“AN INNOVATIVE MEDIUM OF EXCHANGE”
by Fergus, Hodgson, Tax Revolution Institute, ©2016
(Dec. 29, 2016) — Resistance from Coinbase and its customers toward the Internal Revenue Service summons appears futile. Their appeals against the “John Doe” data sweep will likely fall flat, because the IRS is correct in its suspicions.
As reported in detail by the Tax Revolution Institute (TRI), the agency’s wrongheaded interpretation of tax law has made virtually all bitcoin and Coinbase users in the United States in violation of reporting requirements — even if there is no malicious intent at play. In the words of the IRS, these individuals likely have “a lack of knowledge of tax requirements and uncertainty over how to report virtual currency transactions.”
That means “any appeal will not be successful,” explains cryptocurrency-compliance specialist Juan Llanos. “Different spheres of regulation have been applicable to bitcoin even before it was born, [and] enforcement is always a possibility, a sword dangling over the industry’s head. The time has come now to enforce taxation rules on cryptocurrency, and I think there’s nothing anyone can do to stop that, short of changing the laws and regulations.”
Llanos is far from alone in his assessment. Members of the Bitcoin Group roundtable on the World Crypto Network see “grave trouble” for Coinbase, and its likely collapse under the weight of regulation. Tone Vays, one of the roundtable’s analysts, adds that the motion brought by a Coinbase customer to quash the IRS summons is “irrelevant. [Suing the US government] never works, unless it’s some kind of high-profile case, and this is not.”
Jeffrey Berns, an attorney and managing partner of Berns Weiss LLP, has filed the motion to block the IRS. Even if a true believer, he is wrong to assert that “there is no legitimate reason to seek these records.” The IRS is trying to catch up on lost time and enforce its tax regime, albeit a misguided one. Further, his assertion that “the IRS doesn’t understand a developing technology” rings hollow, since the IRS has shown enough self awareness to admit its failure to educate users on compliance.
Gabriel Vine, another member of Bitcoin Group panel, believes the failure of Coinbase to satisfy both US regulators and customers simultaneously — despite costly efforts to do so — will be its downfall. Consequently, users will have a heightened sense of caveat emptor (buyer beware) when it comes to trading platforms. They are set to get burned and have their financial privacy violated, so they will “lose their trust in all such institutions, because all centralized institutions are honeypots in the age of leaks.”
Just because the IRS has cornered the 4 million accounts on the largest US-based exchange, however, does not mean it has the moral high ground or upper hand. By rejecting bitcoin as a currency and mandating capital-gains taxes realized on transactions, it has imposed a de facto prohibition on an innovative medium of exchange.
Try as the IRS may, the rising tide of bitcoin use is unstoppable, and civil disobedience and decentralization will make attempts at enforcement evermore difficult. In defiance of IRS targeting, bitcoin’s price has spiked 22 percent in just the past month, and this seemingly unshakable optimism has generated a record market value of $14 billion.
The onus, therefore, is on the IRS to adapt, and not the users of a cryptocurrency with legitimate economic value.
See the graph and read the rest here.
Sharon Rondeau has operated The Post & Email since April 2010, focusing on the Obama birth certificate investigation and other government corruption news. She has reported prolifically on constitutional violations within Tennessee’s prison and judicial systems.