finland

Tax authorities in Finland have begun matching bank records to cryptocurrency transactions in an effort to track down suspected Bitcoin tax cheats.

English-language Finnish news outlet Metropolitan.fi reports that Timo Puiro — the tax office’s inspector general — has identified at least 3,300 citizens who owe taxes related to gains accrued while trading cryptocurrencies. Collectively, they owe about 30 million euros in capital gains taxes — a tenfold increase from 2016.

According to the report, the tax office has taken advantage of “generous access” to bank transfers and other financial data, which officials have been able to successfully link to Bitcoin transactions from cryptocurrency exchanges and other trading platforms.

Using this data, the tax office has been able to identify Finns who taxes on their cryptocurrency gains, and it will scrutinize their annual tax returns to determine whether they pay them.

The latest date that taxes can be filed in Finland is May 15, so it is unclear whether residents are paying their cryptocurrency-related taxes.

However, the fact that many cryptocurrency investors do not report cryptocurrency trading on their tax returns is well-documented. US financial services company Credit Karma has said that among users of its tax preparation software cryptocurrency reporting is at “negligible levels,” and the Internal Revenue Service (IRS) has contracted with a blockchain forensics firm in the past to help the agency track down Bitcoin tax cheats.

Cryptocurrency exchange Coinbase was also recently forced by a court order to provide the IRS with access to customer records for high-volume users.

As BlockExplorer reported, tech conglomerate Amazon recently won a patent for a data streaming marketplace that would transmit information in real-time. The company identified catching Bitcoin tax cheats as one potential use case for the marketplace. Under the system, law enforcement agencies could subscribe to data streams for Bitcoin transactions and shipping information or bank records and then use in-app analytics tools to identify correlations in the data.

Featured Image from Pixabay

Cryptocurrency

A study has found that only a tiny percent of people have reported their cryptocurrency gains and losses to the Internal Revenue Service (IRS) so far this year.

According to Credit Karma, a free credit monitoring app, fewer than 100 people, out of the 250,000 who have already filed their federal taxes this year through the company, disclosed a digital currency transaction to Uncle Sam, reports Reuters.

This is notable considering a preliminary survey conducted last month by Qualtrics, a credit score startup and research firm, found that 57 percent of the 2,000 Americans surveyed indicated that they had made some gains with digital currencies. Of those questioned, though, 59 percent said that they had never reported these taxable gains to the IRS.

Jagjit Chawla, General Manager for Credit Karma Tax, said that the results weren’t too surprising:

“While so few people have reported Bitcoin and other cryptocurrency gains or losses, we’re not surprised. Generally, Americans with more complex tax situations file later in the tax season, especially if they expect that they’ll owe money. However, given the popularity of Bitcoin and cryptocurrencies in 2017, we’d expect more people to be reporting. We encourage anyone who thinks they may have cryptocurrency-related gains or losses to visit Credit Karma Tax and take advantage of the resources we have available for them.”

In a bid to gain access to the records of cryptocurrency investors, the IRS successfully sued digital currency exchange Coinbase in November. As a result, a federal court judge ordered the San Francisco-based company to comply with a summons that required it to identify 14,355 accounts.

The order, covering transactions between 2013 and 2015, was the result of an on-going battle between the two when the IRS initially ordered Coinbase to hand over the personal information of more than one million accounts.

Even though the cryptocurrency community has been evasive about any profits they’ve made, plenty will have made gains after a surge in bitcoin’s price last year. At present, it now costs just under $8,600 to purchase one bitcoin. Notably, though, digital currency investors are saying that traders need to comply with the IRS.

Speaking at a CB Insights’ Future of Fintech conference in June, Mike Novogratz, former hedge fund manager at Fortress Investment Group, and now CEO of Galaxy Digital, said:

When I talk to the blockchain community, I’m always pushing [them], I’m like, “Dude, A, pay your taxes.’ Because nobody in that space pays taxes. Listen, the IRS is gonna come after people. People are making real money now and the IRS isn’t stupid.

The IRS project that around 156 million people will file their federal taxes this year.  Even though it’s still early in the year, so far the IRS has received just over 18.3 million tax returns. Last year, around one million people filed their taxes with Credit Karma’s services.

Additionally, Jagjit wanted me to share the following tips that our readers may find helpful:

  • Cryptocurrencies are considered property by the IRS. The IRS considers anytime someone buys, sells, trades or mines a cryptocurrency a taxable event.
  • How long someone held onto their Bitcoin or other cryptocurrency can affect their tax liability:
    • If you held cryptocurrency for more than a year, you’re likely looking at long-term capital gains or losses.
    • If you held your cryptocurrency for less time, you could be looking at short-term capital gain or losses.
    • The tax rate on most net capital gains generally won’t be higher than 15 percent for most taxpayers.
  • It’s important to accurately track all your cryptocurrency trades and record the value of each current fair market value (in U.S. dollars) and the dates of receipt, as this information can help you report your cryptocurrency transactions on Form 8949 and Schedule D.

Edit, 1354 CST: Updated comment from Jagjit.

Featured image from Shutterstock.

coinbase

A U.S. District Court judge has ordered bitcoin exchange Coinbase to provide the Internal Revenue Service (IRS) with the transaction records of more than 14,000 customer accounts.

The ruling (PDF), which was filed in the Northern District of California’s San Francisco courthouse, compels Coinbase to provide the IRS with customer records for accounts that had at least the equivalent of $20,000 in any one transaction type (buy, sell, send, or receive) in any single year from 2013 to 2015. Coinbase estimates that 14,355 accounts will fall subject to the purview of the summons.

Since the IRS classifies cryptocurrency as property, all cryptocurrency holdings are subject to capital gains taxes at the time of disposition. However, the IRS claims that virtually no U.S. taxpayers have reported bitcoin-related investment income on their annual tax returns. Armed with this data, the agency will be able to identify and levy penalties against investors who have skirted their legal obligations to pay taxes on their bitcoin investments, and — in some cases — prosecute offenders for tax evasion.

“That only 800 to 900 taxpayers reported gains related to bitcoin in each of the relevant years and that more than 14,000 Coinbase users have either bought, sold, sent or received at least $20,000 worth of bitcoin in a given year suggests that many Coinbase users may not be reporting their bitcoin gains,” U.S. Magistrate Judge Jacqueline Scott Corley wrote in her ruling. “The IRS has a legitimate interest in investigating these taxpayers.”

The ruling did not come as a surprise. Earlier this month, the judge told Coinbase in a hearing that she was inclined to “give tremendous discretion to the agency as to how they investigate” whether people are making money on their bitcoin investments. Following that hearing, Coinbase published a blog post that more or less conceded defeat but took solace in the fact that the company had successfully forced the IRS to narrow its initial summons, which sought records from approximately 500,000 customers.

Despite the narrow focus of the final order, the successful defense of the summons will likely encourage the IRS to ramp up its efforts to bring bitcoin users into compliance with tax reporting obligations — particularly following the industry’s dramatic growth in 2017.

Featured Image from NPR/Dennis Brack/LandovIRS-v-Coinbase-order

The ZCash Foundation has been granted 501(c)3 status as a public charity by the United States government. The ZCash Foundation went through a long and arduous application process with the IRS to make sure that they received tax exempt status for public infrastructure – not public education (which is much much more common and usually referred to as the easy route). Furthermore – they are the first to do so in the name of privacy. Peter Van Valkenburgh explained the significance of the new tax designation on the ZCash Foundation blog:

You may not be particularly interested in non-profit tax law, but if you are passionate about the Internet, privacy, and the future of public infrastructure, then this is important news. So far as I know, the Zcash Foundation is now the first public charity dedicated to building internet payments and privacy infrastructure for the public good.

ZCash Foundation will still promote cryptocurrency education

Valkenburgh clarified that the ZCash Foundation’s previous work will continue, just be expanded to cover more:

The foundation will—still—engage in public education about cryptocurrencies, online privacy technology, and the computing networks that power these new tools. But the foundation will also support open, peer-reviewed scientific research into zero-knowledge proofs and associated cryptographic technologies, and, perhaps most importantly, it will help to build the Zcash decentralized network as open, public infrastructure.

ZCash was able to successfully justify the importance of privacy in public spaces – including those that are online – to the IRS. This is a big win for cryptocurrencies, privacy, and free and open source software in the United States and abroad.