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.
Your Reward for Reading:)
If you like my work and aren't already, please follow me and check out my blog (I mainly discuss photography but I do other topics too) - @thecryptofiend
Photo Credits: All photos are personal screenshots or taken from my personal Thinkstock Photography account. More information can be provided on request.
(Verification for me here: http://www.aapicture.com/about-me)
Some of my other recent posts
- How to Get Noticed if You Are A New User on Steemit
- The Other Side of the Coin - Dealing with the Onboarding Issue and Some Ways of Helping
- Get Paid Not Pwned - the Power of Slogans.
- Steemit X Prize Results
- Steemit Quick Start Guide: Step by Step from Registration to First Post