if you didn't make any profits, you just pay tax over what's left of your holdings. The only occasion where the trades in particular may matter, is when the IRS doesn't trust your tax reports, and thus you have to come up with evidence.
I'm just confused by the new tax law. If every trade is taxable how in the world are day traders going to keep track of every single trade? They want it at USD price too.
...
Maybe to keep it simple, the IRS would simply accept bitcoin or other cryptocurrencies for paying taxes.
Maybe to keep it simple, the IRS would simply accept bitcoin or other cryptocurrencies for paying taxes.
You really think that they would give any cryptocurrency the status of "legal tender"?
I don´t think they will do that, because that would increase the legitimacy of cryptocurrencies
extremely.
I know that certain Swiss municipalities allow the paying of taxes with Bitcoin, but even there
it is only a test run and limited to an amount like roughly 200 €. You can imagine that the IRS
will never accept it if even progressive Swiss municipalities don´t allow it for non-negligible amounts.
AML/KYC regulations. The issue isn't taxation, but money transmission. Chairman of the SEC, Jay Clayton, made that clear in a statement last month:
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As I have stated previously, these market participants should treat payments and other transactions made in cryptocurrency as if cash were being handed from one party to the other.
US money transmiters fall under the jurisdiction of the Bank Secrecy Act, which requires KYC. The exact requirements (for example, whether SSN is really required) aren't clear to me. But it seems like Bitcoin exchanges are increasingly seen as "financial institutions":
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The BSA requires financial institutions to engage in customer due diligence, or KYC, which is sometimes known in the parlance as know your customer. This includes obtaining satisfactory identification to give assurance that the account is in the customer's true name, and having an understanding of the expected nature and source of the money that flows through the customer's accounts.
Where, in US law, does it say that an exchange like Bittrex which doesn't deal in fiat, is classified as a "money transmitter" ?
If they aren't (currently or not) reporting to the IRS, why are they requiring SSN?
I was wondering the same thingAML/KYC regulations. The issue isn't taxation, but money transmission. Chairman of the SEC, Jay Clayton, made that clear in a statement last month:
Quote
As I have stated previously, these market participants should treat payments and other transactions made in cryptocurrency as if cash were being handed from one party to the other.
US money transmiters fall under the jurisdiction of the Bank Secrecy Act, which requires KYC. The exact requirements (for example, whether SSN is really required) aren't clear to me. But it seems like Bitcoin exchanges are increasingly seen as "financial institutions":
Quote
The BSA requires financial institutions to engage in customer due diligence, or KYC, which is sometimes known in the parlance as know your customer. This includes obtaining satisfactory identification to give assurance that the account is in the customer's true name, and having an understanding of the expected nature and source of the money that flows through the customer's accounts.
If they aren't (currently or not) reporting to the IRS, why are they requiring SSN?
I was wondering the same thing
So, what happens when bitcoin and other cryptocurrencies become so highly valued that we can't pay enough cash
to cover the taxes? Like, what if I have $20,000 in taxes to pay but I haven't the cash to pay it? But I have it in crypto?
I guess we would have to cash-out some of our bitcoin or other cryptocurrency in order to pay
the tax. And then we'll have to pay tax on that cash-out.
Maybe to keep it simple, the IRS would simply accept bitcoin or other cryptocurrencies for paying taxes.
to cover the taxes? Like, what if I have $20,000 in taxes to pay but I haven't the cash to pay it? But I have it in crypto?
I guess we would have to cash-out some of our bitcoin or other cryptocurrency in order to pay
the tax. And then we'll have to pay tax on that cash-out.
Maybe to keep it simple, the IRS would simply accept bitcoin or other cryptocurrencies for paying taxes.
What about Gemini? Do they report to IRS?
No, none of the exchanges do. But the IRS case against Coinbase users leaves us important info to consider. While the original request for all Coinbase user information (including trade activity) over a three year period was deemed a "fishing expedition", the IRS came back as expected with a narrowed request for all users with > $20,000 in activity in any one year. The case is ongoing, but I think we can expect that eventually, a narrowed request will be approved by the courts.
So what I'm saying is, whether or not they send a 1099 to the IRS, you don't want to be caught in one of these IRS nets. They are closely watching the Bitcoin exchanges.
Good point! Thank you for the answer 
What about Gemini? Do they report to IRS?
Not that anyone here is aware of, which goes up for basically any exchange. If an exchange up front states that it will report all sorts of user activity (i.e. sensitive information) to the IRS, 90% of the people will avoid it, and rightfully so. I am however of believe that there will be a time exchanges will report to the IRS as being part of the long list of regulations our exchanges are subject to. We can't expect authorities to sit back and look at how people avoid declaring their profits, and that while throughout the years this market has exploded in value. One way or another, something will happen from the side of the authorities to deal with this situation accordingly.
What about Gemini? Do they report to IRS?
I'd be comfortable verifying with Bitstamp now (or Coinbase or Gemini), but I wasn't back then. And I wouldn't be comfortable handing over passport or full SSN to Bittrex at this point. I have no idea who they are or what care they take to protect that data...
Bitstamp, Coinbase and Gemini are probably the most strictest exchanges in the crypto market with their extremely high standards due to the laws they are subject to. That however doesn't mean that our personal information is safe there by default. I am fully verified at Bitstamp, but some times I still think about who or what has access to this information, how well secured are the servers this information is stored on, etc. It has nothing to do with Bitstamp itself, but more the overall idea of what exchanges are doing to protect our precious information, and who has access to them. Bittrex does however have several verification levels. If you want to get basic verified, you 'just' need to insert textual information such as name and address. You'll then have the ability to trade crypto vs crypto with a daily withdrawal limit of 3BTC. If you want to get enhanced verification, you'll need to submit ID and a selfie. This unlocks basically every feature, and you'll be able to withdraw 100BTC per day.
They didnt before. But now with cryptocurrencies becoming more and more popular, it would be safe to say that they will soon. If Bittrex wants to be in the good side of the regulators, they should start doing some KYC procedures on their customers starting now. Get your ID and other documents ready.
If so, I hope they do it honorably like Bitstamp did a few years back. They at least gave a month or more notice to users that they would have to pass mandatory verification after a certain date (I think it was ~ end of September, 2013). So users had time to get out if they didn't want to verify.
I'd be comfortable verifying with Bitstamp now (or Coinbase or Gemini), but I wasn't back then. And I wouldn't be comfortable handing over passport or full SSN to Bittrex at this point. I have no idea who they are or what care they take to protect that data...
They didnt before. But now with cryptocurrencies becoming more and more popular, it would be safe to say that they will soon. If Bittrex wants to be in the good side of the regulators, they should start doing some KYC procedures on their customers starting now. Get your ID and other documents ready.
Thanks for your detailed explanation. Could you give a simple guideline for tax report of cryptocurrency? We definitely need to pay tax, and better assume that IRS could somehow know your profits status. Basic information like name/address are more than enough to identify you. My question is how to deal with crypto to crypto transactions? You never know how much profits you get till one day you sell them all.
Not a lawyer, so take what I say with a grain of salt. My understanding is that the USD cost basis of your position is used to calculate your gains. So, let's say you bought one BTC at $1000. Later, you traded that for 20 ETH, when the price of BTC was $4000. That means you closed your BTCUSD position with a gain of $3000, then entered a new ETHUSD position at $200.
You may only care about the price against BTC, but the IRS wants to know about your gains in USD. So you need to record the BTCUSD price at the time you trade alts against BTC and vice versa, so you can later calculate the USD capital gains.
Thanks for your detailed explanation. Could you give a simple guideline for tax report of cryptocurrency? We definitely need to pay tax, and better assume that IRS could somehow know your profits status. Basic information like name/address are more than enough to identify you. My question is how to deal with crypto to crypto transactions? You never know how much profits you get till one day you sell them all.
Bittrex don't exchange fiat currencies so they have nothing to report except there own business tax returns.
I don't think that's the case. I mean, they don't report to the IRS. But virtually every transaction (including crypto-crypto) is taxable from a capital gains perspective. Just because you don't wire dollars to your bank account doesn't mean you don't technically owe taxes. This is why I prefer not to verify ID at exchanges. Just in case...
I can certainly show you a law that says they would have to report fiat.
I think the comment was about the tax liabilities of traders/investors, not the burden of tax reporting for Bittrex. Regarding the former, here's the general guidance from the IRS:
https://www.irs.gov/newsroom/capital-gains-and-losses-10-helpful-facts-to-know
If they aren't (currently or not) reporting to the IRS, why are they requiring SSN?
They are trying to act legitimate for AML/KYC purposes. Don't they only require last 4 of your SSN for a basic account? At least that was the case for new accounts as of several days ago. Poloniex does ask for full SSN now, which is insane. Who would trust these fly-by-night exchanges with such data?!
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