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[QUESTION] How does the IRS enforce the Taxation of Bitcoin
In tax class, they always explained to us that when people sell stocks and such, the brokerage reports that to the IRS, and then if the individual fails to report, a red flag is raised in the computer system. How does this work with bitcoin, are exchanges like coinbase reporting proceeds to the IRS? If not, how would the IRS find out that someone made heavy gains on bitcoin. Is there another method of enforcement where the IRS can discover that someone has a much larger amount of cash than before?
02-06 06:33 - 'US Republican led Congressional Tax Oversight Committees have NOT liked the IRS's aggressive taxation attempts this past year. Maybe expect lenient tax treatment when specific crypto tax laws are actually written...' (angloinfo.com) by /u/azzazaz removed from /r/Bitcoin within 0-4min
In its release of tax guidelines for bitcoin, the IRS actually requested comments from users on the issue. Here's what it said: "The Treasury Department and the IRS recognize that there may be other questions regarding the tax consequences of virtual currency not addressed in this notice that warrant consideration. Therefore, the Treasury Department and the IRS request comments from the public regarding other types or aspects of virtual currency transactions that should be addressed in future guidance. .. "Alternatively, taxpayers may submit comments electronically via e-mail to the following address: [email protected]. Taxpayers should include “Notice 2014-21” in the subject line. All comments submitted by the public will be available for public inspection and copying in their entirety." So apparently the IRS is not 100% sure they're doing the right thing. My take on it? Bitcoin should only be taxed when it is sold for fiat. It should not be taxed if it's mined unless the miner sells it for fiat. If an independent contractor gets paid in bitcoin, the bitcoins should not be taxed if they are used directly for purchases. Only if fiat is received in exchange for the bitcoins. Because if you think about it, a purchase could actually be a deduction. So how is the IRS going to tax something that's supposed to be a loss?
Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, Euros, and other real or virtual currencies. Tax Consequences The sale or other exchange of virtual currencies, or the use of virtual currencies to pay for goods or services, or holding virtual currencies as an investment, generally has tax consequences that could result in tax liability. According to the IRS’ official guidance on crypto taxation, crypto is taxed as “property,” which is just a fancy way to say it's taxed like a stock. If you buy bitcoin and hold it for more ... The IRS approach to the taxation of crypto currencies like Bitcoin may turn into an accounting nightmare for all but the most casual of users. Here's a plain English Q&A on how the IRS handles profits and losses related to bitcoin and other types of digital money. While Bitcoin receives most of the attention these days, it is only one of hundreds of crypto currencies. Everything we discuss here with regard to bitcoin taxation applies to all crypto. How the IRS sees crypto currencies. Unfortunately, the IRS has provided very little guidance with regards to Bitcoin taxation. That means some mystery remains ...
http://www.billbrookscpa.com/bitcoin-and-the-irs-taxes-capital-gains-and-losses/ - Bitcoin and the IRS / Taxes (Capital Gains and Losses) Bitcoin Tax Account... IRS And Cryptocurrency - Bitcoin Tax Law: We try to make sense of the IRS legal framework on bitcoin cryptocurrency and taxes. IRS and Cryptocurrency do not play well together. Bitcoin taxes! What should we expect when it comes to paying Taxes on Crypto Currency. Going over the IRS Crypto Currency FAQ in this video. The IRS has made it very clear that Crypto Currencies ... When it comes to Bitcoins, Taxes and the “How To”, there is only a few things you need to know. Well… when it comes to the basics… there are only a few things that you need to know.