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RE: In the News: Judge Grants IRS Permission to Pursue Coinbase Customer Data - My Thoughts

in #news8 years ago (edited)

The transaction that confuses me the most is something like the following: As a US taxpayer, I use BTC that I acquired months or years ago to acquire ETH on a crypto exchange (no fiat involved), then I use the ETH to fund a contract that sends me tokens (i.e. an alt-coin), which I exchange at some point for BTC (no fiat involved). The cycle begins and ends with BTC, which is never sold for fiat or exchanged or "spent" for any tangible good. It's clear that although I may end up with more BTC than I started with, my cost basis in the BTC is unchanged. I'll have a pay tax at some point (if I sell it for fiat or use it to buy something), but what type of reporting would the IRS expect, and how (based on current law and public statements or regulations) would the current tax liability be calculated (if any)? This is hypothetical example, and not a request for advice. Just want to highlight the issues. Seems IRS has an incentive to leave the rules vague and decide later what types of audits to pursue.

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After I posted my reply, I realized I could just as easily said "As a US taxpayer I use BTC to acquire STEEM, which I power up and hold... at some point later I power down and exchange (no fiat) for BTC..."

Exactly and does that count as being on an exchange if it is through for example an automated site like Blocktrades or Shapeshift? I'm as confused as ever.

That is the thing.

From my reading of the rules (and I could well be wrong) - you could be liable even if you never convert out of crypto because you are engaging in trading activity.

The problem is that it is not entirely clear and the tax authorities seem to be resisting being explicit on the matter - see that wiki page.

Personally that is the only form of trading I have done and I was under the impression that I should be OK and I believe a lot of other people have been under that impression too.

Seems IRS has an incentive to leave the rules vague and decide later what types of audits to pursue.

Exactly. One can't help but think it is deliberate so that they can keep their options open. You can't really argue with them (unless you are a big bank).