Blockchain News
Since a legal framework for taxes
on cryptocurrency is still in its infancy,
exchanging one cryptocurrency for another
had been categorized as “like-kind-
exchanges”. Under this type of categorization,
you could exchange two similar types of assets
without being taxed. It wasn’t until early 2014
when the IRS (Internal Revenue Service)
announced its stance on cryptocurrencies. At
the time, cryptocurrency was not recognized
as a real currency. Instead, it was considered
to be a “property”. So, the same kind of tax
rules that govern traditional property would
apply to cryptocurrency. Coinbase refused to do this. It said that it
had a policy of maintaining a certain level of
privacy for its clients and turning over these
reports would be against that policy.
Tax Evasion using Cryptocurrency
According to the IRS, cryptocurrency
“property” should be subjected to the same
tax rules as traditional stocks and bonds.
Therefore, they must be reported on the
same type of tax form: Form 8949. There
seems to be a major problem when it comes
to collecting taxes on cryptocurrency. Only
802 taxpayers documented crypto-currency
transactions in 2016, according to IRS court
papers. Martin Mushkin, a lawyer focusing
on cryptocurrency laws, said that the number
of these reports were “ridiculously low”. This
might be a sign that people could be trying
to use bitcoin and other cryptocurrencies for
tax evasion purposes. It might just be a matter of time that
more taxes on cryptocurrency related activity
are imposed. Other crypto exchanges and
businesses who deal in cryptocurrencies
could eventually come under the scrutiny of
the IRS. It might seem unfair that the new
tax bill passed by the Trump administration
will be taxing crypto-to-crypto trades, but it
is reasonable to expect that citizens accurately
report their earnings to the IRS, including
those made from cryptocurrency.
However, the IRS had been battling
Coinbase in court, and recently, a Court
ruling required Coinbase to turn over certain
customer information to the IRS. This
includes customer social security numbers
(aka tax ID numbers, records of account
statements and activities, and even certain
correspondences between the user and
Coinbase.
Omar Faridi
[email protected]
Final Thoughts
In an effort to collect taxes on
cryptocurrency related business or trading,
the IRS had requested that Coinbase report
customer data to them. Coinbase has seen
such a high volume of crypto trading that
it recently experienced a major outage. The
IRS demanded over three years’ worth of
crypto-transactions made by its clients, but
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