How Specifically The EU & US Intend To Tax Your Bitcoin

How Specifically The EU & US Intend To Tax Your Bitcoin

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For the EU and US, the Wild West days of bitcoin are over. 2017 will be the year of bitcoin regulation and taxation during which individuals need information and caution. 

Also Read: Fedcoin: The U.S. Will Issue E-Currency That You Will Use

The bad news: Central bankers want private, centralized blockchains to facilitate all movement of wealth so they can skim the top. Complicit governments intend to regulate competitors, including individual wallet holders, and then collect a ‘fee’ in the form of taxes.

The good news: Bitcoin cannot be regulated without disabling the internet or the bitcoin network, which is arguably the largest and most diverse network in the world. “If you want to kill Bitcoin, it will be an impossible task,” the Former Governor of the Bank of China LH Li recently stated.

GovernorMore bad news: Central banks and governments will try. LH Li added, “So it [bitcoin] will continue to exist. What is important now is that we should properly regulate it.”

To avoid becoming collateral damage, individuals should plan now.

Of course, the real threat to most readers is not China but the EU or the US, both of which are signaling specific plans to regulate and eventually tax cryptocurrencies.

EU’s Coming War on Bitcoin

From January 16 to 18, an international conference of some 400 representatives of intelligence units met in Doha, Qatar to discuss the ‘problem’ of money laundering (tax evasion) through digital currencies. The conference sprang from an alliance between the Basil Institute, Europol and Interpol. Bitcoin was mentioned by name; “Special attention should be given to the international exchange of suspicious Bitcoin addresses that threaten economic stability.” Economic stability is bureaucratese for economic control.

Six recommendations for action resulted.  In summary:

  • Increase information sharing;
  • Increase training for investigators, regulators, prosecutors and judges. Establish international standards by which to share information;
  • Prepare national guidelines for “all entities operating” in cryptocurrency with special attention on “transparency and on access to information”;
  • Regulate Digital Currencies Exchanges and Wallet Providers under current money laundering and terrorism legislation;
  • Act against “Mixers/Tumblers” which “are designed exclusively to anonymize transactions….[Their] existence…should not…be tolerated”;
  • Consider creating the crime of “unexplained wealth.”

Exchanges and wallet providers are targeted because they are low-hanging fruit. They are far easier to detect and regulate than individuals, which is why individual wallets are the most private alternative. Conventional merchants who accept bitcoin are almost certainly next, and for the same reason as exchanges.

Samourai WalletSome impending measures are obvious.

EU nations will accelerate information sharing, especially of blacklisted bitcoin addresses. EU members that were formerly friendly to bitcoin, such as the Netherlands, may turn hostile.

Anti-money laundering regulations and “Know Your Customer” policies will be imposed on exchanges and wallet Providers. For those who value privacy, this is a fine time to consider relocating from exchanges that will function as an arm of the state to exchanges that will put their customers first.

Know Your Bank. Know Your Government. Know Your Exchange.

The use of mixers and tumblers will be de facto evidence of illegal activity. The EU wants to track ‘suspicious’ transactions in real time and it will “not tolerate” being denied. Again, those who value privacy should consider exchanges that are not within unfriendly resident nations.

The crime of “unexplained wealth” is becoming globally popular, with Australia and the UK actively proposing legislation. Turning “unexplained wealth” into a criminal offense gives the tax people a blank check to sift through the worth of everything you own, of every cent you receive. You are guilty until or unless you can demonstrate innocence to the tax man’s satisfaction. If your assets appear disproportionately high compared to your income, then be prepared to document the sources. Of course, it is possible to live within your visible means and carefully document it.

US’s Coming War on Bitcoin

IRSCoinbase, a popular American cryptocurrency service provider, is a cautionary tale on several levels.

In March 2014, the IRS issued its “Virtual Currency Guidance” on the tax requirements for cryptocurrencies. The guide created confusion more than it clarified. Lacking an enforcement mechanism and, perhaps, tripping over its own tangled requirements, the IRS sought a nuclear solution.

In November 2016, the IRS served Coinbase with a John Doe Summons for the  transaction records of all users between January 1, 2013 and December 31, 2015. A “John Doe” summons does not identify a person but aims at a group or class of people. Because one Coinbase user might be guilty of a crime, all records were to be examined.

Many people asked “Why Coinbase?”

Coinbase has a reputation for being hyper-compliant with regulations and government demands. Coinbase’s co-founder Brian Armstrong stated, “At Coinbase, our first priority is to ensure that we operate the most secure and compliant digital currency exchange in the world.” Surely this is the last exchange with which the IRS needs to use brute force.

But it makes sense that Coinbase would be the first exchange approached; the IRS wants to set a chilling example to others. It may have assumed Coinbase would cave to its demands and an important precedent would be easily established. Coinbase reportedly dug in its heels with Armstrong announcing, “We will likely incur a legal cost of between $100,000 and $1,000,000 in the process of defending our customers from this overly broad subpoena.” The cryptocurrency community applauded.

There is a phenomenon known as “demonstrated preference,” however. In short, when a person’s words contradict his actions, you should believe the actions. Coinbase’s recent actions and surrounding events raise the possibility that Armstrong’s announcement was either PR or a position from which he has backed down.

Consider:

  • A January 17, 2017 headline in Fortune read “New York Warms Up to This Bitcoin Exchange With New License.” It is unlikely that New York State, which is notoriously tough on license applications, would favor an IRS non-compliant Exchange.
  • How Specifically The EU & US Intend To Tax Your BitcoinA February 3 headline in Forbes read “IRS Gets Court Approval To Delay Hearing On Access To Coinbase Accounts.” The IRS told the court, “if more time is provided a hearing on movants’ motions may be avoided altogether, sparing the Court’s judicial resources and the Parties’ time and expense.” This hints at a private settlement.
  • A February 9 headline in Forbes read “Blockchain Tech CEO [Perry Woodin, CEO of Node40] Says Tax Form 1099-B Won’t Work For All Virtual Currency.” The article discussed Armstrong’s recommendations on how Coinbase could more “reasonably” comply with tax demands. This hints at compromise.
  • A February 17 headline in CoinTelegraph read “’Police Friendly’ Coinbase Used to Sell Bitcoin Seized in Investigations.” The article described how one police department’s asset forfeiture account was linked to Coinbase. The exchange is cozy with state actions, including asset forfeiture theft.
  • A February 18 headline in NEWSBTC read “eGifter Now Only Accepts Bitcoin Payments From Coinbase Wallet Owners.” The article states, “Using Coinbase of all exchanges may seem a bit strange, though. The company is facing an IRS John Doe summons….While people who use eGifter have been nothing to hide per se, it is perhaps not the best exchange to use for bitcoin payments.” Of course, Coinbase could use a “separate and secure wallet service” for those payments but it could also be out from under the IRS.

None of the preceding is a smoking gun. Taken together, however, they suggest a pattern: whatever Coinbase states publicly, it seems to continue a course of hyper-compliance. If so, the IRS will undoubtedly pursue other exchanges in the same manner. If so, bitcoiners should use Coinbase and affiliated agencies with full knowledge.

Conclusion

A poster on Steemit captured the governmental zeitgeist toward bitcoin when he wrote, “The old axiom goes, if you can’t beat them, join them. But for the establishment cartels that seek to rule the world through control over the global monetary system, their addendum to this is, if you can’t beat them, usurp them.”

The EU and US cannot beat bitcoin in a fair fight. They cannot beat bitcoin in a rigged fight. But they are going to try. One way or the other, users should get out of the path of damage.


 Images via Shutterstock.


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  • T4k4X Starphyre

    I look forward to the Internal Revenue Services attempt to continue levying theft in 2018 as all signs this year show human life has reached a level of complexity that can best be described as ungovernable. The entire tax scam system is rusting beyond the hinges and a year from now I doubt many will be paying any one in federal reserve notes for taxes or anything thing else. Michigan welcomes all seeking refuge we have water bees and crypto.

    • I hope you are correct,

      T4k4X Starphyre, I truly do. But if the States become as militarized as I believe is possible or even probable, then Michigan won’t be far enough. I have no real fear that bitcoin or cryptocurrencies can be stopped but I know that individuals can be.

      As for the prospect of paying taxes in federal fiat…My friend Doug Casey is a darned fine prognosticator and he reads the indications as follows. The fed will issue Fedcoin, its own version of bitcoin, within two or three years; this has been actively under development for a few years now. Its acceptance will be enforced in 2 ways. 1) people will be required to pay taxes and fees in Fedcoin or, at least, initially encouraged to do so perhaps by a discount. 2) people will receive Fedcoin in payment of their entitlements such as welfare and social security. Of course, there are any things that could go wrong at every stage.

      • Marco Maltese

        Clever girl.

  • MC Kuky

    Typical for the rich cunts that always want to control everything… well fuck them. The people won’t play by your rules any more… and we are giving your private central banking system a middle finger… you, the legal Mafia deserve it.

    • sjs

      Yes, but what do you really think? ;-))

    • stephen

      > those days are numbered
      Exactly how are their days numbered? After all if you have all the resources your opposition by default does not.

      • MC Kuky

        All powers / empires end eventually.
        Haven’t you learned anything from history?

  • sjs

    ‘The crime of unexplained wealth”? And whereabouts in the queue are the Rothshields and the entire banking Cabal standing in that case?

    • I hear ya. The concept is getting some resistance in the states because of due process being a Constitutional matter but it has already gained a grip in Australia, the UK and a few other nations with some members of the EU actively pushing the policy. I don’t have a lot of confidence that due process will hold U.S. politicians back, however, since several growing legal trends — such as civil forfeiture — are chipping away at that protection. I just hope people are cautious and, perhaps, a bit paranoid. Because it isn’t really paranoia when they *are* out to get you. Thanks for posting, sjs.

      • sjs

        ‘The constitution’ at the end of the day is a piece of paper and amendments have been made in the past.
        The states could organize a meeting and scrap the constitution, in theory. Trump and all the presidents men could declare a national emergency. A lot of things could and will happen even before the end of this year. Of course you are not helping yourself by being ‘visible’ but it’s probably in your nature to fight for what you believe in. The best chance of avoiding flack is to stay under the radar and even posting comments is not helpful in that regard. ‘Paranoid’ ? Maybe, maybe not.

        • The Constitution is more than a piece of paper although, being an anarchist in the mold of Thoreau, I have no veneration for anything but the Bill of Rights — and, even then, only for the principles rather than for the parchment. The Bill of Rights is the centerpiece of a system of law and institutionalized ‘justice’ that is far more honored in the breach than in the observance. I live in Canada where the constitutional equivalent has less respect for freedom of speech and there is a real difference in what can be safely said. The institutionalization of the Bill of Rights has served as a brake on overweening government; of course, less and less so. But Americans are fortunate to have it. For one thing, it has made a great difference in the right of gun ownership.

          As for being ‘visible’…I have been writing for many years and my name has been “out there” for too long to become invisible now. Nevertheless, I have become more cautious in what I address and how I address it. And, yes, it is in my nature to stand up for what I believe….a characteristic I do not wish to eliminate even though I am redirecting it somewhat these days. I do not believe you are paranoid. You may sound paranoid but that’s the sound of paying attention these days.

  • Hello all: I will be dropping into the commentary section today and tomorrow to chat and to answer any questions you might have.I look forward to it. Meanwhile, I noted this development on the regulation front.

    From Crush the Street: http://www.crushthestreet.com/articles/digital-currencies/bitcoin-trading-attack-u-s-federal-government California Bitcoin “Trader Barred from Trading P2P by US Federal Government.” This, despite the fact that Dave Scotese [the trader] and his business have broken no laws.

  • Pete Milliet

    and here we go…..

  • YourCarSucks

    hey IRS: comply to my fucking dick.

  • sjs

    Getting out of harm’s way – like Edward Snowdon? He is now paying the price in exile and it may get a lot worse for him. How do you resist and ‘win’ against a well established, fortified and corrupt enemy who permeates the entire world’s financial system. The banks and their servants (governments) are not social security structures. They were designed in Frankfurt hundreds of years ago by the same people who now control humanities’s means of transacting business and there is no way they will relinquish control. Gold, Silver, bitcoin and alt-coins are the same thing when it comes to escaping or avoiding their iron grip. What is our best strategy? A war will ensue and I am not looking forward to it.

    • There are many ways to minimize the likelihood of harm to yourself, sjs, without going into exile from your homeland. The goal of self-protection is not to ‘win’ as in defeating the aggressor as you would a soldier in the field; the goal is merely to protect yourself, especially when the aggressor is the behemoth state against which an individual is almost always poorly equipped. I do not know whether the image of you by your post is an accurate one and, if it is, I may be judging too strictly by appearances; if so, my apologies. But the photo does not seem to be of someone who would be familiar with non-violent resistance, survivalist tactics, civil disobedience and many other strategies that empower individuals while removing effective authority from the state…as well as reducing the vulnerability of individuals who act. The starting point is knowledge of what is happening and what is likely to happen next. Believe it or not, some people will not only be able to protect themselves but also to make a profit.

      • sjs

        I am not sure what you are advocating, you have chosen to be vague. Perhaps you can explain how to remain anonymous if a law is passed in the EU that compels you to identify yourself for owning a private crypto wallet, if the use of a VPN or a TOR connection renders you guilty without trial in Saudi Arabia? ‘They’ pass a law and you are guilty if you don’t hand over your possessions and information? Par example, how do you avoid compliance without making yourself a target? If you do acquiesce you are naive. ps my Avatar is Jon Hamm. My profit has always been a consequence of my actions, not an aim in itself but most certainly was the underlying motivation.

        • I am clear on what I am advocating as a general path: protect yourself as well as you can against specific threats that are on the horizon. That was the entire message of the article. There are several reasons I do not go into specifics on self-protection — one of which is that everyone’s specific circumstances differ, including the nation of residence as you observe in your example of Saudi Arabia. This means what A does out of caution might be folly for B.

  • Fritz Knese

    Hi Wendy. Thanks for the info. No surprise that governments are gathering more control, but I doubt that short of revolution there is anything we can really do about it. I do disagree with your optimism in thinking bitcoin can’t be stopped. I hope you are right.

    • Hey Fritz, howa doin’? If there were a global consensus on bitcoin legislation and repression, there would be more of a chance of stopping it…or, rather, driving it entirely underground. But the world is a patchwork on the issue and I believe it will remain so because cryptocurrencies offer huge benefits, especially to marginalized nations. So, yes, I remain optimistic about the currency while acknowledging that many individual users are going to be hit hard if they don’t take precautions. In fact, many who do take cautions may be hit hard as well, especially if they are just starting now.

      • Fritz Knese

        Good point. But remember how governments tacitly agree while officially disagreeing. To the extent bitcoin and other similar currencies are seen as a danger to the power of the state, other states will jump at the chance to cooperate with the USA though perhaps under the table.

  • Forcing payment in an otherwise unpopular currency or mode has been a stand-by of thugs for centuries. The British mercantilists who colonized/exploited Africa centuries ago forced their script upon natives there by requiring the payment of fines, fee, taxes, etc. in that privately-issued currency. Thus, they were able to pay for native goods in the otherwise worthless currency because the natives needed it to avoid being imprisoned by the company’s military for non-payment of their invented ‘debts’. Life has been a racket for the elite since the dawn of economy, it seems. I’m not cynical about people in general, BTW, but I watch what’s happening.

  • martinbrock

    How does “unexplained wealth” differ from income tax evasion? What would constitute evidence of the crime?

    • It is one way that the authorities can approach a tax evasion charge but it is also a way to start money laundering investigations. Evidence of the crime would be “living beyond your visible or explainable means”; for example, making $70,000 a year and living in a $2.5 million home. Unless you can verify how you ‘legitimately’ came up with the down payment etc., then the home is considered to be evidence of fiscal turpitude. You are guilty until proven innocent.

  • Paul Bond

    You say “Know Your Government”, “Know Your Bank”. I’ve never heard those terms before, but now that I have, I wonder if they were to be implemented, how many banks and governments would still exist outside of incarceration? ….especially with the AML tacked on.