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The benefit of having a decentralized network outside the influence of government and central authority is something that has been appreciated for quite some time by the Bitcoin holders and the other users of cryptocurrencies. Cryptocurrency is a digital/virtual currency system and is protected by cryptography that prevents counterfeiting.
Cryptocurrency: Definition
Cryptocurrencies are a decentralized, Blockchain-based system and the very aspect that distinguishes cryptocurrencies would be the decentralized system which means the state or any central authority is unable to intervene or exploit throughout the system.
The very feature that characterizes cryptocurrency is under threat from the central authorities and due to the Coinbase tax being implemented.
What Are The New Rules On Cryptocurrencies?
Coinbase is a cryptocurrency wallet and a forum for people to transact online. In addition, Coinbase users should also obtain a 1099k form if they fulfill the requirements necessary.
The 1099k form will be issued to users who have much more than 200 transactions and the amount earned is more than $20,000.
Freelancers, small businesses and uber drivers who accept cards and payments online are eligible for the form.
What Role Does The IRS Play?
The notice from IRS came twenty-one days after Coinbase released the 1099k forms, asking customers to pay a.k.a. coinbase tax on their crypto-gains. Of course, Coinbase customers weren’t all that happy with the latest innovations because for many of them the decentralized structure and its open existence would keep them tax-free, sadly, this is no longer the case.
Furthermore, the consumers were angry that Coinbase had not given them an advanced notice that their Crypto earnings would have to pay coinbase tax returns.
In order to let digital currency investors know they are required to disclose their income and the consumer must also record the transaction between two wallets, IRS also issued guidance for the coinbase tax. IRS allows you to monitor the purchases in order to show how much they have ordered and to help them decide how much they owe.
Response By The IRS
In the words of Suzanne Shier, executive and chief tax analyst for Northern Trust Wealth Management, Chicago-based wealth planning firm “Cryptocurrency is treated as property, an asset.”
It means that cryptocurrency is considered property by the IRS, in a similar manner one might look at certain assets and stocks.
Another explanation for the coinbase tax is that crypto-currency transactions had been massively under-reported, and that is why the Internal Revenue Service has ramped up its attempts to raise taxes and that is why the Coinbase tax has come in.
According to reports fewer than 1000 people out of 250,000 Americans who filed for tax returns have registered their cryptocurrency gains and the IRS wants better monitoring of such transactions and events.
The soaring price of bitcoin and other digital currencies has allowed a few consumers to make a great deal of money out of it and there is no question that even the IRS wants a few of their shares.
The IRS even sent letters to about 10,000 bitcoin holders, where they had been told of the underpaid taxes on their transactions, and the IRS would also begin to concentrate on guidelines for disclosing gross proceeds for crypto transactions.
Such letters also informed crypto account holders about how to properly monitor and record earnings, should they either file a late return or file an amended tax return where the letters are to be labeled with the corresponding letter type, such as Letter 6173, Letter 6147 and Letter 6174-A
Letter 6173
“We have information that you have or had one or more accounts containing virtual currency and may not have met your U.S. tax filing and reporting requirements for transactions involving virtual currency, which include cryptocurrency and non-cryptocurrency.”
If you have not reported your financial transaction correctly on a federal payroll, after the taxpayers ‘analysis, so updated reports should be filed if they have not been filed for one or more taxable years.
Letter 6174
“We have information that you have or had one or more accounts containing virtual currency but may not know the requirements for reporting transactions involving virtual currency, which include cryptocurrency and non-crypto virtual currencies. After reviewing the (educational) information below, if you believe you didn’t accurately report your virtual currency transactions on a federal income tax return, you should file amended returns or delinquent returns if you didn’t file a return for one or more taxable years.”
In essence, letter 6174 asks taxpayers to check their past returns and to file an amendment only when it is necessary.
Letter 6174-A
“We have information that you have or had one or more accounts containing virtual currency but may not have properly reported your transactions involving virtual currency, which include cryptocurrency and non-crypto virtual currencies. After reviewing the information below, if you believe you didn’t accurately report your virtual currency transactions on a federal income tax return, you should file amended returns or delinquent returns if you didn’t file a return for one or more taxable years. You do not need to respond to this letter.”
The IRS alerts the taxpayer in this letter that there could be a possible misreport with regard to crypto-tax transactions.
And the IRS can impose criminal prosecution if this is the case.
What Does Coinbase Have To Say?
The director of research at the Coin Center, Peter Van Valkenburgh, was angry and criticized the court when they called for the revealing of investor data, he says, this particular rule requires further clarity to be shone on it and certainly needs more clarity because it sets a poor precedent for financial privacy.
Van Valkenburgh, also made a comment in November 2017 about how dissatisfied they were all with the absence of justification and also made his case about the clarification required in the Coinbase tax and also in the tax treatment of cryptocurrencies.
HMRC(Her Majesty’s Revenue and Customs) is apparently working with Crytpo exchanges to monitor the people who are not paying tax.