Coinbase vs. the United States was Partial Victory For Coinbase… AKA a Partial Victory for IRS – Here is What you Need to Know
That means transactions that were worth over $20,000 together in fair market value in USD at the time (in 2013, 2014, or 2015 values; not in today’s values).
For those who the above applies to, but who aren’t very sure they did their taxes correctly, it makes sense to see an accountant ASAP and get right with the IRS before they come looking for you.
Meanwhile, for those who made great gains in 2016 or 2017, but not in 2013 – 2015, this should be seen as a reminder to pay your taxes. The IRS does not take kindly to tax evasion (as you might expect), but as you might not expect they tend to be very reasonable if you try to get right with them before they come looking for you.
The gist of paying crypto taxes: Paying taxes on cryptocurrency means weighing your capital gains vs. capital losses each year (that is gains and losses after your principle investment) and paying your capital gains tax on them (longterm or short term depending on how long you held the investment). This can differ by nation, but this is the gist in the U.S.. If that doesn’t make a ton of sense to you, then hire an accountant!
Here is the good news / bad news about the “partial victory” Coinbase’s own words:
We are pleased to say Coinbase won a partial victory in court today. Although the Court did not completely quash the government summons compelling disclosure of certain customers’ records from the period 2013–2015 as we requested, we were proud to accomplish two important victories for our customers.
First, the government vastly narrowed the scope of its summons. The government’s own lawyers noted at the hearing that the IRS is not accustomed to having to fight for records in this context, and most companies just turn records over without going to court. Thanks to Coinbase’s efforts, more than 480,000 customers’ records were preserved from disclosure. This is a 97% reduction in the number of customers impacted by this summons.
Second, the quantity of data we must produce for the approximately 14,000 customers who remain in scope has been significantly reduced. In narrowing the scope of the summons, we are pleased that the Court acknowledged the privacy rights at stake in this matter….
…Coinbase has millions of customers and the narrowed summons affects approximately 14,000 of the highest-transacting customers from 2 to 4 years ago. This represents less than 1% of our customer base.
With all that covered, Here are the implications of United States v. Coinbase, Inc. in more detail:
If you moved crypto worth more than $20,000 in of, out of, or within Coinbase in 2013 – 2015, then the IRS is almost certainly going to know about it (as Coinbase has been ordered to present “data” about those accounts to the IRS).
If the above is the case for you (if your transactions of any type equaled more than $20k) and you did your accounting correctly, paying capital gains taxes you owed for taking profits or trading one crypto to another, then you have nothing to worry about.
If you did not pay taxes that you would have owed, then you have something to worry about.
If you have something to worry about, you should see an accountant ASAP (I’d see one no matter what to double check, but especially if you were a Coinbase users and you didn’t pay your taxes you should).
It is very likely that those who made profits, but didn’t pay, will be able to get right with the IRS this year and avoid the their ire (you’ll likely owe back taxes and fees, but avoid worse outcomes like jail).
To understand your tax implications, you have to understand how capital gains taxes work with investment property. If you bought and held Bitcoin, then you don’t have tax implications until you take the money in fiat or another coin. If you have been trading, then you likely have tax implications for each year you turned a profit.
Now, if you moved over $20k worth of say Bitcoin out of Coinbase and into a wallet, and you have held it since, you technically don’t owe taxes but will probably set of a red flag. If you know you have a red flag, see an accountant and get advise from them on how to proceed (it may for example help to account for that crypto this year on this year’s taxes).
The thing to keep in mind here is that when you don’t pay taxes you owe, you risk fines and jail time.
But remember, the good news to counter this is that in general the IRS likes it when you take initiative and try to get right with them before they come for you.
Thus, if you know you messed up, you had a lot of crypto that ever touched Coinbase, but didn’t pay your capital gains on it…. see an accountant today and ask for their help in getting right with the IRS. The chances that they are going to try to make an example out of the ones who try to get right with them are very small. Instead what is likely to happen is that they will start at the top of the list, and work their way down, looking for those who are committing the federal crime known as tax evasion.
For those of you considering not paying taxes this year. Remember the above story!
Normal people pay taxes when they make a profit, be normal, pay your taxes, and enjoy the gains you have left. Warren Buffet pays taxes, the Wolf of Wall Street types commit tax evasion. Play the tape through to the end and ask yourself which type you want to be like. Yeah, paying out a bunch of money in taxes stinks… welcome to being an adult. That is just the way it is (and this is also why “hodl” is a good strategy, you only pay when you take your coins off the table… and you pay the long term capital gains tax!)
Thus, the moral: Those who attempt to get right with the IRS can mostly be assured of smooth sailing ahead. Those who think they are being clever by shifting money around to exchanges and wallets might get away with it, or they might not. You get to make your own choices, just make sure you clearly understand the choice you are making. There is nothing worse than getting a bill with a fee from the IRS after you miss your chance to carefully account for your own gains and losses… well, except literally going to federal prison for tax evasion. That is worse.