Bitcoin taxation is coming: 10,000 tax warning letters are on the way

If you ask people to evaluate which department in the United States has the most deterrent power, many people will first think of the FBI. But in fact, the IRS is more powerful than the FBI. Not only ordinary people, but also vicious gangsters and drug dealers dare not mess with it.

However, the cryptocurrency world, which seems to have nothing to do with the industry, has recently been completely targeted by the IRS.

Last weekend, a large number of cryptocurrency traders in the United States reported that they received warning letters from the IRS, requiring them to report their cryptocurrency transactions and pay taxes, interest and penalties correctly.

The letter states: We know that you have one or more virtual currency trading accounts that may not have paid taxes as required.

At the same time, the IRS stated in the announcement that it will send letters to 10,000 cryptocurrency investors in the United States before the end of August this year.

I believe that in the next month or so, American citizens will check their mailboxes every now and then, fearing that they will be the one who is "hit". If you fail to pay taxes according to regulations, you will face a fine from the IRS at the very least, or even be sent to prison by the IRS, which is always vigorous and resolute.

The relentless pursuit of the IRS

In fact, the IRS wanted to make a fortune from Bitcoin a long time ago.

In March 2014, when the entire cryptocurrency market value was only 6 billion, the IRS determined that "Bitcoin is an asset" and that taxes were required when using it for payment and other activities.

Since then, the IRS has been trying to impose taxes on Bitcoin, although there has been no major progress in the next two or three years.

It wasn't until November 2016 that it targeted Coinbase, a legal exchange in the United States, and directly ordered it to hand over user records of those who purchased Bitcoin between 2013 and 2015. In addition, the IRS also signed a contract with the blockchain analysis company Chainalysis to try to link Bitcoin transactions with real user information.

As soon as the news came out, the entire cryptocurrency community was outraged by the IRS’s “threat of violence,” and this tough approach was simply robbing money.

Not only cryptocurrency investors, but even Coinbase does not want to meet this unreasonable demand. They filed a lawsuit in court on the grounds that this move involves leaking user privacy.

After a year of tug-of-war, Coinbase finally lost to the IRS. In December 2017, the judge ordered Coinbase to disclose the detailed information of 14,000 users to the IRS, including taxpayer identification codes, names, dates of birth, addresses, and transaction records.

It is said that the only certainties in life are death and taxes. Therefore, in the United States, Bitcoin is far from being a tax evasion function. After all, no one dares to offend the IRS.

Taxes you can't escape

Investors who are confused about tax payment have to refer to the tax policy issued by the IRS in 2014:

According to the tax policy released by the IRS in 2014, when consumers hold Bitcoin for less than one year, the gains will be treated as short-term capital gains and taxed at the same rate as ordinary income, which may be as high as 39%;

When held for more than a year, profits are treated as long-term capital gains and are taxed at a lower rate, ranging from 0 to 20%.

Simply put, the longer you hold the currency, the lower the tax you pay.

However, this regulation only applies to currency holders, and the tax rules for futures, airdrops, forked coins, etc. are not clear.

The IRS, which achieved a phased victory, did not quickly introduce a corresponding tax payment method. Instead, the U.S. citizens and the Legislature repeatedly called on the IRS to introduce new guidelines.

When everyone let down their guard, the IRS struck back and began taking action in July this year against those who did not correctly report their income and taxes, "educating" and warning them in the form of letters.

Last weekend, people posted letters from the IRS on Reddit and Twitter. The warning letters are divided into three versions according to the severity : 6173, 6174 and 6174-A .

6174: means they know you hold cryptocurrency;

6174-A: This means they believe you have violated the law and have not paid your taxes, and they may take enforcement action against you.

6173: It means they are convinced you have broken the law and are hunting you down.

Obviously, the IRS is serious about this, and this wave of revenge will continue for at least a month.

American citizens are panicking

It’s okay for those “honest people” who pay taxes on time, but most investors did not take it seriously before. In the past few days, everyone has been asking around about how to pay taxes, and some even have to spend hundreds of dollars to pay professional tax companies to understand the tax rules and calculate how much tax they have to pay.

Since the IRS announced last Friday that it was writing letters to taxpayers, the price of Bitcoin has fallen from $10,130 to $9,450 in two days , while the Google search trend for "bitcoin+IRS" soared that day. It is difficult for us to say that the market turmoil has nothing to do with the actions of the IRS.

Some people believe that it is bad news in the short term, especially for domestic exchanges in the United States . In order to avoid tax troubles, investors will reduce the amount of funds entering the market, or directly choose point-to-point over-the-counter transactions to prevent their real identities from being tracked by the IRS.

Some people think that this is a good thing in the long run, just like Bitcoin Jesus said: "If the IRS is trying to tax Bitcoin, it means that the IRS seems to accept that Bitcoin may be used by mainstream people and institutions. "

As the world's largest cryptocurrency market, the United States' policy changes not only affect the currency price, but may also serve as a model for other countries. Global Bitcoin taxation has just begun.

No matter how you look at the impact of the IRS, one fact is undeniable: centralized authorities have extended their tentacles into cryptocurrencies such as Bitcoin for a variety of reasons. This will only happen more and more in the future, and how to balance the "constraints" and "freedom" involved is a persistent problem.

Author: Mashaka

Source: Blockwave