The IRS may subpoena tech firms like Apple, Google and Microsoft in search of taxpayers’ unreported crypto holdings.
As confusing as the American
cryptocurrency tax law might be, the Internal Revenue Service (IRS) is not
cutting crypto holders any slack. Besides enlisting Chainanalysis, to track
Bitcoin traders, the IRS is now casting its net even wider. The IRS is now
going to use sources such as social media and open source searches to unearth
crypto trading data.
The revenue arm of the US government will also intercept data from electronic surveillance, interviews, and Grand Jury subpoenas to apprehend tax evaders. On Twitter, Crypto Tax Girl expounds on the matter saying:
“You would think that these subpoenas would be served to crypto exchanges, but the IRS plans on serving them to Apple, Google, and Microsoft in order to search through taxpayers’ download history to see if they have ever downloaded cryptocurrency application.”
This new information is part of the IRS’s
presentation for its special agents in the Criminal Investigation Division.
The matters discussed in the presentation detail on how to investigate
taxpayers holding crypto reserves.
Bitcoin and Crypto Ownership with Social Activity
In a similar fashion, the IRS will also serve subpoenas to collect PayPal, credit card, and bank for anyone they have as a target. The records will be analyzed for digital assets payments and transactions. CryptoTaxGirl also adds that they will additionally, review “Facebook, Twitter, and other social media platforms to find publicly available BTC and ETH addresses.”
The agents are also under no obligation to notify any taxpayer whose Bitcoin records are under investigation. This, the IRS presentation says, is in a bid not to impede on the investigation. Bitcoin holders have been at the cross-hairs of the IRS since its Notice 2014-21. The notice declared that digital currencies were property and not a currency and were therefore taxable as such.
For years, some Bitcoin fans have wrongly assumed that BTC trades were safe. A crypto trader’s private details may indeed remain obscured from public scrutiny. However, digital currencies run on a blockchain, which is a public record of all transactions. Through Chainalysis, for instance, the IRS has in the past, unmasked BTC users with unreported profits.
IRS Hunting For Unreported Capital Gains
Uncle Sam wants those Bitcoin Bull Run profits so bad, that he will do whatever means it takes to get them. Case in point is the Coinbase IRS order to hand over data of its 14,000 digital assets trading clients. The IRS did not have the power to go after every small fish on the exchange.
revenue body instead set limits to BTC holders with $20,000 and above worth of
tokens. By February 2018, the exchange had informed its nabbed 13,000 customers
that they had a summons from the IRS.
With the vigorous updates on the revenue body’s investigations on crypto holders, it is evident that the IRS will now leave no stone unturned. A bipartisan 21-member House of Representatives group is nevertheless asking the US IRS to explain its confusing crypto tax policy.
In a strongly worded letter, Tom Emmer, one of the legislators, has asked the body to guide the taxpayer and eliminate the ambiguity surrounding the laws. The group, for instance, has the government agency to address the confusion on taxation of crypto capital gains.
The post Microsoft, Google and Apple To Track Bitcoin (BTC) And Crypto Owners appeared first on Ethereum World News.
The Internal Revenue Service hopes to require tech giants such as Google and Microsoft to silently share crypto-related activity by users: Report.
The United States’ Internal Revenue Service (IRS) is allegedly considering requiring tech giants to report on crypto activity by users, according to a presentation reportedly from an IRS presentation and provided by a Twitter user on July 9.
According to the documents shared, the IRS hopes to use Grand Jury subpoenas on firms such as Apple, Google and Microsoft to check taxpayers’ download history for crypto-related applications.
Citing the document, Walter concluded that the tax authority is conducting exhaustive research into detection of criminal tax evasion cases involving crypto. As such, the IRS is considering carrying out interviews, open-source and social media searches, as well as electronic surveillance, the expert noted.
Startlingly, the 181-page document reads:
“Grand Jury Subpoena should be considered for Apple, Google, and Microsoft for the Subject’s complete application download history. Each application’s function should be explored to determine whether or not the application can transmit, or otherwise allow, transactions in bitcoin.”
As Walter emphasized, the presentation envisions that IRS agents ensure that taxpayers are not notified about the obtained information regarding their use of cryptocurrencies to prevent detrimental to the investigation.
Cointelegraph notes that the IRS has not confirmed the authenticity of the presentation’s origin.
According to the documents provided, the IRS is hoping to serve subpoenas to check data from accounts in banks and Paypal for connection with crypto transactions. Additionally, the tax authority is considering reviewing social media giants such as Facebook and Twitter to find and record publicly available cryptocurrency addresses.
Concluding the thread, Crypto Tax Girl wrote:
“There is a ton of other information in there about crypto in general, tracing transactions via the blockchain, limitations of the blockchain, etc. but what you need to know is that the IRS is working HARD to identify criminal tax cases involving cryptocurrency.”
As previously reported, the IRS currently considers cryptocurrencies property. In late 2018, an advisory committee of the IRS expressed its intent to provide additional guidelines for the taxation of crypto transactions.
Recently, Cointelegraph reported on Singapore’s plan to exempt cryptocurrencies that are intended to function as a medium of exchange from Goods and Services Tax (GST).
It might be possible to have your trust pay the lower corporate tax rate of 21% rather than your individual crypto tax rate.
Robert W. Wood is a tax lawyer representing clients worldwide from the offices at Wood LLP in San Francisco. He is the author of numerous tax books and writes frequently about taxes for Forbes, Tax Notes and other publications.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. This discussion should not be regarded as legal advice.
The United States Internal Revenue Service (IRS) treats Bitcoin and other cryptos as property. That means each property transfer can trigger taxes, with a tax hit to both the recipient and the transferor. A key question is the market value at the time of the transfer. Some crypto investors put crypto in legal entities such as corporations, LLCs or partnerships. Another avenue is a trust that holds crypto assets.
In North Carolina Dept. of Revenue v. Kimberley Rice Kaestner 1992 Family Trust, the U.S. Supreme Court unanimously said that a state could not tax out-of-state residents on trust income without minimum contacts. We’ll come back to that case, but should note that trusts can be taxed in several different ways, depending on their type. There are living trusts that people usually use for estate planning, but living trusts are not separately taxed.
Crypto and living trusts
So, if you transfer Bitcoin to your living trust, it usually isn’t a taxable transfer, since your living trust isn’t really a separate taxpayer. It is still you, so you still report the gain or loss on a later sale on your personal tax return. There are also nongrantor trusts, in which the transferor is not taxed on them. These are separately taxed, and a separate trust tax return must be filed.
Trust tax rules can be complex, but that means the trust itself pays the taxes. There can be another tax on the distribution to beneficiaries. But leaving distribution issues aside, where does the trust pay taxes? That depends. Some trusts are foreign, meaning that they are set up outside the U.S. Those rules are complex, but if you are a U.S. person, you should not assume that you can avoid U.S. taxes with a foreign trust.
Still, it might be possible to have your trust pay the lower corporate tax rate of 21% rather than your individual tax rate.
What about state taxes?
This is where things get more interesting. Some trusts are set up with an eye on reducing or avoiding state taxes — say, if you are in California and don’t want to move to Nevada before you sell your Bitcoin. You want to cut the sting of California’s high 13.3% state tax, but you aren’t willing to move — at least, not yet. You could consider setting up a new type of trust in Nevada or Delaware.
A “NING” is a Nevada Incomplete Gift Non-Grantor Trust. A “DING” is its Delaware sibling. There is even a “WING” in Wyoming. The usual grantor trust for estate planning doesn’t help, since the grantor must include the trust income on his/her own tax return. With a Nevada or Delaware Incomplete Gift Non-Grantor Trust, the donor makes an incomplete gift to the trust, and the trust has an independent trustee.
The idea is to keep the grantor involved but not as the owner. The state of New York changed its law to make the grantor taxable no matter what, but the jury is still out on these trusts in California and other states. Some marketers of NING and DING trusts offer them as alternatives or adjuncts to a physical move.
The idea is for the income and gain in the NING or DING trust not to be taxed until distributed, when the distributees will hopefully no longer be in the high tax state. The trustee must not be a resident of the high tax state. Parents frequently fund irrevocable trusts for children and may not want the trust to make distributions for years, removing future appreciation from the parents’ estates. Tax-deferred compounding can yield impressive results, even if only state tax is being sidestepped.
For tax purposes, most trusts are considered taxable where the trustee is situated. For NING and DING trusts, a common answer is an institutional trust company. Trust investment and distribution committees should also not be residents. The facts, documents and details matter, and states like California may well push back. However, doesn’t the Supreme Court’s recent North Carolina case help?
North Carolina case
The court ruled that North Carolina’s tax statute asserting jurisdiction on a foreign trust based solely on the residence of a beneficiary was too broad. But it is still constitutional for a state to tax based on the residence of the trustee or the site of the trust’s administration. Who forms the trust matters, too. In the North Carolina case, the trust was formed by the taxpayer’s father, and he was a resident of New York.
The taxpayer in the case was the daughter, and she was not the trustee and had no control over the trust. She didn’t even receive any distributions from the trust in the years involved in the case. That made it a pretty compelling case for the Supreme Court to tell North Carolina it couldn’t tax her.
In contrast, many NING/DING trusts are formed by the person in the high tax state trying to avoid state tax — a person in California, for example. And then there’s the distribution question, as some NING/DING trusts do anticipate that the settlor might receive distributions. The administration can be touchy too, as some NING/DING trusts include the settlor/beneficiary as a member of a distribution committee that exercises control over trust distributions.
Depending on the facts of the NING/DING trust, therefore, the Supreme Court’s ruling seems pretty limited. In fact, the case is limited to the handful of states that use beneficiary residence as the sole factor for determining the state’s taxing jurisdiction. The court said its ruling should not impact states that consider beneficiary residence as only one of several factors for determining their jurisdiction to tax. Interestingly, California is one of five states identified in the case that establishes jurisdiction based entirely on the beneficiary’s residence.
Even here, though, the opinion carves out California’s tax statute as an issue to resolve at a later date. California law only allows the state to assert jurisdiction based solely on the beneficiary residence when the beneficiary’s interest is not contingent (such as not subject to the discretion of a trustee). The North Carolina case involved a trustee who had discretion to control distributions, or to not make distributions at all.
So, will your NING/DING trust work to shield you and your beneficiaries from state tax? Creative trusts can be worth trying, depending on the right facts, but you need to be careful. You don’t want to be low-hanging fruit for the high tax state to attack.
Coming guidance from the IRS is expected to clarify longstanding crypto tax questions. Here’s what to look for.
The FBI published a questionnaire for potential victims of QuadrigaCX on Monday.
John McAfee is releasing a cryptocurrency this fall which purports to be independent from fiat currencies, crypto exchanges and traditional backing assets.
Crypto enthusiast, bitcoin (BTC) bull, antivirus software namesake and 2020 United States presidential campaigner John McAfee is releasing his own independent cryptocurrency, according to an official Twitter post on May 29.
According to his website on the announced cryptocurrency, the “McAfee Freedom Coin” will roll out some time this fall. The McAfee Freedom Coin appears to aim for total isolation and independence from traditional currencies, assets and exchanges in an effort to reach “the Holy Grail of cryptocurrency — economic freedom.”
According to McAfee, these are the desired properties of the new cryptocurrency:
“What is needed is a coin disconnected from fiat currencies and from other crypto currencies alike — a coin with zero cash-in value, yet accepted universally … It is not based on any commodity nor is it connected to the value or behavior of any external item or entity. The value of the coin will always be zero in relation to any other currency yet it’s natural market value is free, completely, to grow.”
As previously reported on Cointelegraph, McAfee has said he plans to run for President of the United States in 2020 on a boat in international waters, since he has purportedly been indicted by the U.S. Internal Revenue Service (IRS).
McAfee has reportedly made no secret of his tax evasion, saying that he has not filed taxes for eight years. His presidential campaign is also not a serious bid for the office, but rather a stated attempt to promote cryptocurrencies as a means to securing personal freedom for citizens.
In recent news, McAfee said that he has discovered the identity of the mysterious Bitcoin creator Satoshi Nakamoto, who is purportedly a man living in the U.S. McAfee apparently was planning to out Nakamoto’s identity, but has put his plan on pause per advice from his extradition lawyer:
“The US extradition request to the Bahamas is imminent. I met with Mario Gray, my extradition lawyer, and it is now clear … that releasing the identity of Satoshi at this time could influence the trial and risk my extradition. I cannot risk that. I’ll wait.”
Caitlin Long and Peter Van Valkenburgh find themselves on the opposite sides of the federal-versus-state regulation divide.
It is easy to think of the most prominent blockchain advocates as a united front, whose ranks are tightly closed in the face of the common enemy — a horde of fierce crypto critics, unwieldy regulators, anti-money laundering zealots, “bitcoin is a scam”-ers, and the stakeholders of the old, centralized financial system. On this battlefield, the crypto camp’s fundamental positions are aligned, and its strategic goals are clear. However, in the times of armistice, blockchain champions get together by the campfire to ponder the important details of their common cause, and — astonishingly — at times, they disagree.
This time around, the metaphorical campfire was lit at the MIT Technology Review’s Business of Blockchain 2019 conference, which took place on May 2 on the premises of the Massachusetts Institute of Technology’s Media Lab. One of the panels saw Caitlin Long — the woman who is spearheading Wyoming’s transformation into what she herself called the “Delaware of crypto law” — have a deferential yet rather intense exchange with Coin Center’s director of research, Peter Van Valkenburgh, one of the industry’s most eloquent speakers who is known for many notable deeds — for example, standing up for crypto to a bully last October.
The panel, which also featured MIT professor and former Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler, was on crypto regulation, and the main point of contention was whether it is better done on the federal or state level. While they were ultimately concerned about the same thing — i.e., the backwardness of the United States’ regulatory environment that can chase promising startups away to more friendly jurisdictions — Long and Van Valkenburgh offered two drastically different visions of the best way to go about the issue.
Hurdles on all levels
The tension over the boundaries of federal vs. state authority has informed American politics since the foundation of the republic. In the realms of commerce and finance, a relative balance was achieved when the states assumed jurisdiction over the “consumer-facing” commercial law while the agencies of federal government came to oversee operations with more specialized, “institutional” financial instruments — such as securities (Securities and Exchange Commission, SEC), futures and options (Commodity Futures Trading Commission, CFTC), and broad financial crimes (Financial Crimes Enforcement Network, FinCEN).
It has become a truism that, for crypto enterprises in the U.S., navigating the regulatory landscape is about as easy as making it blindfolded through a minefield. All the agencies mentioned above are interested in some subset of digital assets: The CFTC is eyeing smart contract-powered futures options; the SEC is struggling to decide whether all initial token offerings are under its purview, or just some of them; and FinCEN, facing the need to investigate money laundering schemes and shady transactions, understands crypto assets as something it is used to dealing with (i.e., money). In addition, the Internal Revenue Service (IRS) is treating crypto as property for the taxing purposes, which means that capital gains and losses come into play.
To top it all off, individual states have begun to institute guidelines and regulations of their own, with Wyoming blazing the trail by establishing its own classification of tokens. This is not a small deal, either, since companies operating online automatically fall under jurisdiction of every state whose residents they serve — meaning that now they have to comply with state regulations, too.
This chaos is due to the fact that there is no universally agreed-upon, federally enforced definition of a digital asset. While it would come in handy if one existed — for the purposes of delineating the boundaries of different national regulatory bodies’ jurisdiction over different types of tokens — it is also an arduous task to formulate such a definition, let alone to steamroll such a bill through Congress. The last few months saw continuous attempts on behalf of a group of blockchain-conscious members of Congress to introduce more clarity with a bill known as the Token Taxonomy Act.
The crypto community, though, seems to be divided over not just the bill itself but the very idea of a Congress-enacted, binding definition of a digital token with a claim of federal preemption. Some critics point out that, absent a clear understanding of terms and a sufficient corpus of case law on the matter, it is nearly impossible for a bill to define central concepts around crypto assets in a way that would eliminate dreadful ambiguity when enforced. Others, including Caitlin Long, argue that it is not the federal government’s business altogether, and an attempt by Congress to introduce such a taxonomy would amount to an infringement on states’ rights. Long’s talk at the MIT Technology Review event, her polemic with Van Valkenburgh at the panel, and a subsequent interview to Cointelegraph provide a closer look at the “states’ rights” argument that she stands by.
Financializing crypto assets
Put very simply, there are two major elements in regulations that bind financial firms: those related to consumer protection and prudential regulations, which are rules that dictate the need for such firms to be able to handle risks and hold sufficient assets. One of the central theses that Long advanced throughout the conference is that the inadequacy of current U.S. crypto regulation stems from overemphasizing the consumer protection side while ignoring the solvency issues.
In her talk, entitled “The Financialization of Cryptoassets,” Long explained that many digital assets do not qualify as securities, hence they should be treated as property. Commercial law related to property was mainly formulated in the age when all possessions were tangible, which warrants the need for updating this legal area so as to define digital assets — or to “financialize” them.
The key difference between the traditional financial system and blockchain-based systems is the way custody and settlement work. Normally, people do not own the shares in their brokerage accounts. Instead, they own IOUs (“I owe you”) from their brokers, who own IOUs from custodians, etc. With this murky chain of ownership, it is not uncommon that several entities have claims on one asset; it is often impossible to tell where exactly the asset is at the moment; and finally, settlement can take days.
None of these are an issue with digital assets: You can own them directly, they are easily traceable and settlement takes minutes. All that this novel type of property needs is to be treated as such, and to have sound regulation of custody. In Long’s opinion, not only are states in a better position than the federal government to ensure both, but they have the priority to do so.
The panel: state vs. federal
The regulatory panel ensued, now featuring Peter Van Valkenburgh and Gary Gensler alongside Caitlin Long. The Wyoming native kicked off the discussion with the same sentiment that permeated her talk:
“States control commercial law.”
Coin Center’s Van Valkenburgh responded that his uneasiness with state-level crypto regulation comes from the fact that, in many cases, it boils down to states applying archaic money transmitter laws and licensing requirements to crypto businesses. As a result, instead of having just one federal authority to deal with, successful fintech companies that maintain presence in all of the United States have to “have 54 awkward conversations” with regulators instead of just one. And because money transmitter laws are outdated, they also do not do much to protect the customers.
When MIT’s Gensler attempted to dwell on the consumer protection side for a little longer, Van Valkenburgh retorted that state-level regulation is not the sharpest tool to combat things like money laundering, either: When it comes to financial crimes, states cooperate with the federal regulator, FinCEN, who applies federal legislation — i.e., the Bank Secrecy Act. Coin Center’s Van Valkenburgh also argued that managing custodial risks on the state level is not a great idea, since such processes are better handled by specialized federal authorities, such as the SEC or CFTC. In sum, Van Valkenburgh contended that it is better to have a clear-cut, uniform federal regulation than a host of disparate, state-specific regulatory regimes.
Caitlin Long came back, criticizing some hard-regulating jurisdictions like New York that spend extensive resources on consumer protection and anti-fraud regulation of crypto while caring much less about solvency and allowing established financial institutions like Merrill Lynch to get away with trading assets that they do not hold. She described the forthcoming Wyoming crypto custody rules, which she sees as a way to maintain direct ownership of digital assets and preserve the powerful advantage of blockchain-powered systems over traditional finance.
Grounded in the common law notion of bailment, this type of custody will entail handing the keeper possession of the asset, but not the title. Long likened this type of arrangement to valet parking, where the only thing the custodian can do is to take the vehicle to a safe storage space.
Both Van Valkenburgh and Gensler didn’t sound convinced that solving the custody part of the puzzle would automatically resolve all the consumer protection issues. However, Van Valkenburgh begrudgingly conceded that state-level regulation could make sense, but only if every state adopted a “rational approach.” In turn, Long suggested that, “if we do it on federal level through Congress, we will get the worst-case scenario,” to which Van Valkenburgh responded that there seem to be enough reasonable policymakers on the Hill, and that the situation might not be all that grim.
In an interview with Cointelegraph after the panel, Long doubled down on how the egregious Merrill Lynch situation demonstrated New York authorities’ application of double standards: The firm was able to walk away from doing essentially the same that Bitfinex has been recently accused of doing, but with a much harsher potential fallout. The fact that regulators are going much harder on Bitfinex suggests that they might be picking on crypto enterprises. She also drew a line within the crypto industry itself, distinguishing between highly leveraged exchanges, which would be unable to comply with the new Wyoming statutes, and those that are “truly solvent,” and which will likely end up in the state.
Finally, Long commented on Van Valkenburgh’s pro-federal regulation approach, suggesting that:
“That is putting the convenience of large financial institutions in this sector ahead of reality that property laws are purview of the state. It is very unlikely, to be honest, that there’s going to be a federal money transmission statute, because states are going to fight it. It usurps their long-established supremacy over property law and long-established supremacy over commercial law.”
As it is visible in this discussion, sometimes debates over blockchain regulation invoke matters more fundamental than simply the best way to organize socioeconomic relations enabled by new technology. At times these disputes spill over to the contested ground of federal-state government jurisdiction, or to judgments on whether Congress is better equipped to handle certain matters than state legislatures — the issues as deeply ingrained in the political fabric of the U.S. as the antagonism between the democratic and republican principles in its constitution. At this point, it becomes a matter of deep ideological convictions.
On the more practical side, Long’s fresh focus on the balance between consumer protection and prudential regulations with regard to crypto could be a new way for the industry to articulate and frame its policy woes. Another thing to watch for is if, as Wyoming proceeds with its groundbreaking legislation, progressive digital custody lives up to the hopes that the state’s crypto pioneers have set on it.
The Internal Revenue Service is working on its first tax guidance for cryptocurrency since 2014, the agency’s commissioner told a lawmaker Monday.
Card, CoinBase’s crypto debit card provider shut down in a huff earlier this
year, it left a gaping hole that CoinBase has quickly covered with the CoinBase
Card. Launched first in the UK, the card has enabled its users to seamlessly
exchange crypto to GBP in an instant for withdrawal on ATMs or for payments in
thousands of stores nationwide.
card issued by PaySafe can be managed via CoinBase’s card app that is linked to
a crypto user’s account. The app is both iOS and Android compatible and allows
users to seamlessly swap between wallets as it supports assets listed on the CoinBase
platform meaning users can shop using their ETH or BTC.
from the app, a shopper will receive receipts for payments and transaction
summaries as well. In short, what the
card simply do is to allow crypto holders to efficiently operate in the legacy
financial market making the crypto mass adoption dream more valid by the day.
against Huge CoinBase Card Fees
To use the debit card in the UK, some transactions fees will
be charged, a price that is not common with usual Visa transactions of the domestic
kind. The card issuing, for example, costs $6.48, and there will be a charge of
2.49 percent per purchase.
When this cost is split up, it adds up to 1 percent per
purchase for transaction fees and a 1.49 percent for crypto to fiat conversion
fee. To reverse a transaction, the debit cardholder will be forced to part with
$26.19 while the spending limit is capped at a daily $13,092.
Skeptics are however not impressed, describing these rather exorbitant charges as CoinBase’s attempt to milk profits from transactions. They decry the huge margins charged on transactions and advise crypto users to ditch the card and rely on the internet. In fact, a Redditor seem to remind the community that Bitcoin and crypto is in essence internet money eliminating middle men;
Lex Sokolin formerly of Autonomous Research adds to the
criticism saying that:
“Riding the open loop networks of Visa and MasterCard is a faster way to market, but not a transformational one in terms of industry economics.”
However, Zeeshan Feroz, the CoinBase UK CEO countered saying the
mission of the exchange is to make it easy to spend and use crypto “to create a more open financial system.”
He continues, adding that:
“Customers can use their card in millions of locations around the world, making payments through contactless, Chip and PIN, as well as cash withdrawals from ATMs.”
IRS Watching Crypto Spenders
The usage of the CoinBase Card in the US is going to more expensive than in the UK because there are capital tax gains to consider. The US taxman requires all crypto asset investors, Hodlers included to evaluate each crypto transaction and vet it for taxation thoroughly. There are taxes for instance paid for crypto to fiat conversions, as well for shopping using digital tokens.
Simple transactions such as purchasing one token with the
other and the reception of mined tokens are taxable as well. The IRS has gone
as far as requiring the taxation of airdrops as well. So, if these tax costs
are combined with the transaction costs of using the CoinBase Card, the card
might prove to be too expensive to use in the land of the free.
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