In the News: Judge Grants IRS Permission to Pursue Coinbase Customer Data - My Thoughts
Introduction
Firstly before I get into the discussion I would like to apologise for not being very active the last few days.
I have had a number of meetings and various engagements in the offline world which have taken me away from being on Steemit.
I am currently working on getting back to work and that is a time consuming (and stressful) process particularly when it relates to health issues and medical matters.
I have also been continuing to work on my help guides in the background as I feel that is of particular benefit to the community until the Steemit team come up with a more formal solution. OK now that we have that out of the way let's move on to the discussion:
On the 18th of November (2016) the US IRS applied for court permission to seek Coinbase records for the years 2013-15. It appears they were granted that permission on Wednesday (yesterday).
Ars Technica Article
According to an article on Ars Technica today a judge has agreed to allow the (US) IRS' request to get 3 years worth of Coinbase customer data:
It seems that Coinbase were already expecting this and have plans to fight the court order:
"We are aware of, and expected, the Court’s ex parte order today,” the company said in a statement provided by Farmer on Wednesday afternoon. “We look forward to opposing the DOJ’s request in court after Coinbase is served with a subpoena. As we previously stated, we remain concerned with our US customers’ legitimate privacy rights in the face of the government’s sweeping request.”
A case management conference has been scheduled for February 16, 2017 at 1:30pm PT.
You can see a copy of the IRS summons to Coinbase here.
Discussion
Firstly I have no doubt that Coinbase will be unsuccessful in preventing this from going forward.
Secondly this is a worrying trend.
Right now due to the dates involved this only relates to Bitcoin transactions but I suspect that if they are successful with this then it is likely that they will start looking at altcoins too and not just at Coinbase.
How long until we see Kraken, Poloniex and others receiving these kind of "requests"?
If you are a non-US citizen and think this OK, then think again.
It is likely that other nation's tax services will follow this example. The UK Inland Revenue/HMRC is just as vociferous and it is a similar case in the EU as I understand it.
Why do you have problem with people paying taxes?
I don't have a problem with people paying taxes but to be honest I think in most of the western world we are taxed far too much.
Taxing trade and exchange excessively is in my opinion a break on capitalism and economic growth- but that is an argument for a different time.
The point I want to make here is about uncertainty.
In many cases the IRS and tax authorities have left Bitcoin in a bit of a grey area - perhaps deliberately so.
They have been hesitant to make a firm decision on taxation of cryptocurrency particularly when it has been mined.
The following is taken from a tax compliance wiki:
U.S.
The IRS issued guidance on the treatment of Bitcoin and other digital currencies in their March 2014-21 Notice [3]. The notice clarified the position that the IRS treats digital currencies as capital assets and are therefore subject to capital gains taxes. Any disposition of these digital currencies, including trading and spending, is a tax event and capital gains must be calculated in USD. When spending, the fair value should be used as the proceeds value. The IRS also clarified that mining is treated as immediate income at the fair or market value of those mined coins on their date of receipt.
While the IRS Notice does confirm that Bitcoin is taxed as property rather than a currency, there are still some unresolved issues. For instance, how should a mined alt-coin income value be determined is there is no direct fiat market, and do alt-coins benefit from Like-Kind Exchanges [4].
The UK is a little more clear in this HMRC document:
For VAT purposes Bitcoin and similar cryptocurrencies will be treated as follows below, this in no way reflects on how they are treated for regulatory or other purposes:
- income received from Bitcoin mining activities will generally be outside the scope of VAT on the basis that the activity does not constitute an economic activity for VAT purposes because there is an insufficient link between any services provided and any consideration received
- income received by miners for other activities, such as for the provision of services in connection with the verification of specific transactions for which specific charges are made, will be exempt from VAT under Article 135(1)(d) of the EU VAT Directive as falling within the definition of ‘transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments’
- when Bitcoin is exchanged for Sterling or for foreign currencies, such as Euros or Dollars, no VAT will be due on the value of the Bitcoins themselves
- charges (in whatever form) made over and above the value of the Bitcoin for arranging or carrying out any transactions in Bitcoin will be exempt from VAT under Article 135(1)(d) as outlined at 2 above
However, in all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for Bitcoin or other similar cryptocurrency. The value of the supply of goods or services on which VAT is due will be the sterling value of the cryptocurrency at the point the transaction takes place
Does this mean we can relax in the UK?
Not really - the HMRC is prone to changing their mind depending on government whims and what the tabloid newspapers demand.
Further whenever there is any doubt or confusion it is usually HMRC that gets the "benefit" of any doubt.
Where there is uncertainty the tax authorities will punish the little guy
Big companies or banks can have nice sit down meetings with the IRS/HMRC where their tax bills can be slashed or even waived - sometimes they even threaten the tax authorities (allegedly):
A judge was told the 2010 deal, worth up to £20million, was allowed to proceed to avoid ‘major embarrassment’ to Chancellor George Osborne and the tax authorities after the bank became ‘aggressive’ and allegedly made threats.
...UK Uncut says it is wrong to allow rich companies to avoid paying millions in tax while the Government imposes tough austerity measures on the poor and ordinary taxpayers are pursued for every penny.
Source: Daily Mail: Goldman Sachs 'sweetheart' tax deal with HMRC will stand as UK Uncut fails in court challenge
Try doing that if you are regular person!
Normal members of the public are punished like common criminals (including going to jail) and having spoken to people who have dealt with such treatment in the UK and US - they pursue their debts as aggressively as any organised crime syndicate.
The basic assumption is that you are guilty of evasion and the longer you take to pay the more they will add on to your debt.
About the only thing they won't do is break your legs (yet).
Basically this is another area where there is one rule (or indeed no rules) for the rich and powerful and another one for the masses.
Conclusion
I hate to be so cynical and go off on rant of sorts but it really does seem that only regular people get penalised by tax systems.
Banks/Big corporations and the like get away with dodging taxes in various ways for decades and little (if anything) is done about it. On the other hand if regular people find a new way to better themselves the tax authorities will be sniffing around for their share pretty fast.
If there is any uncertainty or the IRS/tax authorities made a mistake you (assuming you are a regular person) will get no sympathy.
YOU will pay for their mistakes as well as your own and the Chancellor or other politicians won't be stepping in to help you.
Sad but true.
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@thecryptofiend, I always come here for some wisdom and I have always found it, thanks to you.
so right - sighs - why do they always want to tax stuff if they could tax oxygen they would huh? greed is the root of all tax hahaha
I just wish your post is a lot easier to find so many resteemed post - too intelligently written they are tough to understand - but I get you Sir, I can't help but resteem too sometimes. Sometimes, I miss reading your old post cause I'm too busy or I read it but didn't fully understand so I want to get back at it but they're buried :). I wish we have different folder for resteemed post sighs and more sighs.
Thanks so much. Yes apologies for all the resteeming I get very excited when I see certain posts and it is hard to resist for someone like me!
There are currently discussions going on as to a solution such as having resteems in a separate folder or the ability to turn them on or off for people you are following.
I think until we have a solution I will avoid resteeming - except for very important cases (e.g. platform announcements).
Thank you for your support and for letting me know your thoughts it is really appreciated:)
@thecryptofiend no need to apologize Sir, it's everyone's right to resteem I also do my wall doesn't look like mine sometimes hahahah , and yes platform announcements should really be resteemed.
The transaction that confuses me the most is something like the following: As a US taxpayer, I use BTC that I acquired months or years ago to acquire ETH on a crypto exchange (no fiat involved), then I use the ETH to fund a contract that sends me tokens (i.e. an alt-coin), which I exchange at some point for BTC (no fiat involved). The cycle begins and ends with BTC, which is never sold for fiat or exchanged or "spent" for any tangible good. It's clear that although I may end up with more BTC than I started with, my cost basis in the BTC is unchanged. I'll have a pay tax at some point (if I sell it for fiat or use it to buy something), but what type of reporting would the IRS expect, and how (based on current law and public statements or regulations) would the current tax liability be calculated (if any)? This is hypothetical example, and not a request for advice. Just want to highlight the issues. Seems IRS has an incentive to leave the rules vague and decide later what types of audits to pursue.
After I posted my reply, I realized I could just as easily said "As a US taxpayer I use BTC to acquire STEEM, which I power up and hold... at some point later I power down and exchange (no fiat) for BTC..."
Exactly and does that count as being on an exchange if it is through for example an automated site like Blocktrades or Shapeshift? I'm as confused as ever.
That is the thing.
From my reading of the rules (and I could well be wrong) - you could be liable even if you never convert out of crypto because you are engaging in trading activity.
The problem is that it is not entirely clear and the tax authorities seem to be resisting being explicit on the matter - see that wiki page.
Personally that is the only form of trading I have done and I was under the impression that I should be OK and I believe a lot of other people have been under that impression too.
Exactly. One can't help but think it is deliberate so that they can keep their options open. You can't really argue with them (unless you are a big bank).
I'm in awe of your post! I got sucked in and read about taxes FFS, that's rare! Great example of a kick ass layout and quality post. You set the level I aspire to reach on my own posts in the future. I loved it, high five
Thank you so much! I am trying to improve the quality as I learn more. Thank you for your kind words and encouragement it really helps make it worthwhile.
The tax thing is something that has bothered me for a long time how the little guy gets pushed around and companies get away with all sorts of things and dictate the rules to the politicians. As soon as we have a new income stream the government want to take their cut - we can't bully them like Goldman Sachs et. al. - so we they take advantage.
Top Quality piece right there! :) Of course, gotta give credit where credit is due!
Yeah I know what you mean, we're all puppets of the elite. Comes a time sooner or later where everyone is forced to take a stand
Yes for sure. That advocacy group at least tried to get the government to do the right thing.
There is no try, only do as Yoda would have put it. Good intentions does not always result in good actions. Can't stop trying though
True.
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Not really unexpected -- any ways Big Gov can get into your families, pockets, banks, business, religion or anything else, they are gonna find ways to do it in nearly every country controlled by politics and private banking cartels.
Yes it is true sadly.
Good write up!
Nice puppies.
The IRS request really isn't much different than the NSA sweeping all communications. It's unconstitutional, but that really doesn't matter (as I point out in my recent renunciation post). This judge has failed in his/her duty to protect the people and shown that s/he's willing to create de facto unconstitutional regulation rather than enforce constitutional rights.
Yes and it is not surprising really. I think we have become used to it.
@cryptofiend I was surprised they were granted this scope for their "John Doe" summons. It's unprecedented even in the banking sector who deals with similar "John Doe" summonses related to Bank Secrecy Act/Suspicious Activities Reporting.
In terms of your thoughts about intentionally leaving a grey area as it relates to mining specifically, the March 25, 2014 Internal Revenue Notice IR-2014-36 which Ars Technica references discusses mining specifically:
"...when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income."
When TIGTA (the division responsible for auditing the IRS) released their report about the failure of the IRS to address crypto-related enforcement issues related to tax evasion and financing illegal activities, one of the three issues highlighted was the failure to provide any guidance to taxpayers two years after preliminary guidelines were established. It was widely believed among tax professionals this was intentional because the IRS was looking for settled case law in the courts to form a framework around. I'm not saying I agree with this position because it comes across as a game of gotcha.
In terms of other exchanges receiving identical summonses, there is no doubt in my mind once this trial balloon with Coinbase plays out, all other exchanges in the US and in countries abroad the US has tax treaties with will get something identical. I would imagine at some point the cryto community as a whole will undergo a much deeper scrutiny because this has become a priority for the IRS due to the TIGTA audit.
Wow thanks for sharing. I was not aware of that!
Resteemed
Thank you:)
#taxationistheft. Governments are just gangs writ large, and their extortion racket is entirely immoral.
It certainly seems that way sometimes.