Bitcoin Investment Trust (GBTC) - Not as Simple as Owning a Stock
In 2017, many have invested in Bitcoin Investment Trust (Ticker: GBTC) because it is easier to trade in and out of in terms of liquidity. As such, one might expect all of their tax considerations to be reported on their broker statement, Form 1099-B, similar to trading stocks on the stock market. But like with all crypto, there is more than meets the eye, even for a "crypto stock" such as GBTC.
GBTC Shareholders - Don't Miss This!
The term "Shareholder" is used below for simplicity in referring to the owners of the trust
- GBTC claims it is treated as a Grantor Trust for U.S. tax purposes. Every time GBTC buys/sells cryptocurrency, the shareholders are treated as making these purchases directly for tax purposes, even though expenses don't come out of shareholder's pockets, and income is not necessarily distributed to shareholders. For example, a 1% shareholder of the trust is treated as buying/selling 1% of the Trust's assets under the grantor rules.
- In 2016, the Trust released a tax information statement which is intended to assist shareholders with reporting tax consequences of their grantor trust holding on their tax return. Link at the bottom of this email, a similar statement expected for 2017. It's possible more information was mailed directly to owners related to 2016 taxes, but I was not an owner in any point in 2016 and thus cannot verify this.
- Per the tax statement, GBTC/brokers did not need to file a Form 1099B to report the buying/selling in 2016 because the trust did not make distributions to shareholders and it claims it only paid out deminimis expenses. As explained below, it is possible there is a different set of circumstances in 2017.
- Contact your tax advisor because this is gets complicated quick - there is a 6-step process in the letter.
- For investors that sold their holding in GBTC in 2017, it is possible the sale could be reported on a broker statement 1099-B (I have not yet verified this point but it makes logical sense).
- GBTC issued a distribution of cash proceeds from the sale of Bitcoin Cash in 2017. Cash was issued to shareholders of record in late 2017, so presumably (not yet verified) this is reported on either a 1099-B or the trust statement
- GBTC began a 90-day window of selling Bitcoin Gold received in the 2017 hard fork, in December of 2017. Even though cash was not distributed to shareholders, this is potential taxable income, so presumably (not yet verified) this will also be reported on form 1099-B or the trust statement.
- GBTC declared abandonment of the Bitcoin Diamond hard fork currency.
- Takeaway - My recommendation is don't rush to file 2017 taxes without making sure all the considerations of holding GBTC in 2017 are accounted for. The actual GBTC statement/1099-B's could end up different than I have discussed due to the significant new activities in 2017 (addressing forks etc.)
Detailed Analysis (Old)
More information below: https://steemit.com/money/@cryptotax/bitcoin-investment-trust-gbtc-tax-structure-ctb-off-topic
Sources:
https://grayscale.co/wp-content/uploads/2015/09/Bitcoin-Investment-Trust-2016-Tax-Information-Letter-FINAL.pdf
http://www.nasdaq.com/press-release/grayscale-investments-llc-announces-remittance-of-proceeds-from-bitcoin-cash-sales-20171211-01042
https://sg.finance.yahoo.com/news/bitcoin-investment-trust-announces-record-213000341.html
http://www.nasdaq.com/press-release/bitcoin-investment-trust-announces-abandonment-of-bitcoin-diamond-and-bytether-20171201-00847
Disclaimer: This series contains general discussion of U.S. taxes in a developing and unclear area of tax law. As always, you should consult your own tax advisor in your jurisdiction to determine your specific situation as this is not personal advice; and consider any future guidance by the Congress/IRS after the date of this article. Under Circular 230 to the extent it applies, this article cannot be used or relied on to avoid any tax or penalties in the U.S., its States or any other jurisdictions. This post/book does not create a client relationship between the author and the reader. This is not a recommendation to invest in GBTC or any other cryptocurrency. Author holds a position in GBTC (and trades in/out of the position occasionally)
Picture Credit
Most of the investors that I know invest directly in cryptos rather than through a trust. Your article definitely had some good information to be aware of though.
Thanks, This trust does trade at a very heavy premium to its underlying assets, so I can understand people would wanna just buy directly and I wonder if that premium evaporates once direct crypto trading becomes easily available on Robin Hood.
Possibly. Robinhood, however, is only going to have free crypto trading available in certain states. Additionally, my understanding is that the variety of cryptos will be limited.
here's a nice information you're giving us.. This is so much needed to me.. Thank you so much.. Your information is better than the sources.. how do u think @banjo @cleverbot?
So when are you going to take over the world?
How do you know that?
Why is crypto being taxed? Is it government resources?
Great question. In the U.S. income tax system, Crypto that meets the definition of "convertible virtual currency" is property subject to U.S. taxation: https://www.irs.gov/pub/irs-drop/n-14-21.pdf
Wow. Thanks for d clarification!
Hey there, great article, I found it a very interesting read!
You have a great understanding on the matter of crypto taxation; may I ask -
Do you think there will be a greater demand for tax accountants who understand cryptocurrencies moving forward?
In addition, how likely do you think it is for everyday investors to record and report cryptocurrency gains, and if they fail to do so, does the government have any realistic recourse?
Cheers!
Thanks for the thoughtful questions.
It's possible the accountant community will become more educated on crypto issues over time. However, what I really I think will happen sooner is there will be a greater demand (by the IRS) for exchanges to report transactions on 1099-B forms. Many U.S. citizens and even advisors are passively dependent on the Forms 1099 to comply with tax laws.
Tax laws are complex enough without getting into the mess of crypto. I joined this community to provide some general discussion of the topic so people can be educated/aware.
The government has plenty of recourse towards tax evaders and as I understand they are tracking people using Bitcoin. Eventually, some people will most likely go to jail over tax evasion on crypto gains. I can't stress enough the importance of complying with tax law.
@OriginalWorks
Hehe
Interesting information! In addition to this aspect, this ETF does not trade in line with the underlying value of the bitcoin in it. At one time, it was trading at a 50% premium to the bitcoin it held! Owning bitcoin directly continues to be the best way to invest in Bitcoin, not alternatives.
You got a 1.59% upvote from @postpromoter courtesy of @cryptotax!
Want to promote your posts too? Check out the Steem Bot Tracker website for more info. If you would like to support the development of @postpromoter and the bot tracker please vote for @yabapmatt for witness!
This post has received a 2.02 % upvote from @booster thanks to: @cryptotax.
This is really a good article.
I will always pay attention to you and support you.
I hope you can pay attention to me and support me.
thank you