IRS Action Against Coinbase Users Most Recent Regulatory Development in Virtual Currency
As American taxpayers enjoyed pumpkin and apple pie, the IRS was busy working to get their slice of the virtual currency pie.
In its battle against virtual currency holders, the IRS got a significant win when U.S. District Court Judge Jacqueliine Scott Corley ordered Coinbase to give information pertaining to user accounts with at least the equivalent of $20,000 in any one transaction (buy, sell, send, or receive) from 2013 through 2015 to the IRS. Coinbase must disclose the tax identification number, name, birth date, address, records of account activity, and all periodic statements for each account with a $20,000 transaction during the relevant years. Although unconfirmed, I anticipate the applicable USD exchange rate for determining whether a single transaction meets the $20,000 threshold will be the rate at the time of the transaction, as opposed to today’s exchange rate.
In IRS Notice 2014-21, the IRS described how it will apply U.S. tax laws to virtual currency. The main takeaway from that Notice is that the IRS views virtual currency, such as Bitcoin, as property for U.S. tax purposes. For most taxpayers this means that capital gains tax is due upon the sale of virtual currency.
For example, assume Terry bought 1 Bitcoin for $5,000 (USD) on January 1, 2013, and then later sold 1 Bitcoin on December 1, 2013 for $9,000 (USD). Terry realized a short-term capital gain of $4,000. Terry’s gain is characterized as short-term because Terry did not hold his capital asset (1 BTC) for more than one year. According to IRS Notice 2014-21, Terry should report his short-term capital gain on Form 8949 when he files his 2013 income tax return. If you do not sell your virtual currency during the year, then consult with your tax advisor regarding whether any gains must be reported.
The IRS believes that taxpayers like Terry have been failing to report gains from the sale of virtual currencies. The IRS asserts that only 800-900 taxpayers reported sales of bitcoin on their tax returns in any given year from 2013 to 2015. With millions of users, the IRS concludes that there are Coinbase users buying and selling virtual currencies and not reporting the gains on their taxes. Whether virtual currency gains are unreported remains to be seen, but there are some Coinbase users who are about to experience the pleasures of dealing with the IRS. Don’t be one of them.
Alright.. well, your very first response to your very first post is gonna end up having some depth.
When I listen to people who are referred to as ‘radicals’ voice their opinions about the IRS, I start questioning who’s actually the radical? Is the guy who says “F the IRS, they can all go to hell” the radical one or is an entity who feels they have the right to live inside our pockets the radical one?
America thinks they’d be getting ripped off if the Feds taxed 50% of their earnings. You’d hear an uproar about it. I’m starting to hope those same Americans realize 20-30% of their wages is also a rip off! But no, once April 15th passes, if you get away with only paying the Feds 37%, You think you got a good deal. Perhaps someone can shed light on this subject because it doesn’t make sense to me.
The Feds are doing things like shutting down ICO’s and then they say things like “trade virtual currencies at your own risk.” Well what asset would I NOT trade at my own risk and where were the Feds when America was investing in Enron? I didn’t hear any warnings back then!
This latest act of thievery by the Feds toward Coinbase users is one of the more up-front and personal crimes yet. To fool all the other users into believing they’re not actually after them is false. Don’t go believing you’re safe just because you didn’t trade 20k worth of USD for BTC at Coinbase for those 2 years. Think about it, that’s their way of immediately stealing from the really BIG fish. Whoever traded 20k worth back in 2013, depending how they’ve managed their asset, is likely sitting on a fortune now. And that’s where the Feds are starting.. they’re gonna start by stealing from the big guys.
Don’t let that fool you though, they’re going to go after anyone and everyone who has an extra dollar to their name.
Ps - Just in case one of those 8-900 Coinbase users that DID report their gains to the IRS is reading this: Rather than reporting your gains from this year, consider doing something constructive like jumping head first from the Hoover Dam.
Ok... am I still here? I’m stopping now, I’m winded!
Entertaining rant!
Definitely could’ve been a post