The cryptocurrency-tax question may have just gotten a lot murkier, now that Stargroup announced a partnership with DigitalX to roll out up to 2,900 Bitcoin-enabled ATMs in Australia.
Currently, there are only sixteen such machines in the entire country, and nearly all of them are one-way devices which only allow users to add Bitcoin shares to their wallets. The new arrangement, according to a joint press release, will not only dramatically expand the Bitcoin ATM geographic footprint, but also allow these people “to instantly convert their Bitcoin to AUD cash at the ATM.” In a separate interview, Stargroup CEO Todd Zani predicted the devices would fill a key market niche, viz, Bitcoin is rather easy to purchase but nearly impossible to “cash out.”
The global Bitcoin market has expanded from about $20 billion to over $70 billion in less than a year.
Another New Development
The new ATMs come on the scene at about the same time as Bitcoin cash. Essentially, because the Bitcoin volume has increased so much, the verification time for an individual transaction can approach fifteen minutes, which is an interminable period compared to debit and credit cards. This problem is not going away, because Bitcoin designers built in a 1mb blockchain size limit and a maximum exchange volume of 4.4 trades per second, in order to reduce spam transactions.
These limits were not a problem when Bitcoin traded for a few dollars a share, but they are a significant issue now.
Enter Bitcoin cash, which some people say will solve this scalability problem and make the cryptocurrency much more liquid than it was before. With the rise of Bitcoin cash along with the newfangled Aussie ATMs, that 2014 IRS pronouncement that Bitcoin is property seems more and more out of step with current cryptocurrency-income tax trends. The fear among the suits at the IRS is that Bitcoin could become “free money,” and that’s something the Service wants to avoid at all costs.
But thus far, the IRS is sticking to its 2014 pronouncement that Bitcoin is property and not income. So, for the upcoming reporting period, the current cryptocurrency-tax landscape probably includes these burning questions:
- Lot Identification: This question relates to the LIFO or FILO (last in first out or first in last out) issue which we touched on in a previous post. Basically, if the Bitcoin comes from an older lot, its value has increased considerably, and since there is no Bitcoin broker to instruct, taxpayers should keep careful records and apply consistent protocols.
- Nondeductible Losses: People who use Bitcoin for personal reasons — including the purchase of a home — may not be able to deduct all their losses.
- Like Kind Exchanges: Bitcoin holders who use the Section 1031 loophole to transfer Bitcoin into other kinds of digital currency and therefore defer their taxes may be in for a shock. First, the IRS has never explicitly stated that 1031 applies to cryptocurrency-tax issues, and second, filing the special form required is like waving a red flag at a bull that’s set to charge.
These issues should come into sharper focus once the dust settles from the Coinbase John Doe summons, and we know what the IRS will do with the data it acquires. Stay tuned to this station for further details.
Latest posts by Venar Ayar (see all)
- 3 Types of IRS Penalty Abatement - December 31, 2018
- 5 Signs You Need to Contact a Tax Resolution Attorney - December 31, 2018
- Why Is Your Tax Refund Being Offset? - December 31, 2018