Let the Crypto Gains Witch-Hunt Begin
- The tax man is coming for bitcoin
- Bureaucrats want your cash
- Taxation gives governments control
- Let the crypto gains witch-hunt begin
Melbourne, Australia Thursday, 01 March, 2018
The days of anonymity are gone.
Although, you probably knew that. You’ve probably donated your entire personal life to Mark Zuckerberg by now. If you haven’t, your bank knows everything about you anyway, through your spending habits.
One of the last remaining digital blackspots is being taken now.
Early cryptocurrency investors once had the luxury of buying and selling alternative currencies in privacy. Now that privilege is being lost.
When cryptocurrencies first became a thing, many libertarians hailed the idea of anonymous transactions. The ability to move our cash freely in society, without the oversight of your friendly government official.
Those days are over.
Governments hate competition. They don’t like not knowing what you’re up to.
And the banks? Well, they’d hate to lose control of the money supply.
After all, if you start putting your cash into non-regulated government currencies – like gold or bitcoin – banks go out of business.
Like all good suppressions of freedom, the heavy-handed push to chase down bitcoin profits comes from the land of the free.
Just four days ago, Coinbase — one of the world’s biggest cryptocurrency exchanges — scored a ‘summons’ from the US tax body, the Internal Revenue Service (IRS), asking for the account details of more than 13,000 investors.
Let the crypto profit-taking witch-hunt begin...
The timing couldn’t have been better for our local tax man, either.
According to The Australian, this cash grab from the IRS means the Australian Taxation Office (ATO) can finally begin its own ‘long-awaited blitz on cryptocurrencies’.
The ATO plans to target crypto investors using the recently updated Anti-Money Laundering and Counter-Terrorism Financing Act. The updated crypto laws are coming into effect next month.
The anonymity of cryptocurrency trading is gone.
Although, as Jim Rickards points out today, that was always going to happen. Even though it was inevitable, the cryptocurrency legacy will be blockchain. And this technology, which is driving bitcoin, will be incredibly disruptive to financial markets.
Just let the tax man get his cut first.
Kind regards,
Shae Russell, Co-editor, The Daily Reckoning Australia
The tax man is coming for bitcoin
By Jim Rickards, Strategist
A lot of bitcoin advocates sold the idea that it was invisible to tax authorities. Well, not really, I said all along. And now that’s becoming evident, as you’re about to see.
I was reminded of a story from about 15 years ago…
A Swiss banker loaded all of the confidential information he could find on Americans with Swiss bank accounts onto a CD-ROM. He then flew to the United States and handed the information over to the US Treasury and the FBI.
The banker was in trouble for helping Americans evade taxes, and this was his play to avoid prosecution. He blew the whistle on his clients. What ensued was a 10-year manhunt by US tax authorities to find the tax evaders, and many more whose information was not included on the original CD.
The US played rough not by chasing the individuals, but by putting pressure on the Swiss banks themselves. The big Swiss banks, like UBS and Credit Suisse, have huge capital markets and wealth-management operations in the US. The US told those banks they could either hand over the information or it would shut down their US operations.
They handed it over.
Some of the tax evaders got lawyers, turned themselves in, and paid their taxes (plus interest and penalties) to avoid jail time. Others waited and ended up in jail. Today, if an American goes to Switzerland and tries to open a bank account, they will be turned away. Swiss banks have zero interest in taking on US clients.
Now something similar is happening in cryptocurrencies.
The bitcoin fans who mock the US government and play ‘catch me if you can’ are finding out the hard way that the government has the resources to track them to the ends of the Earth.
Bureaucrats want your cash
The Internal Revenue Service (IRS) is already demanding all records of cryptocurrency transactions from cryptocurrency exchanges, including name, address, Social Security number, and bank account information about their clients.
Consider the latest developments…
A particular IRS form in America, called Form 1099, is used to report most income other than regular wages. The person paying the income — it could be a bank, broker or any supplier — files a copy of the 1099 with the IRS and sends one to the income recipient.
It’s the recipient’s job to report the income on their tax return. IRS computers match 100% of the 1099s they receive with what taxpayers put on their tax returns. It’s a kind of computerised audit. Those who don’t report the income may not get a knock on the door, but they will definitely receive an official letter asking the income recipient to explain the discrepancy.
Coinbase, a major US-based cryptocurrency exchange (not to be confused with Coincheck), just sent a Form 1099 to one of its customers, identified only by the initial ‘K’.
K was initially freaked out even to be receiving a 1099 from a crypto exchange. What happened to the anonymity in the crypto world?
Apparently, it doesn’t exist. As I have been warning for years.
But when K read the 1099, it got even worse. It showed that he owed US$2.4 million in taxes, despite his estimate that he only put US$8,000 into cryptos. K has decided to sit tight in the belief that he does not owe the taxes.
Big mistake.
The IRS will take its copy of the 1099 from the exchange and assert that K does owe the taxes. The IRS puts the burden of proof on the US taxpayer to show they don’t.
Courts have backed up the IRS on this burden-of-proof approach. Just ask Al Capone, the notorious gangster who went to Alcatraz not for extortion and murder, but for not paying his taxes! K will find this out the hard way, as will millions of other crypto customers.
The IRS is warming up for a bonanza of tax claims. Cryptocurrency traders who thought they could hide their gains from the IRS should get ready for the mother of all tax nightmares.
But that doesn’t mean you should stay away from all crypto investments. Blockchain technology has a bright future — and I say that as a bitcoin sceptic!
Taxation gives governments control
Why? The distinction is a simple one. Bitcoin is a digital store of value recorded on a distributed digital ledger.
Blockchain, however, is the mathematical algorithm through which the ledger is maintained.
If bitcoin is like a dollar, then blockchain is like the banking system that supports the US dollar.
That distinction is crucial. Bitcoin may or may not have a bright future. But the blockchain almost certainly does.
In fact, the ‘blockchain’ name is already somewhat passé. A more widely accepted name is ‘distributed ledger technology’ or DLT.
The term ‘DLT’ sticks to its blockchain roots by referencing the distributed ledger, but also allows for improvements and variations that are not strictly in accord with the original blockchain method.
Something similar is going on with bitcoin and the DLT today.
Governments have been patiently watching blockchain technology develop and grow outside their control for the past eight years.
Libertarian supporters of blockchain celebrate this lack of government control. Yet, their celebration is premature. Their belief in the sustainability of powerful systems outside government control is naïve.
Governments don’t like competition. Especially when it comes to money.
Governments know they cannot stop blockchain... In fact, they don’t want to.
What they want is to control it using powers of regulation, taxation and investigation.
Ultimately, they will use more coercive powers, including arrest and imprisonment of individuals who refuse to obey government mandates with regard to blockchain.
Blockchain depends on critical infrastructure, including servers, telecommunications networks, the banking system and the power grid, all of which are subject to government control.
A group of major companies, all regulated by government, have announced a joint effort to develop an open-source blockchain as a uniform standard for all blockchain applications.
The group includes JPMorgan, Wells Fargo, State Street, SWIFT, Cisco, Accenture, the London Stock Exchange, and Mitsubishi UFJ Financial.
That’s not exactly five guys in hoodies working in a garage. That’s a sign of the corporate-state consortium taking over.
This new law will not only provide a regulatory scheme for state regulators, but will also be a platform for litigation by private plaintiffs and class action lawyers seeking recourse against real or imagined abuses by digital coin exchanges and facilities.
Once litigation begins, anonymity is the first casualty.
Make no mistake. The taxman is coming for your bitcoin profits.
All the best,
Jim Rickards For The Daily Reckoning Australia
