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How has the IRS targeted Bitcoin for 7 years? How to close the network step by step?



Guide: After entering 2021, the IRS simply added questions related to virtual currency to the 2020 version of the tax return form, and placed it on the first page of the tax form.

Benjamin Franklin once said: The only inevitable things in life are death and taxes.

Bitcoin, which aims to create an anonymous payment network, is also unlikely to escape the investigation of the US Internal Revenue Service (IRS).

On the 20th local time, the U.S. Department of the Treasury proposed to tighten tax supervision on digital currencies, requiring transactions of more than $10,000 to be reported to the IRS. Bitcoin turned down immediately, once falling back below $38,500.

In fact, the currency circle has long been targeted by the IRS. In 2014, when the market value of the entire cryptocurrency was only $6 billion, the IRS defined Bitcoin as a "property" rather than a currency, and began its road to taxation.

Zhou Shijian, a senior researcher at the Center for Sino-US Relations at Tsinghua University, was deeply impressed by the IRS: "Let me tell you this, the things that the IRS is eyeing, are likely to be successful." Zhou Shijian told the first financial reporter, very simply The logic to explain the IRS in this regard is that after the IRS recognizes Bitcoin as property, it must pay taxes when it is used (such as when using Bitcoin for transactions/payments).

Data: Bitcoin buyers did not choose to sell in the bull market in 2017 The amount is getting bigger and bigger. Since the Bitcoin price crash in March 2020, the percentage of Bitcoin supply purchased by buyers between February 2016 and February 2018 has risen from 5.57% to 13.38%. That is, the upward trend of Bitcoin in 2019, most of 2020, and 2021 did not allow investors to choose to sell Bitcoin bought during the bull market in 2017. (Cointelegraph) [2021/2/25 17:52:18]

Another senior person who has been tracking the currency circle in the United States for a long time told the first financial reporter that it is necessary to pay close attention to some legal judgments at the state level in the United States. He said that the current judgments in two cases in San Francisco and Boston, It is beneficial to the follow-up actions of the IRS, so the taxation proposal of the Biden administration this time is not surprising.

Australian Bitconnect promoters face up to 47 years in prison: On November 18, the Australian Securities and Investments Commission (ASIC) has accused BitConnect's former Australian promoter Bigatton of participating in a billion-dollar crypto Ponzi scheme. Bigatton faces charges of misleading statements or false statements made by four courts. Each charge of making a false statement carries a maximum sentence of 10 years in prison, while the other two charges carry a sentence of 5 years and 2 years respectively. Or up to 47 years. (cointelegraph) [2020/11/18 21:08:14]

The Biden administration requires that virtual currency transactions of more than $10,000 be reported to the IRS. The Treasury Department said in a statement that virtual currencies pose "significant investigative concerns" by enabling widespread illegal activity, including tax evasion.

The proposal is part of the Biden administration's plan to close the so-called "tax gap" by strengthening IRS enforcement. Recently, the Biden administration plans to increase investment in the IRS, expand the tax department's capabilities, and identify wealthy individuals who avoid and evade taxes, thereby narrowing the tax gap. .

Court Partially Dismisses Lawsuit Involving Crypto Sales at 2017 Necker Island Blockchain Conference: On Friday, a court issued an order to partially dismiss a Texas lawsuit in a case involving the Metallicus project, in which Involving Kleibert v. Metallicus et al. The plaintiffs allege they were misled about the value of the MTL token during a 2017 meeting with crypto experts on Necker. A court dismissed charges against the organizers of a local tennis tournament, saying they did not have sufficient ties to the state of Texas to proceed with a lawsuit against them there. (The block crypto)[2020/4/6]

The Biden administration's proposal also includes new disclosure requirements for financial institutions to share with the IRS information about the total amount of money flowing into and out of bank accounts, in addition to existing reporting.

The U.S. Treasury Department did not specify how it will tax virtual currency transactions in the future. However, according to the existing IRS guidance documents, it can be seen that the level of taxation is related to the length of time traders hold virtual currency, that is, the length of time the currency is held is inversely proportional to the tax amount.

Voice | Kraken: Terminated cooperation with Crypto Capital in 2017: The Kraken exchange just tweeted in response to the arrest of the CEO of Crypto Capital. Kraken said it zeroed out its account and terminated its relationship with the payment processor in early 2017, and has had absolutely no exposure to the business since. Kraken and its customers are completely unaffected by this situation. [2019/10/26]

Specifically, virtual currency is taxed as ordinary income if held for less than a year. The reason is that such gains are considered short-term capital gains by the IRS, and the tax rate may be as high as 39%; if the holding period exceeds one year, they will be taxed as long-term capital gains, and the tax range will be 0% to 20%. .

At the same time, if the user has been holding the cryptocurrency after the purchase but has not sold/transferred it, then there is no tax liability. The IRS explains in the document that the tax is only triggered when there is a sale/transfer that results in a potential net profit/loss.

However, the IRS regulations only apply to cryptocurrency traders, and there is no clear relevant explanation document for futures, forked coins, etc. At present, the US legislature is also calling on the IRS to issue updated tax guidance.

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In the United States, due to its ability to investigate and deal with tax evasion and tax evasion, the IRS is a department that is sometimes even more deterrent than the FBI in the hearts of many Americans.

Since 2014, the IRS has focused on virtual currencies including Bitcoin, and issued a guidance document "Notice 2014-21", clearly stating that virtual currencies should be regarded as "property" and that virtual currencies held by individuals are "not would be treated as a currency that may give rise to foreign currency gains or losses for tax purposes”.

Source: IRS

This means that when an individual uses a token like bitcoin to transact, such as buying/selling bitcoin with fiat currency, exchanging for goods or services to receive them, or buying coffee or a laptop with bitcoin, constitute a taxable transaction.

Then, after studying virtual currency for two years, the IRS took action again: At the end of 2016, the IRS ordered Coinbase, one of the world's largest cryptocurrency exchanges, to hand over all the transactions involved in the purchase, sale, and sale between 2013 and January 2015. Send or receive customer profiles worth more than $20,000 in Bitcoin. At that time, almost everyone in the US currency circle was in danger.

Although Coinbase initiated a lawsuit against the IRS on the grounds that the move would leak user privacy, the lawsuit ended in Coinbase's defeat. In February 2018, Coinbase stated that it had notified the IRS of the Coinbase account information of more than 13,000 customers, including the user's identification code, name, date of birth, address, and transaction records.

In 2018, a credit scoring service called Credit Karma reported that “of the 250,000 Americans who filed federal tax returns in 2018, fewer than 100 reported gains from cryptocurrency investments. .”

After winning the lawsuit against Coinbase and obtaining key user information, the IRS accelerated the pace of large-scale tax recovery by starting to issue warning letters to its virtual currency transaction users.

During the 2019 tax filing period, many people posted IRS warning letters on social media and asked how much tax they should pay. The IRS warning letter can be roughly divided into three versions: first, it is known that the user holds virtual currency; second, it is known that the user has not paid taxes, and law enforcement activities may be launched; third, it is confirmed that the user must have violated relevant tax laws, And intends to pursue.

According to the regulations of the IRS, tax evasion needs to pay late fees. The unpaid late fees are fined at 0.5% of the unpaid tax amount per month, and the cap is 25% of the unpaid tax. Yes, the penalty is approximately 5% of the unpaid tax for each month starting from the month the tax is due.

After entering 2021, according to the first financial reporter who checked the IRS tax returns, the IRS simply added questions related to virtual currency to the 2020 version of the tax return form (Form 1040), and placed it on the first tax form. one page. The question reads: "At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?"

Knox Wimberly, the registered agent of the US IRS and the CEO of Taxaroo, said that more than 13,000 virtual currency traders who received IRS warning letters in 2019 were able to explain to the IRS on the grounds that they "did not know that they should declare". Regarding this question on the first page, if the taxpayer does not know how to declare it, it will not be justified.

The above-mentioned senior person in the US currency circle told the first financial reporter that in their view, it will be a matter of time before the IRS joins the supervision.

He said that especially since the beginning of this year, the IRS has prosecuted cryptocurrency exchange companies in some district courts. The operation method is similar to the way Coinbase was sued back then. Taxation, and there have been two relatively large lawsuits recently, and the IRS has won both.

The IRS won a lawsuit against the same payments company, Circle, in the Boston area in April, and another cryptocurrency exchange, Kraken, in San Francisco in May.

In both cases, the IRS required companies to provide information on customers whose account transactions exceeded $20,000 from 2016 to mid-2020. Both companies are currently expressing their willingness to actively cooperate with the government.

Author | China Business News Feng Difan


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