Congress Slams IRS Over Bitcoin Tax Law; Here’s the Major Loophole for Crypto Investors
The United States tax deadline has came and went, and thanks to overwhelmingly confusing tax laws, crypto and investors are left scratching their heads, with many and losses on their annual tax filing.
It’s not U.S. taxpayers who are alone in feeling confused by the complex tax laws and lack of clear guidance. Congress has issued a scathing letter to the (IRS) asking for clarity on how U.S. residents should go about paying their taxes on bitcoin and other cryptocurrencies. The letter itself, suggests a leading tax attorney with experience in advising crypto clients, creates a major loophole for crypto investors who are at risk to become audited or worse.
Congress Issues Letter to IRS Requesting bitcoin Tax Clarity
Tax day in the United States was this past Monday – a day many U.S. taxpayers dread. Tax laws in the country are already complicated, and confusing, requiring many taxpayers to either invest in software or pay a tax advisor to help guide them through the process and ensure all gains and losses are accurately reported.
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The that is not fully understood, is unregulated, and has a multitude of potential use cases that walk the line of different classifications. Making matters worse, the IRS has only issued one public notice back in 2014 on how to pay taxes on cryptocurrencies such as bitcoin since its inception, yet carries fines of up to $500,000 and up to five years in prison if taxes aren’t reported properly.
The glaring issue has prompted Congress to , demanding answers for U.S. taxpayers who are lost on how to report crypto-related transactions on their taxes.
“Taxpayers deserve clarity on several basic unanswered questions regarding federal taxation of these emerging exchanges of value,” the letter read. “Guidance is long overdue and essential to proper reporting of these emerging assets. The bipartisan support this letter has received should send a clear message to the IRS that clear guidelines for reporting virtual currency are necessary,” added Minnesota Congressman Tom Emmer.
Letter Inadvertently Provides Major Loophole for Crypto Investors
The letter itself Congress sent to the IRS, may further complicate things for the U.S. government, according to San Francisco-based tax lawyer Alex Kugelman who is familiar with advising cryptocurrency clients. Kugelman says that the letter could act as a sort of protection for any crypto investors that may have been targeted by the IRS’s crackdown on crypto tax evaders.
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Kugelman explained that “if any of my clients are audited, I am going to present this to auditors – how can the IRS take enforcement action against taxpayers when there is such an obvious lack of guidance?”
With fines as steep as $500,000 and charges that could lead to up to five years in prison, having this added layer of protection on what is a complex and confusing situation, can be an ace up the sleeve for crypto investors or traders who find themselves in a precarious situation with the IRS.
Disclaimer: This information should not be taken as tax advice. Seek a certified public accountant for any crypto tax related questions.
The hard fork is drawing closer by the day. Within little over two weeks after the publication of this article, a group of bitcoin companies and miners plans to double bitcoin’s block weight limit as per .
But it currently seems certain that not everyone will adopt this incompatible protocol change. As such, the SegWit2x fork would result in two different blockchains and two different currencies. For the purpose of this article, these two blockchains will be referred to as the “original chain” and the “SegWit2x chain,” with their respective coins.
The big question, right now, is which of these two blockchains would be considered the “real” bitcoin, with the currency ticker “BTC.” Since no single individual or entity is really in charge of this decision, bitcoin exchanges play a major role: they list the currencies that are traded under specific names.
To find out which coin is likely to earn the ticker “BTC,” here’s an overview of the 20 largest bitcoin exchanges based on trading volume according to data from , and their stance on this naming issue.
1. Bitfinex: original chain is “BTC”, SegWit2x chain is “B2X”
Hong Kong–based cryptocurrency exchange is the largest bitcoin exchange in the world by trading volume.
Interestingly, Bitfinex also offers a futures exchange, on which claims on the future versions of the coins on both chains are already traded. These futures are currently labeled as “BT1” for coins on the original chain, and “BT2” for coins on the SegWit2x chain.
In Bitfinex’s of these futures, published on October 5, as well as the accompanying , the exchange also reveals that “the order books for the BT2 trading pairs will become the order books for the B2X pairs.” Meanwhile, the BT1 futures will be settled into BTC.
In other words, the coins on the original chain will be listed as “BTC”, while the coins on the SegWit2x chain will be called “B2X.”
2. BitMEX: original chain is “BTC”
, a cryptocurrency exchange officially based in the Republic of Seychelles, is the second-largest bitcoin exchange in the world based on trading volume.
In a published on October 13, BitMEX announced it would continue to list coins on the original chain as “BTC.”
Moreover, because SegWit2x will not implement strong , BitMEX will not list coins on the SegWit2x chain at all, nor offer any other type of support.
3. Bitstamp: unknown
, which is officially based in the United Kingdom but operates from several European countries, has not yet made any public statements concerning the SegWit2x fork. The exchange also did not respond to inquiries from bitcoin Magazine.
Bitstamp did sign a insisting on consensus and strong replay protection for hard forks earlier this year, though that statement referred to a potential Unlimited
hard fork — not SegWit2x.
4. GDAX: hash power decides which chain is “BTC”
U.S.-based cryptocurrency exchange is effectively the exchange-arm of Coinbase. And Coinbase is a signatory of the .
Regardless, it’s not certain that Coinbase (and therefore probably also GDAX) will list coins on the SegWit2x chain as “BTC.” In fact, the company could well list the coins on the original chain as “BTC” — but public statements have been somewhat contradictory.
The company initially put out a saying that the coins on the original chain would be listed as “BTC,” and the coins on the SegWit2x chain as “B2X.” However, this initial statement was effectively withdrawn the very next day, as the company put out a “clarifying” that Coinbase will actually list the coins with the most accumulated hash power backing it as “BTC.” And on , company CEO Brian Armstrong suggested that it’s not just hash power but also market cap that will decide which coin will be listed as “BTC.”
bitFlyer is also a signatory of the in support of the SegWit2x hard fork, which suggests that the exchange will at least support the coin on the SegWit2x chain. bitFlyer has not yet made any public statements concerning the naming of the coin(s), however, and did not respond to inquiries from bitcoin Magazine.
6. Kraken: unknown
U.S.-based bitcoin and cryptocurrency exchange has not yet made any public statements concerning the SegWit2x fork, either.
In response to inquiries from bitcoin Magazine, the exchange also refrained from commenting on the naming issue and instead stated:
“Kraken makes no promises/guarantees/warranties on the outcome of the fork. We will make our best effort to handle things in a way that benefits the most clients, but clients should manage their own wallets/coins if they want perfect control.”
7. HitBTC: original chain is “BTC”, SegWit2x chain is “B2X”
Like Bitfinex, cryptocurrency exchange is already offering a where the two future coins are traded.
And in an published on October 17, the exchange said it will list the coins on the SegWit2x chain as “B2X.” The coins on the original chain will continue to be listed as “BTC.”
However, HitBTC does note that the “bitcoin community might encourage ‘BTC’ title being relocated to the SegWit2x token.” They added: “Whatever happens, we will proceed with the decision that will be the most convenient for our traders.”
The German bitcoin exchange .de has not yet made any public statements concerning the SegWit2x fork. The exchange also did not respond to inquiries from bitcoin Magazine.
9. CoinsBank (formerly known as BIT-X): original chain is “BTC”
United Kingdom–based cryptocurrency exchange (formerly known as BIT-X) has not made any public statements concerning the SegWit2x fork.
In response to inquiries from bitcoin Magazine, however, the exchange indicated that it will list coins on the original chain as “BTC” and will not support the SegWit2x chain. They stated:
“We inform you that we are proponents of the BTC core and not planning to support other branches.”
10. CEX.IO: original chain is “BTC”, SegWit2x chain is “B2X”
United Kingdom–based bitcoin exchange will list coins on both chains. In a blog post published on October 20, the exchange it will list the coins on the SegWit2x chain as “B2X.” It also states in the announcement that coins on the original chain will continue to be listed as “BTC.”
11. itBit: unknown
U.S.-based bitcoin exchange has not yet made any public statements concerning the SegWit2x fork. The exchange also did not respond to inquiries from bitcoin Magazine.
12. Gemini: hash power decides which chain is “BTC”
In an October 24 written by Cameron Winklevoss, one ’s founders, the U.S.-based bitcoin exchange explained that it “will be measuring total cumulative computational difficulty of the blockchain to determine what we will call bitcoin and BTC and on the Gemini platform.”
In other words, Gemini will give the name “BTC” to the coin that has the most hash power attributed to it.
It may also list the coin that does not attract the majority of total hash power, but the exchange has not given any guarantees yet, nor did it mention a name for this coin.
13. Coinfloor: unknown
U.K.-based bitcoin exchange has not yet made any public statements concerning the SegWit2x fork. The exchange also did not respond to inquiries from bitcoin Magazine.
Coinfloor did sign the insisting on consensus and strong replay protection for hard forks, which originally referred to the potential bitcoin Unlimited hard fork.
14. BTCC: hash power decides which chain is “BTC”
Like Bitfinex and HitBTC, Hong Kong–based bitcoin exchange is already offering a where the two future coins are traded. These coins are currently referred to as “1MB” for the coin on the original chain, and “2MB” for the coin on the SegWit2x chain.
And, according to the concerning this futures market, BTCC will after the fork “consider the version of bitcoin that has the most proof-of-work behind it as bitcoin (BTC)”. In other words, BTCC will give the name “BTC” to the coin that has the most hash power attributed to it.
15. BitMarket: unknown
Polish bitcoin exchange has not yet made any public statements concerning the SegWit2x fork.
The exchange did respond to inquiries from bitcoin Magazine, but it did not reveal which coin will be listed under what name or ticker.
Instead, a BitMarket representative stated:
“We reserve the right to decide whether to support or not [the] given fork of the bitcoin. Our decision will depend on the stability of the fork’s network and what issues it may cause in the future.”
16. QuadrigaCX: unknown
Canadian bitcoin exchange has not yet made any public statements concerning the SegWit2x fork. The exchange also did not respond to inquiries from bitcoin Magazine.
QuadrigaCX did sign the insisting on consensus and strong replay protection for hard forks, originally referring to the potential bitcoin Unlimited hard fork.
Brazilian bitcoin exchange recently signed a on behalf of the Brazilian and Argentinian bitcoin communities in opposition of SegWit2x.
When asked by bitcoin Magazine, the exchange further explained that it may or may not list the coins on the SegWit2x chain, which will in part depend on whether or not the SegWit2x chain implements strong replay protection. (This currently seems very unlikely.)
If Mercado bitcoin does list this coin, it will use the ticker “B2X” because “the market is converging to this ticker.” They added: “We also tend to consider the Core version the legitimate one.”
18. Bitso: unknown
Mexican bitcoin exchange is a signatory of the in support of the SegWit2x fork. The company has since also that it will support coins on both chains — even though it did sign the bitcoin Unlimited–inspired insisting on consensus and strong replay protection for hard forks.
Regarding names and tickers, a Bitso representative told bitcoin Magazine:
“We have not yet decided on ticker names but hope to make an official statement soon.”
19. The Rock Trading: original chain is “BTC”
Malta-based bitcoin exchange has not yet made any public statements concerning the SegWit2x fork. It did, however, sign the bitcoin Unlimited–inspired insisting on consensus and strong replay protection for hard forks.
And, when asked by bitcoin Magazine, The Rock Trading CTO Davide “Paci Barbarossa” Barbieri said the exchange will list the coins on the SegWit2x chain as “B2X” — if the exchange lists that coin at all.
Said Barbieri:
“As stated publicly, we are generally against any hard forks; we do not currently guarantee that we will handle SegWit2x, or that we will list it; as far as I know replay protection is still a concern.” And: “If we do [list the coin on the SegWit2x chain] we will probably call it B2X or something like it.”
20. EXMO: unknown
U.K.-based cryptocurrency exchange has not yet made any public statements concerning the SegWit2x fork. The exchange also did not respond to inquiries from bitcoin Magazine.
This article will be updated as the news develops. Did I miss anything? Feel free to let me know at aaron@bitcoinmagazine.com. This article was last updated on October 28th.
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