If You Held Bitcoins In 2017 Put Your Tax Return On Extension
A strong reminder has been issued about the reporting needs for virtual currency transactions by the Internal Revenue System (IRS). Those taxpayers are held responsible for penalties and interest, which do not report accurately, the income tax results of virtual currency transactions and also be audited for such transactions.
In utmost cases, taxpayers are possibly held to criminal examination for not reporting accurately, the income tax results of virtual currency transactions. Tax evasion and filing an incorrect tax return are included in criminal charges. One who is condemned of tax evasion is held to five years jail and a fine of $250,000 and one who is condemned to file an incorrect tax return is subject to three years jail and a fine of $250,000.
Therefore, last year if you were tricking with virtual currencies and are prepared for your return, then better be careful and if I can, will try to help you to stay away from the jail which truly has a very little chance. And I can give you reasons for why I consider it to be finest to file an extension in case you had Bitcoins in 2017.
What Is The IRS Talking About?
The IRS worries about virtual currencies which are used for actual transactions. 1,582 types of cryptocurrencies have been listed on Coinmarketcap.com and on 3/28/18 evening, in market cap they range from Bitcoins which are jointly priced above $151 billion to Dibcoins that are priced above 1,000 dollars and Dibcoin is ranked 1271 on the list.
Actually, the balance doesn’t have a noticeable market capitalization. More than one hundred currencies with the market capitalization above $100 million are there. Daily transaction capacity of Bitcoin is more than $6 billion, and nineteen currencies are there whose daily transaction capacity is more than $100 million. Hence, so much is happening there and a lot is going on in Bitcoin itself.
And as on now, Bitcoin, Ethereum, Ripple, Bitcoin Cash, and Litecoin are the top five currencies in market capitalization. This does not mean to disregard the other 1,500 and more currencies, here this makes me assume that you were only tricking into Bitcoin. This means that you have to also think of Bitcoin Cash but to wait until we get to the fork.
What Is Virtual Currency?
I came to a conclusion after talking to Perry Woodin, the Chief Strategy Officer of HashChain Technology that attained NODE40 recently and that conclusion is that I will not explain the working of Bitcoin and other virtual currencies that are based on the blockchain. Hence, if anyone wants to know about Satoshi Nakamoto, proof-of-work, Byzantine generals, and elliptic curves, then he can search somewhere else. Given below is the explanation on the Bitcoin site stating as what one needs to know:
Bitcoin is merely a mobile app or a computer program providing a personal Bitcoin wallet through which a user can send and receive bitcoins with them and in this way, Bitcoin works for most of the users. The Bitcoin network shares a public ledger known as “blockchain” and this ledger comprises of every transaction being processed and the validity of each transaction is tested by a user’s computer.
The truthfulness of every transaction is protected by digital signatures that match with the sending addresses so that all the users can get total control over sending bitcoins from their own Bitcoin addresses. Also through the computing power of specific hardware, anyone can process transactions and get a reward in bitcoins, which is many times termed as “mining”.
Who’s Gonna Know?
Everyone including you and me are all conscientious in the matter of tax submission and as we all will report our Bitcoin transactions. Still, there are many people who require a better reward. There are reasons to prove that it truly a mute act to use bitcoins as if they were undetectable cash. Every Bitcoin transaction is always obtainable in public, and you are nameless is a fact.
Anyone who possesses wallet 13HazMQj3V3ew4BowCrVTp1yDvwAnyVYXL, on 24th March 2018 shifted 10.5 bitcoins, perhaps thinks this to be all private, but on the other side of the transaction if anyone is aware that old 13HazMQ is my friend James in reality and exposes him to the IRS.
Then the IRS can know of all the 619 Bitcoins that came and went from that account and at present values which are more than $5 million and at present, the IRS is working on it. In case anyone does not report a big sum of gross income, the law of limitations will be stretched to six years from three years on his tax return and in case you do not file at all then the law will stay forever. Even all your transactions can be accessed easily; it is simply to join them to you.
In the warning Notice 2014-21, the IRS ruling was mentioned which add up to two things; firstly, Bitcoins are not taxed fairy dust. This can be explained as, say for example if in the place of dollars or euros or any other currency, a person makes payment in Bitcoins, then you will get the same income as you may get in case they were more orthodox.
Secondly, Bitcoins and all the other virtual currencies are treated as property. That is to say, whenever such currencies are exchanged for anything and also money, you need to identify gain and perhaps loss and if you have many transactions then that will be very agonizing. On the whole, if you have used Bitcoins to buy things, then it will be very tough. Even though you are trading in Bitcoins, you have to try it and at this place, the blockchain becomes an easy reach.
If you send the public identity of your accounts to bitcoin.tax or Node40 or libratax.com, they will give you an agenda of capital gains, and Perry stresses to use Node40. As they use particular credentials, they are better. He said that all the companies will have a story disclosing the facts of their being superior. So according to me, it is advisable to shop around and to calculate whether the report you receive is reasonable or not. In case you report something you may be in the top tier at the time of submission and if the size of you transaction is not very high, then you should do it yourself.
And Then There Is the Hard Fork
Bitcoin Cash emerged from a disputation about how to run the blockchain which has something to do with scaling. Something essential about it is mentioned below:
When Bitcoin Cash was produced, all those possessing Bitcoin, became holders of Bitcoin Cash, which means that the holders of Bitcoin as of block 478558 possess the equal amount of Bitcoin Cash as they had Bitcoin then. So you must ask about your Bitcoin Cash, if your Bitcoins are kept as an exchange by a third party.
You need to do a lot of things, in case you possess your Bitcoins through an exchange. After conversing with some best accountants Perry Woodin was convinced that the receipt of Bitcoin Cash was a taxable transaction. And all the articles that are published from August are supporting this opinion.The improvement in income will be 9.5% of the price of your Bitcoins at the fork that calculated to $266 per Bitcoin Cash unit, states an article in the Dynamic post.
Are They Right About The Income Pickup?
Until I spoke with Perry Woodin, I was ignorant of the fork that made Bitcoin Cash, and so I am very grateful to my very reasonable client base. And this would not have happened if the IRS had truly issued any kind of announcement or ruling on the matter.
It is quite sensible to have an unplanned income when the fork is built on the value and after that to give you base in your Bitcoin Cash that is same as the income recognized and to start the holding period on 1st August. He said that he tried to communicate with the experts on this and was successful with Professor Adam Chodorow.
To distribute some direction on hard forks, the IRS has inquired for remarks. No authority is clearly applicable and many alternatives are present, and the solution rests on what type of similar action is best applicable. For example, hard forks should generate income at the time of the fork, if we consider new coins as interest on present assets. Contrary to this, it is not the receipt of something new but more like a change in the form of ownership if we think of it more like a stock split. So in my opinion, the first one is more precise than the last as an account of what is happening, however, the IRS is able to regulate the result by stating its acceptance of one similarity or the other. Hard forks exhibit many issues making the interest analogy more difficult than it appeared in the beginning. At times the value of the new coins at the time of split is unclear. Under certain circumstances to claim the coins, the taxpayer may take steps. What will be the situation in case the taxpayer efficiently disowns the coins by not claiming them? As the new coins are different from the original, the stock split analogy seems tough. The picture is not as if the taxpayer at this time has two half coins in place of single full coin, actually, the taxpayer has the original coin and something novel.
In resolving what the rule should be, real-world thoughts would prove to be the key factor, say for example, in order to escape giving basis from old coins to new coins or to decide value during the split, the finest solution may be to state the hard fork is an event of realization and recognition, however the price of the new coin is zero. This activates a profit of $0 and also arranges the base at $0. The rules can be examined again in case the taxpayer uses the hard forks in some strange ways making these rules not viable. As per my assumption, the IRS will approve such a rule in the near future, till it acquires more experience, also understands the reaction of taxpayers to this type of rule. So we can say that there cannot be any correct solution, and it may happen that the IRS may amaze all of us.
On 19th March 2018, Karen Hawkins Chair of the ABA Tax Section wrote to the IRS Acting Commissioner proposing a safe port that becomes an income pickup of zero, having basis zero and a holding term that begins on the date of the hard fork, this solution looks quite sensible but again no authority. Again a question arises as to how much time the IRS will take to start issuing something? The time is too long to respond to the rule by 17th April, but can have faith that by 15th of October, something may take place, till the extended returns are due.
What Should You Do?
The finest alternative for you is to file an extension form 4868, if you wish to become acquiescent and Bitcoin and Bitcoin Cash transactions are subject to your return. If you are able to pay in an evaluated tax based on the worst state as in which way the IRS may rule, then verify again in August or September overlooking everything. And then also if the IRS does not react, then hope for many more comments and perhaps you may get a practically good alternative. Just get over it, in case you still find any battle regarding filing an extension.