Čvn 09

South Korea Claims $28M Tax From Bithumb But Finds No ‘Illegal Activity’

· June 8, 2018 · 8:00 pm

South Korea’s National Tax Service (NTS) has requested $30 billion won ($28 million) in taxes from major cryptocurrency exchange Bithumb in a move which has gained positive feedback from the community.


Bithumb ‘Will Not Object’ To Tax Bill

Local media reported on June 8 that Bithumb, which posted revenues of 427 billion won ($397 million) in 2017, will pay the bill following an audit from South Korea’s Internal Revenue Service (IRS).

As a result of the audit, which occurred in April, the IRS also confirmed that investigators had not found “any illegal activities such as tax evasion.”

An NTS official said:

The IRS has conducted a tax investigation against Bithumb for the 2014 to 2017 business years. […] We understand that Bithumb has decided to pay the related taxes without any objection to the imposed tax amount.

Cryptocurrency commentators received the news warmly on social media, noting that Bithumb getting the all-clear from regulators marked a positive step forward for South Korea’s exchange industry.

South Korea Stabilizes Crypto

Earlier this year, the government moved to clamp down on exchange operators, banning multiple accounts and forcing users to link their exchange account with their bank account. Foreign accounts were also halted, along with provisional warnings from authorities that exchanges would soon need to respond to tax obligations from the previous 2017-18 tax year.

The boon for Bithumb, meanwhile, comes as Seoul continues to consider reversing its previous ban on ICOs. A National Assembly committee dedicated to studying the ‘Fourth Industrial Revolution’ recommended during a meeting on May 29 that it plans to “establish a legal basis for cryptocurrency trading, including permission of ICOs.”

Also among its recommendations was making “improvements” to the “transparency” of the local cryptocurrency industry, along with “establishing a healthy trade order,” local news outlet Business Korea reported.

What do you think about Bithumb’s tax bill? Let us know in the comments section below.


Images courtesy of BigStockPhoto

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Dub 20

Tax Attorney: Blockchain Immutability ‘Does Make The IRS Smile’ (Interview)

· April 20, 2018 · 4:30 pm

Bitcoinist spoke with Alexander Stern, legal attorney and founder of Attorney IO, to unpack the complexities related to Bitcoin and cryptocurrencies taxes, potential loopholes for users, and how the IRS can easily track individuals using Bitcoin compared to fiat currencies. 


Alexander Stern

The fact that a lot of this is on a blockchain (and cannot be tampered with) does make the IRS smile.

– Alexander Stern

Bitcoinist: First, how and for how long has your law firm been involved with Bitcoin and cryptocurrencies? Are you seeing increasing interest from clients?

Alexander Stern: I’m an attorney and the founder of Attorney IO. Attorney IO is a startup that provides legal AI to other lawyers to give them an AI’s perspective on the law. We proudly support lawyers working on the latest cryptocurrency issues, spanning from taxes to securities. I believe smart contract technology and legal AI are the future of the legal profession.

Bitcoinist: So do you see the legal profession also facing disruption? In other words, will many legal experts be replaced by AI and smart contracts in the future? 

Alexander Stern: Yes, I think a huge number of lawyers will be replaced by AI and smart contracts. However, the best lawyers will embrace this techno-legal future rather than fight it. It is now common to get a joint degree in law and business.

With the rise of AI and smart contracts, I think we’ll start seeing a lot more people getting joint degrees in law and computer science.

Bitcoinist: Is trading crypto-to-crypto on an exchange like Binance or Poloniex, for example, a taxable event? Is it retroactive? If so, from what date did this go into effect?

Alexander Stern: We asked some of the top tax law professors in the country this question. The Attorney IO Panel Report generally found that starting January 1st, 2018, all crypto-to-crypto exchanges are taxable events.

This is the case whether you use an exchange such as Poloniex or even if you make a private swap without using an exchange. The only exception I’m aware of may be to use non-taxable retirement accounts. However, the panel said that, prior to 2018, a great deal of crypto-to-crypto exchanges are taxable events and have been since before the Bitcoin whitepaper was published. The question is whether the two crypto assets being exchanged are highly similar to each other in how they function.

For example, it is arguable that Bitcoin and Litecoin are sufficiently similar to suggest swapping one for the other may be a non-taxable “like-kind exchange.”

On the other hand, one panelist said, “I don’t think a swap of cloud storage for a car is LK [like-kind]. So why should a digital asset that allowed you only to get cloud storage be LK [like-kind] with a digital asset that could be redeemed only for a car?” In other words, all exchanges going back to Bitcoin’s release are potentially taxable events, especially when the two coins are meaningfully different in function.

Bitcoinist: Is it possible to have taxable gains despite never having been converted into dollars? Moreover, what if the gains were wiped out by later unrealized losses?

Alexander Stern: Yes, this is the single biggest news of the panel report. The blockchain ecosystem could move into a second generation of coins and leave the first generation in the dust. If that happens and most of this first wave of tokens drop to levels seen only a few years ago, thousands of families could owe tens of billions of dollars in taxes, despite receiving much less than that in dollars. This could haunt people for the rest of their lives.

One panelist, Prof. Ainsworth, answered this question as follows: “Absolutely. The same happens in any real estate bubble where people are flipping homes. Some people flip every month, and if they end up flipping a $1 million home at the top of the market, and the value of all real estate ‘tanks,’ it is possible to have [taxable] gains that exceed the current market value of real estate.”

Another panelist, Prof. Kane, said, “I could exchange an appreciated, valuable painting for a farm. Not like kind (even before 2017 changes), so I recognize gain. But then the land market crashes, and I take a big loss. Was it wrong for the system to tax me given I did not really end up with any gain at the end of the day?”

Bitcoinist: The CFTC considers crypto to be commodities while the SEC believes some are securities. Is there any clarity at this point?

Alexander Stern: Cryptocurrencies are a completely new technology and paradigm. Regulators could decide they have features of both securities and commodities. It will also likely depend on the token itself rather than the asset class as a whole.

Bitcoin looks a lot more like a commodity. The latest ICO often looks a lot more like a security.

Ultimately, one token could be regulated as both a security and a commodity. This could mean at least two federal agencies would have simultaneous authority over one token.

Bitcoinist: Many people in the crypto space get paid salaries in Bitcoin, for example. Would this be taxable the same as income in dollars?

Alexander Stern: Yes. If you get paid in Bitcoin or any other digital asset, you generally have the same tax responsibilities as payment in dollars.

Bitcoinist: We’ve seen instances where people claim they got “hacked” and that the funds are no longer theirs. How can the IRS technically prove that an individual has control of their funds?

Alexander Stern: In my opinion, this seems very similar to losses due to theft outside of the blockchain. If you keep half of your salary as cash under your mattress, it is vulnerable to theft too. In some cases, the IRS does allow you to deduct for theft, but it is a very case-specific process. If you have a substantial theft from a cryptocurrency hack, you should get a tax attorney to guide you.

Documentation, such as police reports or news articles on a major hack, can be crucial to demonstrate to the IRS that you did indeed lose money due to theft. Nobody should consider claiming a hack that is not genuine. That may lead to serious consequences that could include jail and fines.

Bitcoinist: Are there any legal loopholes that Bitcoin users can use to avoid taxation? For example, sending bitcoin to another person as a “gift”?

Alexander Stern: Generally speaking, no. A good rule of thumb in the tax world is to ask whether something would be effective if you use dollars instead of cryptocurrencies. If you get a salary in dollars or cryptocurrencies, you cannot avoid income tax by saying you gifted it all away.

IRS

Bitcoinist: The IRS is increasingly forcing third-party intermediaries to turn over records such as we’ve seen with Coinbase. However, since technological innovation is always one step ahead, could new tech, such as anonymizing features, decentralized exchanges, cross-chain atomic swaps, etc., make it even harder for authorities to track individuals? Who do you see winning this game of cat-and-mouse?

Alexander Stern: These new technologies could make it harder for the IRS but certainly not impossible. The Bitcoin blockchain is particularly susceptible to scrutiny. Panelist Prof. Ainsworth notes that “all the IRS needs to do is get a good computer out and draft assessment notices once they have the account numbers.

The fact that a lot of this is on a blockchain (and cannot be tampered with) does make the IRS smile. Assessments could not be easier. The metaphor of ‘fish in a barrel’ comes to mind.”

However, the IRS is a very capable agency. People try to dodge taxes outside of blockchain investments all of the time. When you start driving around in a Lamborghini but report only a small income, that raises some serious red flags. If the IRS can catch tax evaders using cash, it can do so with even the most sophisticated anonymous blockchain assets.

Bitcoinist: Given that 2017 was a record year in terms of price gains across the board for cryptocurrencies, do you believe we’ll see more people file taxes on the crypto returns this year or less?

Alexander Stern: All sorts of federal and state government agencies have seen the dramatic price appreciation of cryptocurrencies. They all want to increase their authority and get a piece of the pie. The panel report notes that only a few months ago we saw a ramp up in IRS scrutiny of Coinbase.

I think we’ll start seeing significant legal action taken against cryptocurrency tax dodgers, and this enforcement will spark a community-wide increase in paying taxes.

Bitcoinist: Do you think tax service companies like Turbo Tax or H&R Block will start offering cryptocurrency tax services as it becomes more popular?

Alexander Stern: Yes, I think that’s a great idea. Turbo Tax and H&R Block could make a ton of money by tapping into this burgeoning market. Most people want to comply with the law and that means paying taxes. These companies can make a few small additions to their systems and capture this market.

taxes

Bitcoinist: What’s your advice for cryptocurrency users moving forward? Should they keep track of every single transaction and trade?

Alexander Stern: The panel report does find people should track every single trade. Panelist Prof. Chodorow says, “To comply with the tax laws, keep track of how much you paid for each coin. Further, keep track of which coin you sell or spend as well as the value of the coin at the time you dispose of it. You will also need to determine how long you have held the coin. If you hold your coins at one of the exchange companies, those companies should be able to provide you that information.”

He adds, “Any time that you sell or spend a virtual coin, you will have a tax gain or loss if the value of the coin at the time you sold or spent it differs from the value when you acquired it.”

In other words, even if you buy a small item such as a cup of coffee, you are technically incurring a tax obligation.

It is no different than if you sold $5 in Bitcoin and took that $5 to the coffee shop. Both events are taxable. While this could limit the practical use of these assets as currencies, it may not be so onerous if you are with an exchange that automatically records all of the necessary information each time you make a trade.

Bitcoinist: Finally, where can people find more information on this topic?

Alexander Stern: I suggest that people read the entire Attorney IO panel report on cryptocurrency taxes and adjust their bookkeeping and tax strategies accordingly. Some of the best law professors in the world took the time to educate the cryptocurrency community about their obligations. It’s worth looking into what they have to say.

Did you pay your cryptocurrency taxes this year? Share your comments below! 


Images courtesy of Shutterstock, Attorney IO

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Dub 06

$25 Billion Owed in Crypto Taxes Causing ‘Massive’ Selling, Wall Street Analyst Says

· April 6, 2018 · 3:00 pm

‘Massive’ selling of cryptocurrencies into fiat by mid-April to be expected, as U.S. crypto holders ‘likely’ owe $25 billion in capital gain taxes according to Tom Lee, head of Fundstrat Global Advisors.


Tom Lee, the former chief equity strategist at J.P. Morgan Chase is amongst the few, if not the only Wall Street analysts who are providing regular thoughts and analysis on Bitcoin and the overall state of the crypto market.

Pressure Rises as Deadlines Approach

As the mid-April tax filing deadlines approach, Lee says that cryptocurrency selling pressure rises. In a report for CNBC, the analyst says that he estimates an approximate $25 billion being owned in capital gain taxes for cryptocurrency holdings by U.S. Households. And that’s the ‘low estimate’.

As the tax day approaches, we could witness ‘massive’ selling of cryptocurrencies into U.S. dollars.

Lee explained:

This is a massive outflow from crypto to USD and historical estimates are each $1 of USD outflow is $20-$25 impact on crypto market value.

Going further, the expert believes that selling pressure is also being piled up by crypto exchanges.

Many exchanges have net income in 2017 [of more than] $1 billion and keep working capital in Bitcoin or Ethereum and not in USD — hence, to meet these tax liabilities, are selling BTC/ETH.

Taxes are No Joke

In late March, the IRS reminded that virtual or digital currencies are taxable by law just as transactions of any other type of property. The taxman also went on reminding that steep penalties are in for those who fail to properly oblige by mid-April’s tax day.

While administrative cash penalties and interest are awaiting low-key crypto investors for failing to report their taxes, those who deal in larger quantities definitely have a lot more on the line to worry about, according to the release from the IRS:

Criminal charges could include tax evasion and filing a false tax return. Anyone convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Anyone convicted of filing a false return is subject to a prison term of up to three years and a fine of up to $250,000.

Yet, a recent poll in twitter held between more than 7,500 people revealed that 53% of them aren’t really worried about taxes on the premise that “They’ll never catch me”.

What Does This Mean for the Crypto Market?

Tax-related selling would certainly add to the tough start of the year for Bitcoin. Yet, Tom Lee and other proponents remain positive.

When asked about Lee’s previous prediction of Bitcoin’s price, the analyst maintains his full-fledged positivity:

“We’re still positive. The important trends to focus on crypto are that there’s a lot of underlying progress, adoption is still growing,” adding that “Ultimately, we expect bitcoin to find footing after April [17], tax day.”

Do you think the price of Bitcoin will be affected by mid-April’s tax deadlines? Please let us know in the comments below!


Images courtesy of Bitcoinist Archives; Pixabay

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Úno 24

Coinbase Gives IRS More Than 10K Users’ Information

· February 24, 2018 · 9:30 am

After fighting the IRS in court, popular digital currency marketplace Coinbase has been ordered by the Northern District of California to turn over more than 10,000 users’ personal information and trade history — but it could have been much worse.


The Taxman

The Beatles once sang:

If you drive a car, I’ll tax the street,
If you try to sit, I’ll tax your seat.
If you get too cold, I’ll tax the heat,
If you take a walk, I’ll tax your feet.

Now, you can add “If you sell on Coinbase, I’ll tax your trades.”

Coinbase

According to Coinbase support, the popular cryptocurrency marketplace notified roughly 13,000 users concerning a summons from the Internal Revenue Service — the United States’ tax collection agency and official administers of Congress’ Internal Revenue Code.

As described in the United States District Court’s decision, the IRS served up a summons to the exchange regarding records of almost every single Coinbase user over a period of several years. The exchange, however, failed to comply — leading to the IRS narrowing its request to significantly fewer individuals with larger accounts. The Northern District of California both granted and denied parts of the United States of America’s Petition to Enforce, resulting in Coinbase’s being ordered to turn over more than 10,000 users’ information, on suspicion that they failed to pay federal tax on their cryptocurrency profits.

The information provided to the IRS by the cryptocurrency exchange includes users’ “taxpayer ID, name, birth date, address, and historical transaction records for certain higher-transacting customers during the 2013-2015 period.”

Coinbase Is on Your Side

Though nobody enjoys dealing with the IRS, it’s worth noting that Coinbase sought to protect its users’ information from the federal government’s tax collectors. As explained by the exchange:

In December 2016, the Internal Revenue Service issued a summons demanding that Coinbase produce a wide range of records relating to approximately 500,000 Coinbase customers. Coinbase fought this summons in court in an effort to protect its customers, and the industry as a whole, from unwarranted intrusions from the government.

Bitcoin Taxes

Coinbase also considers the result of its initial non-compliance a victory, writing:

After a long process, the court issued an order that represents a partial, but still significant, victory for Coinbase and its customers: the order requires Coinbase to produce only certain limited categories of information from the accounts of approximately 13,000 customers.

Have you received a notification from Coinbase in regards to your information being turned over to the IRS? Do you appreciate the exchange’s initial non-compliance? Let us know in the comments below!


Images courtesy of Wikipedia Commons, Coinbase, and Bitcoinist archives.

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Úno 18

The New Normal: Cryptocurrency Goes Mainstream This Tax Season

· February 18, 2018 · 7:30 am

Until quite recently, most cryptocurrency investors either did not know or did not care to pay taxes on the capital gains they accumulated buying and selling digital coins. The cryptocurrency community is now facing a hard truth: they have to pay taxes just like all the rest of us.


[Editor’s note: This is a guest article by Mario Costanz, CEO of Happy Tax]

Virtual currencies exploded onto the investment scene last year, due in large part to the astronomical rise in the popularity of Bitcoin and its many successors. Interest in this exciting new investment shows no signs of slowing, and soon cryptocurrency will be as ubiquitous as the other traditional securities traded daily on Wall Street.

Until quite recently, however, most cryptocurrency investors either did not know or did not care to pay taxes on the capital gains they accumulated buying and selling digital coins. The cryptocurrency community is now facing a hard truth: they have to pay taxes just like all the rest of us.

The attention that virtual currencies are receiving from federal and state regulators is a positive sign that this innovative technology is heading towards the mainstream. Of course, it has a long way to go until it gets there. In the meantime, however, cryptocurrency investors need to accept the reality of growing government oversight.

Paying Cryptocurrency Taxes is Not Optional

Bitcoin emerged from an anonymous source far on the fringes of the internet nearly a decade ago. For a time, cryptocurrency traders enjoyed an investment environment free from government oversight. This has caused many investors to turn a blind eye to increasing regulation, particularly from the Internal Revenue Service.

Tax liability for virtual currency investments is still a bit of a gray area in many respects, and new laws and policies are sketching out the boundaries. However, one thing is absolutely clear: if you trade cryptocurrencies, you must report your activity to the IRS.

Internal Revenue Service (IRS) Asked to Provide a Clearer Cryptocurrency Tax Framework

To the great dismay of many early virtual currency investors, the IRS declared virtual currencies to be taxable capital assets back in 2014. Like other capital assets, cryptocurrencies are subject to the capital gains rules. The tax rate depends on how long you held your coins before you sold them, as well as the price you bought in and the price you sold out. If your capital losses on your cryptocurrency investments exceed your capital gains, you can claim the loss as a deduction on your income tax returns, up to $3,000.

In other words, the same rules apply to cryptocurrency investors as taxpayers who trade stocks and other securities. This sounds simple enough for any seasoned trader, but unfortunately, things in the cryptocurrency world tend to get complicated quickly.

Most securities are used only in straightforward buy-and-sell transactions. However, cryptocurrencies are also intended to be used to purchase goods and services. Contrary to the popular belief – and wishful thinking – of many cryptocurrency investors, cashing out of your virtual currency investments isn’t the only taxable event in the lifespan of your investment. Rather, tax liability arises whenever cryptocurrencies are traded for other coins, cashed out into fiat currency, or used to purchase goods and services. So, for example, if you buy a new couch on Overstock.com using bitcoin, your purchase will be subject to capital gains tax in addition to any sales tax that may apply.

Paying Crypto Taxes Using Cryptocurrency

This type of double-taxation poses a real challenge to the integration of cryptocurrency into retail payment systems. Fortunately, however, it isn’t all bad news. Just last week, the Arizona State Senate passed a bill allowing residents to pay their state income taxes using “Bitcoin, Litecoin, or any other cryptocurrency” allowed by the state revenue department. While the bill still needs to go through the Arizona House of Representatives before it becomes a law, it represents a landmark moment in the cryptocurrency world.

The Arizona bill has been received with a mix of enthusiasm and skepticism. On one hand, the inherent value of cryptocurrencies is still up in the air. Virtual currencies have become legendary for their volatility. The price of Bitcoin more than doubled in the last two months of 2017 before falling again to half its value in the first two months of 2018.

Bitcoin Taxes

Well-known cryptocurrency critics, like Warren Buffett and JPMorgan Chase CEO Jamie Dimon, claim that cryptocurrencies offer little to any market value and that current market prices are fueled entirely by speculation. On the other hand, the blockchain technology that supports the virtual currency market is a groundbreaking innovation that has the potential to change the way people use money entirely.

The fate of the Arizona law is now in the hands of state representatives, and it remains to be seen how the saga will unfold. It’s a bold legislative move that may be tossed aside by the state’s more conservative House of Representatives. However, it’s also a sign of the times. Arizona recognizes the potential value of virtual currencies as a technology, not just a security or replacement for traditional cash.

As a result, the state is posturing itself as a cryptocurrency-friendly market in anticipation of greater adoption of virtual currency technology and its derivatives. While the long-term viability of any virtual currency remains to be seen, the integration of cryptocurrency into government revenue streams is a positive sign for the future of this exciting new technology.

Will you be paying taxes on your cryptocurrency income this season? Let us know in the comments below!


Images courtesy of HappyTax, Shutterstock 

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Pro 02

Trump Administration Considering Regulating Bitcoin

· December 2, 2017 · 1:00 am

As Bitcoin and other cryptocurrencies continue to rise in both value and popularity, national governments are starting to scrutinize them more. Case in point is that the Trump administration may be considering regulating Bitcoin.


The last year has been an exciting one for cryptocurrency, especially Bitcoin. The digital currency has skyrocketed in value, with no telling how high it will go. The success of Bitcoin has finally convinced major financial institutions to come on board, but such success also brings a great deal of scrutiny. In a recent press conference, White House Press Secretary Sarah Huckabee Sanders said that the Trump administration is monitoring Bitcoin and may consider regulating it.

Feds Watching Bitcoin

During the daily press briefing in the White House, Press Secretary Sarah Huckabee Sanders was asked by a reporter about President Trump’s views on Bitcoin. In her reply, she said:

I know this is something that is being monitored by our team here. In terms of specific briefings and announcements on it, I don’t have anything that I can share with you right now but would be happy to follow back up with you.

Sanders was then asked about this Bitcoin monitoring, to which she said:

I know this is something that is being monitored by our team here. In terms of specific briefings and announcements on it, I don’t have anything that I can share with you right now but would be happy to follow back up with you.

Is Regulation for Bitcoin Coming?

The fact that the US government is keeping tabs on Bitcoin should not come as a surprise. The IRS just won its lawsuit against Coinbase, causing them to hand over data on more than 14,000 accounts. The IRS suspected many people were evading taxes by using cryptocurrency, and an initial survey found that only 0.2% of Coinbase users reported a loss or gain on their transactions. The silver lining in this case is that the accounts handed over are restricted to those with a Bitcoin equivalent of $20,000 or more in a given year between 2013 and 2015.

There are a number of other reasons why the Trump administration will wish to monitor Bitcoin and other cryptocurrencies. The fact that a growing number of people are willing to use a monetary system outside of federal control is not something that most centralized governments, either politically right or left, will be thrilled with. Then there’s the worry about what impact, if any, cryptocurrency could have upon the economy, not to mention the normal hand-wringing about Bitcoin being used for illegal purposes.

Right now, the federal government is only monitoring Bitcoin, but most users would be very unhappy with any regulation. One of the reasons why Bitcoin has grown so much is due to its unregulated nature, and many view future regulation as hurting the digital currency. The president of Global Blockchain Technologies Corp., Shidan Gouran, states:

We believe that the greatest threat is regulation. Several governments across the world have clamped down on exchanges, some halting trading altogether. Others have gone on to outright ban the use of Bitcoin. Sudden government actions in major Bitcoin trading hubs stand to disrupt the market, with the potential to severely affect the utility of bitcoin – and accordingly, the value.

Right now, we’ll have to wait and see if the Trump administration does anything more than just monitor Bitcoin and its cryptocurrency brethren.

Do you think that the Trump administration will eventually regulate Bitcoin? If so, will this hurt the value of the cryptocurrency? Let us know in the comments below.


Images courtesy of Wikimedia Commons and Bitcoinist archives.

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