Topic: How does the IRS look at anonymous bitcoin? (Read 746 times)

Indeed, it's gambling. Especially in places like I live, where there isn't a tax framework to begin with. The tax collector can assume you're okay, just as he can assume you're laundering money.

Depends on what you consider small. Buying an iPhone, a smart TV, and a PS5 isn't going to raise eyes. If you're buying a hundred bitcoins, then a yacht, and then two houses, then yeah, sus. 

You'll have bitcoin. 

I think you are fantasizing. The amount of cash can be reduced or a very small country like the Vatican can be controlled. But it can't be done in most countries or unions like USA, Russia, Europe. As soon as governments start imposing restrictions, shadow markets will appear.

It's going to be the same in any developed mainstream country. How do you think authorities will react when you show up with 1 million worth of BTC?
I've seen some people claim if you just claim 0 cost purchase and pay your taxes they will leave you alone but with I think they are lying and just hoping that's how it works.
In practice you are gambling that they start an investigation and once it starts the consequences are unpredictable. You may get a slap in the wrist or you may end up in big trouble. The question is, is it worth doing this gamble?

And as far as exchanging it for cash, this is useless. 1) You cannot do anything with cash other than buy small purchases, 2) They will eventually ban cash, so you will have nothing

As far as I can tell, you are trapped in BTC. Since it's too much too cash out, and it's too little to start some sort of tax haven structure (and there's still risk anyway)

If the price of stablecoins collapses, then you will legally not need to declare it
I think that an adequate person first thinks about his own safety and his family, and then looks for a solution to his tax issues. Every country has different situations and it is impossible to give universal advice.

But strictly speaking, in each of these exchanges a taxable event is potentially created.


Yes, well, I always repeat the same thing here. It's not the same if you file with the tax authorities with $1k in stablecoins of dubious origin than if you file with $1M. The $1k may have been paid to you for selling anything over the internet. $1M can potentially create more problems for you.

As long as there are still countries where the authorities don't care from where millions in stablecoins suddenly appeared, yes, this will work. Provided that the stablecoins don't collapse

If the user has at least a little brains, then he will not change his bitcoins for cash. First, he will change them for Monero, or similar coins, then he will change these coins for stablecoins. The exchange amounts of stablecoins for cash will be those that are not subject to mandatory taxation or, in the worst case, a small fine. But linking the user to the first original bitcoins would be very difficult.

Many of the the "ancient whales" renounced US citizenship years ago and moved elsewhere. The thing is, back then it was less common to keep track of stuff, so I guess they would bother less about it and understand that Bitcoin "wasn't a thing", but right now they have Chainalysis and all that stuff, so depositing any mixed coins in an exchange is already a risk as you could end up with frozen funds.

I would look into what is the best move before doing anything tho. If the coins aren't tied to any KYC actions then you have all the time in the world since no government will know unless you say so. Once you claim you have bitcoins there is no way to undo that, they already know, so you must have a plan.

If you were in the EU it would be easier to move elsewhere, but IRS is another story.

Fiscal authorities are often quite relaxed about Bitcoin since every transaction is well documented. At some point, the "anonymous" user will want to use the coins, and create a situation where the fiscal authorities can know that they exist. At this point, it would be up to the taxpayer to prove that there were no taxable transactions before that point...

The IRS (Internal Revenue Service) views anonymous bitcoin transactions as taxable events. In fact, the IRS has issued guidance stating that virtual currency, including bitcoin, is treated as property for tax purposes. This means that any gains or losses from the sale or exchange of bitcoin are subject to capital gains taxes. Additionally, individuals and businesses that receive bitcoin as payment for goods or services must report it as income on their tax returns.

However, it should be noted that while the IRS can track bitcoin transactions that are conducted on public ledgers, it may be more difficult for them to trace transactions that are made on private or anonymous networks. This is one of the reasons why it is important for individuals to accurately report any bitcoin transactions on their tax returns, even if they were conducted anonymously. It is also important to note that in some countries, anonymous transactions are illegal and can be subject to penalties.

Yeah I mean if crypto makes me a millionaire I'd be sure to talk to tax lawyers if I wanted to stay in the US. There is no point right now as I'm probably at a huge loss. However, from the sounds of it, it sounds like the gov is literally out to try to get you even if you do that. Like face the risk of hiring a lawyer and getting charged and possibly convicted of something anyways so is it really even worth it? Moving to another country would suck but at least you'd be free from unfair tax laws from a literally evil government that tries to punish you for doing the "right" thing and being law abiding. Since having private bitcoin isn't illegal, nor is not saving receipts of purchase.   

And I was under the impression a lot of bitcoin out there is still in the unknown. As in there are holders of it who have not revealed they own it. Is that really all a thing of the past? I heard that some years back that a lot of bitcoin addresses are held by unknown entities and have been holding from 2013? or something like that. Ancient whales or something. So like some of it is probably people who could have mined it on a laptop or something, or maybe bought and literally forgot about it until recently ish or something idk. I was under the assumption it's still a thing. Idk if most of them revealed themselves when it went up to 60 70k? Idk. Like I feel like there are tons of people who didn't cash out because it didn't make them rich, just like bought a small amount or just a few bitcoins when it was cheap or something long ago, and are just waiting till it reaches a mil. Idk. What metric can we use to measure that?

These millionaires have lawyers and tax advisors on their payroll, who provide them with solutions to what you are talking about. Instead of asking in a forum, they ask their lawyers about the doubts you mention.

Besides, you are taking a lot of things for granted, which need not be the case:


Not in all cases are millionaires going to be unable to prove that. And in any case, most of them legalized their situation long ago, not now. Look at the Winklevoss twins for example.

I've also been wondering, how do they look at these millionaires who cash out from before KYC was a thing? Back when you didn't need KYC, surely there are some anonymous whales right now who will eventually cash out. The gov going to arrest them because they cant prove how they bought them? Clearly, you'd see the bitcoin, just sitting for a long time somewhere. I guess maybe they forgive that since there were no KYC requirements for the longest time. I mean hell, there are still anonymous ways to buy it, or ways to anonymize it. They going to go after everyone after a certain date or what?

It's probably somewhat easy to hide the paper trail. I just hate the fact that wanting privacy is treated like a criminal offense even though it's not at all illegal. If bitcoin goes to the tens of millions I'll prob be forced to play it safe and revoke my citizenship and move to a more crypto friendly nation, of which, idk atm. Maybe declare my millions, pay whatever tax on it, then reapply for US citizenship if I want to come back. Such a fucking hassle to merely cash out. Well, I guess the US gov will miss out on the taxes I'd pay on cashing out. Dumb fucks, their loss.

If memory serves me correctly, they have their own blockchain analyzer and tracer.  However, something like Wasabi Wallet might make the IRS's job a bit harder and keep them a little more honest perhaps.

That is fine in theory but in practice the states through the IRS and equivalents have a virtually unlimited collection voracity.

If you mean that someone who has not declared their earnings, when they go to spend that money will pay VAT and other similar taxes, I might agree with you, what happens is that the IRS wants to tax people for the income tax the capital gains tax and then apart from that they want them to pay VAT when they spend their after tax money.

I don't think they need to care. If there are undeclared earnings, they can be taxed at least when someone tries to somehow use the bitcoins...

Well, in any case it will be the income in crypto that you cannot clearly justify.

Besides, as I have commented several times in these cases, the amount matters, and a lot. It is not the same that the Ministry of Finance or the IRS or equivalent in your country, thinks you have €8.7M of dubious origin that the amount is only €870. In the first case he faces up to 12 years in jail if found guilty. In the second case the penalty if found guilty will not be more than a small fine (I understand that this is the case in many countries, although I do not dare to say that it is the same in all of them).

I've seen people on other forums say that NFTs would be a good way to launder money, but in light of news like this, it doesn't look like they are.

Edit: I'd like to know what o_e_l_e_o  or LoyceV think about this, as we have discussed similar topics in other threads.

I have searched for more information but cannot find more details. Without them, I speculate that the sales of NFTs that he has declared are not registered like the sale of a house or a car in which in a contract the names of the buyer and seller are put and both are perfectly identified.

And this is what I had seen in other forums say: that to launder money a good way would be to create an NFT and say that you have sold it when in fact the funds have been transferred to yourself from an unidentifiable source, either with Monero, or with Bitcoin that has gone through a mixer or similar systems.

https://beincrypto.com/latvian-nft-artist-8-7-million-earnings-seized-allegations-money-laundering/
Latvian NFT Artist €8.7 Million Earnings Seized Over Allegations of Money Laundering
"The Latvian government has frozen NFT artist Ilya Borisov’s earnings of around €8.7 million over allegations of money laundering. He faces up to 12 years in jail if found guilty."

I understand that this case is with NFT tokens, but any of your income in cryptocurrency may be considered illegal by the tax authorities.

As I told you in a previous message, the answer will depend a lot on where you live and how inquisitorial the IRS or the Treasury Department of your country is.

The only thing to remember is that Al Capone got locked up for tax evasion. It wasn't Bitcoin, but all they could prove was that he had a lot more money than he could justify.


If we are talking about high amounts, there will be. Remember that the greater the amount, the greater the problem. Having $2K in cash of undeclared origin is not a problem, but having $2M in either cash or Bitcoin of dubious origin can land you in jail. I would take action long before the amount gets higher, rather than having plausible deniability as the only plan.

Yeah they hate privacy for sure... but there is no law against making your coins private. Say swapping to xmr and back. So I dont get what they can do from a criminal law standpoint, they need evidence you did something wrong right? If they have nothing because it's just bitcoin that showed up some time ago from an xmr swap, it's just a new fresh bitcoin, and if it sat for years and suddenly goes to an exchange. Like they can suspect maybe you did something wrong but what can they do about it unless they crack xmr itself?

The only thing i can think of is maybe them wondering if you paid taxes on the swap when you swapped from xmr to bitcoin but guess what, you only have to report anything if you made a profit. no cap gains taxes on losses. So just convert during a bear market.

Are there any known cases of anyone getting in legal issues from crypto because they kept their coins private?

I don't think there is anything like direct reporting to IRS that these exchanges like coinbase or BinanceUS have to do. It's only upon request that these exchanges provide details to these agencies. Scenario is different in some other countries say for example India, where now TDS or withholding tax is in place on selling cryptos, so exchanges have to mandatorily report these transactions to the government always and not only on the request of these exchanges. Foreign exchanges are obviously somewhat less cooperative but eventually, they too have to cooperate if they want to do business in a particular country because IRS violations are taken pretty seriously by any government because it's impacting the national revenues.

If you got your Bitcoins in 2013 and they are in the same adress today, you are in a good position, or you moved them but the transactions are clear and you can sign messages from the addresses. The only thing is that if you can't prove the purchase price, you will most likely be charged a 0 purchase cost, which won't make much difference with the real purchase price, since almost everything is profit.

If you moved the Bitcoins by mixers for "privacy" I think you have it more complicated as the IRS does not like privacy.

That's crazy they wont take "I bought bitcoin back when it was around 20k and held onto it for years" approach! What are the probably many other people who still have bitcoin from 2013 and so on when it was only a few thousand but they bought from one of the plentiful non KYC exchanges?

So is it if you just show up with 1 mil out of no where? Or is it so long as they can see that the bitcoin has sat in a wallet for a long time but is just not connected to a paper trail, would that matter?

Either way, something tells me the totalitarian states of America is not the place to be when you want to cash out.

And how would you exchange $1M in Bitcoin for fiat? You live in France, go with your Bitcoins to Turkey and come back to France on the plane with $1M? There is a limit of €10,000 to travel in Europe. The same applies to Telegram groups: Would you meet in person with someone from Telegram to get €1M (or $1M) for your bitcoins? With the cash payment limits in many European countries it is highly unlikely that anyone would have that amount in banknotes.

Exchanging or spending small undeclared amounts is not a problem, when the amount starts to be big it starts to be a problem, and the bigger the amount the bigger the problem.

If bitcoin is popular in 20-30 years, then there will always be shadow markets in the world.
In Russia, there are no problems with exchanging cryptocurrencies for fiat and vice versa, and in other countries there are groups in telegram channels where you can exchange cryptocurrencies for fiat. There are many exchange offices in Turkey.

What you are asking has been discussed in several threads, for example this one:

https://bitcointalksearch.org/topic/--5355749

The answer to your question depends a lot on where you live, but to summarize.

Showing up with a Bitcoin when it's worth $1M before tax authorites is the same as suddenly showing up with $1M in dollars that you can't justify.

In the best case scenario you will be charged a tax, which could be capital gains tax with 0 purchase cost in the case of Bitcoin and I am not so sure in the case of cash. It could be the same or it could be income tax.

But I am inclined to think that you would be investigated for tax evasion. Think Al Capone was put in jail for tax evasion: they couldn't prove that he murdered, extorted money, etc. The only thing they could prove was that he had more money than he could legally justify.

So, $1M seems to me a considerable amount of money to open such an investigation. If you have $1k in Bitcoin that you can't justify you're not going to have problems but when the amount gets big you risk ending up in jail.

Thanks, yeah how about like 1 entire bitcoin? Lets say someone bought bitcoin every couple weeks over time and has 1 bitcoin. Bought via exchange, and ATMs that don't require ID and just converted to XMR, sent to another address and converted out to bitcoin. So there aren't many records.

And lets say the individual is not going to spend or sell the bitcoin until it reaches 1 million dollars... which could be in the far far future, 20 30 maybe 40 or 50 years from now. Something that makes it possible that records held by the ATM and exchanges could be gone if those exchanges go out of business.



And, if someone had 10 anonymous bitcoins.... I'm thinking they should wait till it goes up past 70k again and move to a more tax forgiving country, or a country that will not be afraid to tell the US to go F-off... And honestly there are few nations that will do that, maybe Russia? Although being prepared to follow all the laws of this new country you have moved to because you've burned your bridges.

I'm sure there is a trend here. The first few years nobody would pay taxes, unless it was huge amounts that they wanted to legalize. As time has gone on and there are more and more centralized exchanges, more KYC etc, more and more people pay taxes.

If you have low undeclared amounts it is easy not to get caught. For example, let's say a friend sold you $200 in Bitcoin some time ago, which today is $800. It is easy to spend those bitcoins and the IRS will not find out. But if you have 10 undeclared Bitcoins you have a problem, especially if you want to spend them.

Talking about topics such as taxes requires identifying:

 - Country.
 - Tax regulations in that state.
 - How do countries view digital currencies “is it an asset or a commodity”
 - Capital and earning taxes.
 - Taxes on alternative currencies.

Thus, there is no unified global standard for cryptocurrency taxes and therefore you cannot ask someone to pay taxes for something that does not exist.
The more the state is able to track bitcoins, the more difficult it will be to hide them from taxes, and therefore you must assume that your use of all central platforms means that you are forced to submit them to taxes and therefore it is better to keep those records.

This is not how taxes work. Whatever you gain, whether that's bitcoin, gold, paintings, NFTs, cars, houses, cash etc., is considered estate. You don't need to buy bitcoin to get taxed or oppositely: If you don't buy bitcoin, but simply receive it, you're supposed to state it. How will they know? That's another story, and if you use centralized exchanges you can't get away with it.

And so is bitcoin. If I use a mixer or coinjoin my outputs or simply transfer my coins from each address to another, there's no solid proof that I'm the owner of the new UTXOs.

There's a difference here: Privacy can be invaded on-chain within certain limits, but KYC is for direct control. The ledger is public and chain analysis companies can investigate each user's activity, but that's a tiny friction of the power one can have with millions of users' data. Without the latter, the former can't harm much.

You are doing it for nothing. Maybe you are lucky, or maybe in a couple of years these exchanges will want to work officially in Brazil and will transfer all customer data from Brazil to your tax office. No one likes the tax people here, but you may have problems.

I believe this depends a lot on your specific situation and on the foreign exchange situation.

Some people have more than one citizenship,  or if you have an address in a foreign country.. in those situations it is very unlikely your trading information will end up with US IRS.

I also think exchanges that are not operating in US  are very unlikely to send any data to US. Binance had some operations in US  such as binance.us, for example.

I am not from US, I am from Brazil but I do trade in Kraken and bitstamp.  I don't think they send any information to  Brazil.

There are no Russian crypto exchanges in Russia, because there is no legislation that regulates the operation of these crypto exchanges.
Binance and other large exchanges operate in Russia, but they are located in a different jurisdiction, and Russian law does not prohibit citizens from trading on foreign exchanges.
There is a proposal in Russia to allow trading in cryptocurrencies on stock exchanges, but in fact it will be trading in futures without the possibility of withdrawing coins to your wallet.

In case you're wondering, you might want to check out the incognito wallet/exchange. No KYC, you can privately convert to XMR and there is no info they can give to the gov even if they wanted to but the best part is they're not located in the US so they wont be getting shut down. I think they're located in some South Asian nation and another part of it in Russia I think? If in Russia, I'm pretty sure any exchange there is not going to cooperate with the US right now lol.

I wish there were more Russian crypto exchanges.

They wont if they dont know what you own. The issue is when you want to cash out or buy something big. They'll ask "Where did you get this from?"
You can say I bought the bitcoin at 50k but if you cant prove it, I assume they'll treat it as if you bought it for 0 dollars.

Although, I do wonder how gifts, or even better, art works? Like ... idk.

The biggest fear is them not believing that you saved up a ton of money to buy it when you did. "I used my literal life savings"

Idk.

As far as the block chain goes. I think the blockchain trail ends when its converted to XMR, from my understanding, the only thing they can do is try to find where a new btc entity from XMR came from. So if like .74 btc vanished into XMR, trying to see if .74 or .73 shortly later "appeared" out of XMR. But afaik it's only speculative and there is no solid proof that was "you" who did that. They can only at best, if they found that, guess it might be you. But it could be anyone. This is why they hate privacy coins and want KYC for everything.

Binance is known to work with governments, they don't make it secret as they have been complying with the laws which could also be a problem if you want to be private. Some exchanges afaik even block Russians and Ukrainians buying cryptocurrencies using fiat. There is no escape when using fiat and if IRS request from the exchanges, they'd see our transactions.

Would they be able to ask taxes from the previous transactions we made before the tax law on crypto revenues?

The main problem arises when working with fiat. Finding information in the blockchain is very expensive and requires the services of good specialists, but it is very easy to track the movement of money in your bank accounts. You can use cash, but many countries do not allow cash when buying property. You can hide your cryptocurrencies, but you can't hide your real expenses for long.

If they can't prove that you bought/sold crypto, how are they going to tax you or punish you? They can't do neither of those. (At least I hope)

Sooner or later the Governments are going to figure that out and probably force the exchanges to ban anonymous coins.

They can already see everyone who bought and sold anonymous coins on the exchanges like coinbase. The problem rises when people do P2P trades and nobody can see the XMR trades because there isn't a public blockchain. While they can track down the traces on the bitcoin blockchain and find your transactions, they can't do this on XMR. That's why XMR is way more dangerous than BTC. (to the govs ofc)

Not one well-known cryptocurrency exchange in the world will contradict the policy of US financial regulators. If data about you is required, the exchange will provide it. This is written in the user agreement. No need to be so naive, all your data about the actions on the exchange is not protected.
I trade through decentralized bridges
https://app.rango.exchange/

Try it, more information in my topic
https://bitcointalksearch.org/topic/cross-chain-bridge-aggregators-5389259

Thank you very much for your opinions!
 
Oh to clarify I mean specifically bitcoin that was either not bought on a kyc exchange (ATMs with a burner phone) or bought before KYC was a thing, or mined.

Also including btc made anonymous through XMR swaps.

Not sure what you mean by 'anonymous Bitcoin' in the title.  If you mean UTXO's that went through Coin Joins and Mixers, it becomes easy to find who that particular person was when a mixed UTXO goes through a Centralized Exchange or a Custodial Wallet and the user behind the UTXO does not try to use tools available today like Tor, Virtual Machines and disposable SIM cards to hide tracks.

I can only imagine most of the average Coin Join and Chip Mixer users are not taking enough care of their 'anonymous' coins after 'anonymizing' them.  They forget there are IP traces, browser fingerprints, Centralized Exchanges that collect, sell and distribute data about you and so on.

I believe exchanges are working with authorities, more or less.  But even if they do not, if your money goes from your bank to Bitcoin on Binance and then you withdraw back to your bank account, they will know you made some Cryptocurrency moves without even having to deal with the Exchange you worked with.  I also tend not to believe that the routine IRS has is calling Exchanges to check every person's holdings or transactions, unless the person is under some sort of investigation.  There is probably a more automated process.  Otherwise, they would end up making hundreds of thousands or millions of calls.  There are of course non US Exchanges that may not agree the idea of sharing information with authorities of the United States, but that typically ends up badly for the Exchange so there are more that do agree than those that do not.

They have enough resources to find out more information about you or your transactions than you wish they could.  And if they have serious doubts about the legitimacy of your funds and transactions, there are even more resources they can dig through and use.  And unless you take extreme care of your online behavior, the chances of them finding at least a few bits of your moves enough to audit you are high.

Note that this is my personal take on this thing.  If you want them not to mess with your business, you have to be suspiciously careful.  Even if you pay taxes as a good citizen, when you want privacy you nowadays become suspicious.

-
Regards,
PrivacyG

2nd question btw. Any idea how many people are buying/selling bitcoin and have not paid taxes? I've heard it's a lot but idk what percentage of the population. Like a lot of people I know who are into bitcoin didn't even know you had to pay taxes on trades. I, like them, thought it was only when you cashed out. I heard the IRS sent a crap ton of people letter reminding them of taxes.

Also, do exchanges like coinbase automatically hand over all your info to the IRS or do they only do it upon request? Like the IRS has to call them to ask for yours in particular?
What about exchanges like foreign exchanges like kraken or kucoin? I hear they are less likely to cooperate with the US gov? Idk. anyone have much info on that?