Coinbase: ‘Partial Victory’ Appears To Put End To 12-Month Legal Battle

Coinbase will only need to send three percent of the original data summons to US tax authorities, a court has ruled.

Coinbase has hailed as a “partial victory” a court order to hand over transaction details of almost 15,000 customers to the government.

In a summary of the US exchange’s now year-long legal battle with the Internal Revenue Service (IRS), communications officer David Farmer confirmed previous hints that only three percent of the original data demands would be sent to lawmakers.

The issue focuses on IRS suspicions that Bitcoin holders transacting through Coinbase were not paying appropriate taxes on profits.

After Coinbase ignored a request to inspect every transaction made through the company from 2013-2015, a court summons saw months of posturing before the IRS’ position finally became untenable.

The tax authority’s request, commentators and now legal entities confirmed, was too “broad” in its scope.

“…While today’s result is not the complete victory we hoped for, it does represent a substantial and unprecedented victory for the industry and the hundreds of thousands of customers that would have been unfairly targeted if it weren’t for our action,” Farmer said, adding Coinbase was “reviewing” the order to turn over all transactions of $20,000 or more.

The results provide a brief respite for Coinbase as its infrastructure feels the strain once again from Bitcoin price volatility.

As USD rates fluctuated by thousands of dollars over the past 48 hours, the exchange saw its servers go offline as it failed to cope with demand. Similar events occurred earlier this year as hundreds of thousands of new users opened wallets on a weekly basis.

Source: Coin Telegraph




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Coinbase Wins Partial Victory Over IRS, Government Data Request Reduced

Coinbase wins a partial victory in its legal dispute with the IRS, reducing the number of affected users by 97%.

Coinbase has won a partial victory in their ongoing legal battle with the IRS regarding the disclosure of private user information. According to Coinbase, the government initially sought records on over 500,000 users in their efforts to catch tax cheats. After months of legal wrangling, Coinbase announced that the IRS has reduced their records request to only 14,000 users, a 97% reduction.

Coinbase also announced that the amount of documentation requested by the IRS has been substantially reduced. The company’s blog post did not reveal the criteria used to determine the 14,000 “high volume” users the IRS is interested in. Nor did Coinbase reveal the extent of the documentation that the tax agency is now seeking.

Setting precedents

The partial win for the cryptocurrency exchange is an important step in general cryptocurrency tax consideration. According to Coinbase, most companies simply hand information over to the IRS, but they sought to maintain user privacy:

“Coinbase started this process more than 12 months ago, and while today’s result is not the complete victory we hoped for, it does represent a substantial and unprecedented victory for the industry and the hundreds of thousands of customers that would have been unfairly targeted if it weren’t for our action. Although we are disappointed not to be able to entirely defeat the summons, we are proud to fight for our customers and in the result we were able to achieve as a small company against a large government agency.”

The company promised that, should they be required to submit the requested information on the final 14,000 users, they would inform them before the actual disclosure takes place. The company’s legal staff is currently evaluating the order before proceeding.

Source: Coin Telegraph




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House and Senate Tax Bills Kill Cryptocurrency “Like Kind” Exchanges: Expert Blog

Trades between two cryptocurrencies may or may not qualify as nontaxable “like kind” exchanges, but new bill would nix that possibility.

Expert Blog is Cointelegraph’s new series of articles by crypto industry leaders. It covers everything from Blockchain technology and cryptocurrencies to ICO regulation and investment analysis. If you want to become our guest author and get published on Cointelegraph, please send us an email at mike@cointelegraph.com.

Broadly stated, a 1031 exchange (also called a like-kind exchange or a Starker) is a swap of one business or investment asset for another. Under US tax code, most swaps are taxable as sales. In fact, the IRS has actively gone after the barter community, trying to tax goods and services that are exchanged.

Section 1031 is an exception to the rule that swaps are generally fully taxable. If you can manage to come within 1031, you’ll either have no tax, or limited tax due at the time of the exchange. In effect, you can change the form of your investment without (as the IRS sees it) cashing out or recognizing a capital gain. That way your investment continues to grow, tax-deferred. If you qualify, there’s no limit on how many times or how frequently you can do a 1031.

Primarily used for real estate

Big commercial real estate developers do this all the time. Think Donald Trump.

You can roll over the gain from one piece of investment real estate to another, to another and another. Although you may have a profit on each swap, you avoid tax until you actually sell for cash many years later. Then, you’ll hopefully pay only one tax, at a long-term capital gains rate.

Since the IRS says cryptocurrency is property and not currency, swaps under 1031 should be fine, right? Not so fast – whether 1031 applies to cryptocurrency is debatable. But the debate may not be relevant for much longer, since both the House tax bill and the Senate tax bill propose to restrict 1031 exchanges to real estate only.

The real estate industry is breathing a big sigh of relief that 1031 exchanges are being kept for them. In fact, the vast majority of 1031 exchanges are of real estate. However, some exchanges of personal property (say a painting) can qualify. But exchanges of corporate stock or partnership interests don’t qualify. On the other hand, interests as a tenant in common (sometimes called TICs) in real estate do.

Most exchanges must merely be of “like-kind”—an enigmatic phrase that doesn’t mean what you think it means. You can exchange an apartment building for raw land, or a ranch for a strip mall. Classically, an exchange involves a simple swap of one property for another between two people.

Delayed exchanges

But the odds of finding someone with the exact property you want who wants the exact property you have are slim. For that reason, the vast majority of exchanges are delayed or “Starker” exchanges (named for the tax case that allowed them). In a delayed exchange, you need a middleman who holds the cash after you “sell” your property and uses it to “buy” the replacement property for you.

This three-party exchange is treated as a swap. The intermediary must meet a number of requirements. That’s one reason delayed exchanges of cryptocurrency may not qualify. There are also two timing rules you must observe in a delayed exchange.

Once the sale of your property occurs, the intermediary will receive the cash. Then, within 45 days of the sale of your property, you must designate replacement property in writing to the intermediary, specifying the property you want to acquire. The second timing rule in a delayed exchange relates to closing.

You must close on the new property within 180 days of the sale of the old. Note that the two time periods run concurrently. That means you start counting when the sale of your property closes. If you designate replacement property exactly 45 days later, you’ll have 135 days left to close on the replacement property.

You may have cash left over after the intermediary acquires the replacement property. If so, the intermediary will pay it to you at the end of the 180 days. That cash–known as “boot”—will be taxed as partial sales proceeds from the sale of your property.

You must consider mortgage loans or other debt on the property you relinquish, and any debt on the replacement property. If you don’t receive cash back but your liability goes down, that too will be treated just like cash. There are many traps that can derail tax-free treatment.

What about cryptocurrency?

Until the law changes, what about 1031 exchanges of cryptocurrency? The IRS has been asked about this, but has so far remained mum. Some holders of cryptocurrency probably can say they are holding their cryptocurrency for use in their business or for investment. In fact, the investment use qualifier seems easy.

But the far tougher hurdle is whether they are swapping for property of like-kind. A direct Bitcoin for Bitcoin swap might be fine. But a Bitcoin for Ripple or Ethereum trade might not qualify. Section 1031 does not apply to trades of stocks or bonds, and the IRS could rely on this to nix any cross-species trade of cryptocurrency.

On the other hand, one might argue that different types of cryptocurrency are a little like different types of gold coins. If a swap of one type of gold coin for another qualifies, why not swaps of cryptocurrency? However, one likely IRS answer might be that if you swap, say, Ripple for Bitcoin, that is really more like swapping silver for gold, or vice versa.

Silver for gold would be taxable, so the IRS may say that a cross-species swap of cryptocurrency should be too. Many observers think this is how the IRS would come out. But the IRS hasn’t said this so far. So, some of this question turns on risk.

On risk and reporting

How big are the gains you are hoping to shield, and how much of a chance are you willing to take? On top of those questions, there are tax reporting rules to address. You need to claim Section 1031 treatment on your tax return to be able to say that you met the rules.

It might seem tempting not to report swaps of cryptocurrency and try to fly under the radar. But for those trying to use 1031, failing to report would be a mistake, in my view. You can’t qualify for 1031 unless you claim it. If you want to see what you have to report to the IRS on your tax return, check out IRS Form 8824.  

Both the House and Senate tax bills call for cutting back Section 1031 to cover only real estate. The two tax bills are filled with controversy, but not over this point. In that sense, the debates over 1031 exchanges of cryptocurrency may not be relevant too much longer.

Bio: Robert W. Wood is a tax lawyer representing clients worldwide from offices at Wood LLP, in San Francisco (www.WoodLLP.com). He is the author of numerous tax books and writes frequently about taxes for Forbes.com, Tax Notes, and other publications.

Disclaimer: This discussion is not intended as legal advice and does not necessarily represent the views of the Cointelegraph.

Source: Coin Telegraph




My current recommendations:

HashFlare for automated Bitcoin cloud mining - Currently ROI in around 60 days only

Bitclub Network allows you to buy mining shares with daily payouts

CCG Mining now offers open end contracts. Bitcoin, Ethereum, Zcash, Litecoin and others

Cointracking keeps track of all your coins automatically. Many exchanges and wallets supported