2020: The Year Ethereum Stayed Home

This is a weird year for everyone and everything, but it’s a particularly weird year for Ethereum. 

Why? The second-largest blockchain by market cap and the largest by contributing developers has always been known for having lots of events. COVID-19 has put the kibosh on that.

“These folks are in a state of constant BUIDLing” Amanda Cassatt, a ConsenSys alum who launched its Ethereal event series, told CoinDesk in an email. “Ethereum is also, by design, a uniquely collaborative community. These factors contribute to the prevalence of and enthusiasm for in-person events.”

Ethereum turns five on July 30, 2020. CoinDesk is marking five years of Ethereum with a series of retrospective stories and live-streamed Twitter conversations. There are even some “Easter eggs” for eagle-eyed readers. Tune in to our CoinDesk Live sessions July 27-31 at 4 p.m. Eastern each day or call +1 (661) 4-UNICRN.

In normal times, there’s roughly one fairly big Ethereum conference somewhere in the world every month, but that has all come to a halt in 2020. The community’s tentpole event, October’s Devcon, announced its next gathering will be in 2021. Similarly, the Community Ethereum Development Conference, or EDCON, has taken 2020 off.

“I guess normally the number of international events feels a little excessive, but EDCON and Devcon are mainstays and it does feel like a loss not to be able to have them,” Jinglan Wang, leader of the Optimism scaling project, told CoinDesk.

Ethereum during coronavirus

This reticence to meet up makes sense due to safety concerns around COVID-19. 

After all, one of the last big Ethereum events, EthCC, turned out to be the source of a COVID-19 cluster. Still, it makes for a very different time in the community, particularly if this dearth of gatherings drags on into next year.

Lane Rettig, an Ethereum core contributor and former Ethereum Foundation employee (now at SpaceMesh), told CoinDesk this time at home has made him realize how much he wasn’t getting done.

“I think I had convinced myself I was operating at 60%-70% productivity. I was probably more at 20% productivity,” Rettig said.

While he’s enjoying this greater sense of accomplishment, Rettig also believes there’s more to Ethereum’s tendency to gather than just having the largest community of devs.

The enjoyment of being together is part of the stickiness of Ethereum’s underlying technology.

“I do think the in-person events are part of the DNA of the community and part of what binds us all together. And some of the affinity we share could hypothetically begin to dissipate,” Rettig said of the current situation. “If this was to go on some indefinite period, I would really be worried.”

The last Devcon?
Source: CoinDesk archives

Remote-first

But token investor William Mougayar was eager to downplay any risk. “The Ethereum community has been used to working virtually anyway,” Mougayar told CoinDesk.

Rettig, however, cited a comment from a friend to express what he’s worried about if folks go too long without hanging out and having spontaneous encounters at events. “The reason I’m here and the reason we’re all here is because we want to work on cool shit with people we like and do it in a sustainable way,” Rettig said, paraphrasing the comment from his Ethereum colleague.

It’s that “with people we like” part that gets harder and harder to replicate virtually.

No one knows quite when to look for the next big Ethereum gatherings to take place.

“Given our community’s interest in events, I could see larger in-person gatherings resuming in 2021,” Cassatt predicted, but she also expects hybrid on- and off-line gatherings will be the norm from here on out. The virtual experience will vastly improve during COVID-19, she added, even for events that go back to an in-person focus.

What’s missing

“There’s been a lot of snarky discussion around people saying we’re glad in-person conferences aren’t happening because now we are building more, which I think is a little shortsighted,” ConsenSys developer relations staffer Coogan Brennan told CoinDesk.

Optimism’s Wang agreed on the value of in-person events: “They’re great opportunities to meet projects that you’ve been chatting online with, or random crypto people whose tweets you enjoy.”

Rettig shared a particularly concrete example of how events can be helpful for distributed teams. When he was working for the Ethereum Foundation’s eWASM team (which is porting the popular WebAssembly framework, in part, over to Ethereum), he said they tended to gather a few times each year, anchored to some Ethereum event, be it Devcon, ETHDenver or some hackathon. They’d rent a whole-house Airbnb and live together and work side-by-side for a week. A physical hangout that was otherwise unheard of.

“It would be very intense. Professionally as well as socially,” Rettig said.

ETHDenver 2019
Source: CoinDesk archives

Jared Wasinger, still of the eWASM team at the Ethereum Foundation, confirmed that these side gatherings have been key. 

“I would say that the in-person events are definitely important from a morale point of view,” he said.

Similarly, ConsenSys’s Brennan said events served as a kind of punctuation in the year that Ethereum teams could organize their work around. A lot of product launches and debuts where driven by reveals at events. That was a way of driving excitement.

“Ethereum conferences are very very known for dogfooding,” the Ethereum Foundation’s Hudson Jameson said. “It inspires a lot of confidence in the community. People are using the things they are building and that brings people a lot of joy.”

The online events themselves have been more beta tests than real products as of yet, though, as Cassatt noted. 

“I haven’t seen any event completely crack the code on virtual networking, virtual sponsorships, or ticket sales,” she said. “Virtual events may be a tougher sell to sponsors, but I’m looking forward to seeing creative solutions emerge for virtual events to offer sponsors value in new ways.”

What’s gained

“Maybe there were too many events. This kind of break, if anything, it’s positive. It’s a benefit because there’s been more productivity,” Mougayar said.

“Most events felt like a distraction to me, if I’m being honest,” Spencer Noon, of DTC Capital, told CoinDesk. “I’m actually pretty bullish on people in the community organizing some awesome virtual events, though.”

Noon may have been the only person CoinDesk spoke with that had real excitement about the potential of virtual gatherings. In fact, Rettig in particular noted how virtual events do a bad job of replicating the hallway (or lobby) conference, which is what people really go for. Still, many are looking forward to saving money on travel now and seeing more conference content delivered electronically.

For Jameson, there is an advantage in making the discussion around Ethereum more accessible.

“It is a privilege to be able to travel the world,” Jameson said. “That intrinsically creates this different class system.”

Moving these things online has a leveling effect that brings more people into discussions in real time, which is when people want to participate in them.

Brennan took this a step further, saying that with online events “you really have to engage people in a way about tangible technologies.” 

He said his team has found a need to actually give people a way to work on their code rather than just wowing folks with a charismatic on-stage presentation. “One of the things we have been trying to do with our ConsenSys Live series is to actually have code on screen,” he said.

Mougayar also spoke about having done a long workshop with on-screen code and feeling that by doing it from home he could really focus in on it more.

The Ethereum Foundation’s Jameson concurred. “I think this creates a whole new paradigm of having to keep people’s attention rather than waiting for the next big event to hear the next big announcement,” he said.

Disclosure

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Gold Bug Peter Schiff Learns Bitcoin Holders Won’t Sell at Any Price

What can I do to prevent this in the future?

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Focus on USDT and DeFi as 5-Year Anniversary of Ethereum Approaches

What can I do to prevent this in the future?

If you are on a personal connection, like at home, you can run an anti-virus scan on your device to make sure it is not infected with malware.

If you are at an office or shared network, you can ask the network administrator to run a scan across the network looking for misconfigured or infected devices.

Crypto Taxes: Still Confused After All These Years

Kirk Phillips is an entrepreneur, certified public accountant (CPA) and author of “The Ultimate Bitcoin Business Guide: For Entrepreneurs & Business Advisors.”

You need to be nimble to be a crypto tax professional. As the industry has evolved over the last few years, there have been many technology changes, and many changes in how the IRS treats crypto taxation issues.

Between 2014, when the IRS issued its first virtual currency notice, and 2019, when it published new virtual currency FAQs, we saw all kinds of innovation requiring tax rethinks. Chain-splits, airdrops, token swaps, staking, DeFi yield farming, synthetic assets and more emerged in that period. 

This explains why the AICPA (which represents accountants), the American Bar Association, and Coin Center have worked feverishly behind the scenes explaining to the IRS how “virtual currency events” should be taxed. As a member of the AICPA Virtual Currency Task Force, I’ve been fortunate to participate in these conversations and get a first hand view. 

Crypto and Taxes 2020: Wednesday is this year’s deadline for Americans to file their tax returns, and cryptocurrency users’ obligations are as confusing as ever. This series of articles explores the complex issues facing digital asset investors.

Read more:

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Hodlers Can Donate Crypto to Charity to Minimize Tax Payments

But, even today, it’s arguable whether we have greater clarity than before. Many tax professionals claim the recent guidance didn’t provide much clarity and created more confusion than it dispelled. For example, Rev. Rul. 2019-24 describes an “airdrop after a hard fork.” However these are independent and unrelated events, so professionals find it challenging to interpret the meaning and how to apply it. 

This situation isn’t unique to crypto. Sometimes the IRS publishes final regulations more than a decade after taxpayers wish they were available. But it does make for unpredictable outcomes and forces individuals and businesses to file more in hope than expectation that they’ve acted correctly.  

Even in a world where all taxpayers operate in good faith and make their best compliance efforts, they might take a completely different approach to the same scenario. For example, Taxpayer A arrives at a non-taxable or tax-deferred scenario while Taxpayer B concludes they have ordinary income, yet both were engaged in the same Virtual Currency Transaction X. 

Tax positions are a game of risk management taking account the likelihood of audit, the strength of the position and amount of the tax liability, penalty and interest due if a taxpayer “loses the game.” 

Risk management gets more complex when tax advisors are involved because their asses are on the line. There are more professional liability claims for tax services than any other service offered by CPAs. (Audit claims are higher in dollar value but lower in number.) 

With this in mind, some tax preparers are undercharging for services and many taxpayers don’t understand how tax preparer risk is properly reflected in the price. Almost anyone can prepare taxes for hire and you don’t have to be a CPA. But like Robert Kiyosaki says, “free advice is the most expensive advice,” referring to people who like to get advice from an “expert friend.”

Tax compliance and tax reporting are a collaborative dance between taxpayer and tax advisor. A taxpayer may prefer a more aggressive tax position, but both the taxpayer and tax advisor are simultaneously on the hook, albeit in different ways. Both parties have to come to and be comfortable with their consensus. Just add in crypto and the process becomes more challenging. 

What we’ve seen since the IRS’s 2014 Notice makes it easy to conclude there’ll be a larger cornucopia of “virtual currency events” over the next six years for the crypto tax industry to digest. Taxpayers will continue to take varied positions, some of which will be audited as the IRS steps up compliance efforts and finds a long-term approach. 

The audits that end up in tax court will set “de facto tax guidance” for the whole industry to follow. The rulings are sure to be as entertaining but it’s a long road to reveal the answers taxpayers want today. Perhaps tax courts will chime in on whether chain-split coins are ordinary income when a taxpayer exercises dominion and control, capital gains only when sold or something else. 

In the meantime, the AICPA, Lukka Library and individual CPA and law firms are producing excellent resources to help navigate uncertain crypto seas. The result is a “collective knowledge base” allowing everyone to benefit. Tax clarity is ever-evolving, so get educated. 

Enjoy your ride on the crypto tax rollercoaster. No face mask required. 

Disclosure

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Even the IRS Admits Some Crypto Tax Regulations Are ‘Not Ideal’

Roughly four hours into a phone call with a TurboTax representative, in which she had to sort through the company’s own internal resources in order to answer my questions, I found out I probably didn’t owe any taxes on my admittedly meager bitcoin holdings. It should have been obvious: At no point did I sell for fiat or convert into another crypto. 

In reporting this article, I was also reminded I should check my Blockchain account to see if I ever received the XLM it was airdropping because that might also result in me owing taxes on crypto (I did not). Do I need to report the $15 in bitcoin I sent to a hardware wallet I can’t access anymore? (I don’t think so?) 

U.S. taxpayers have until Wednesday to file their 2019 returns, if they haven’t already, or otherwise request an extension. I’ve been covering taxes around the crypto space for most of the past year, and have talked to more than half a dozen certified public accountants, tax lawyers and other professionals about what the IRS’s issued crypto tax guidances are actually telling us. If a reporter who’s been embedded in the space is having this much trouble, imagine how hard it might be for a complete newcomer.

This is going to remain one of the biggest barriers to mainstream adoption.

Crypto and Taxes 2020: Wednesday is this year’s deadline for Americans to file their tax returns, and cryptocurrency users’ obligations are as confusing as ever. This series of articles explores the complex issues facing digital asset investors.

Read more:

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Hodlers Can Donate Crypto to Charity to Minimize Tax Payments

Even the IRS admits the guidance leaves questions unanswered. An IRS official said taxpayers should take advantage of both the forms that exchanges are issuing to list taxable events and the different software tools that have been built to help simplify the process. 

The official, who did not have authorization to speak publicly, acknowledged that some of the guidance published to date could be clarified and “is not ideal,” saying the agency is working to keep up with the crypto industry.

One of the major outstanding questions falls around information reporting, said Michael Meisler, a partner at Ernst and Young (EY) who specializes in taxes and is the Big Four auditor’s global blockchain tax leader. 

Taxpayers can use different methods to report how much they believe they owe, but they should be consistent when calculating gains and losses. Using weighted averages, for example, might be impermissible under existing guidance and the FAQs (which Meisler noted is not “published guidance” in the legal sense).

The IRS official agreed, telling CoinDesk that this is the next issue on its list around crypto.

“The IRS is working on guidance about how to get proper information reporting and what is the proper form of information reporting, and the IRS has recognized that that guidance is lacking as far as what the exchanges should report on,” the official said. “We’re working on that as part of our guidance plan and that is really probably the top most guidance priority for the IRS, in, in the realm of virtual currency at this time.”

Other questions

Another unanswered question around crypto taxes revolves around staking, Chandrasekara said. He pointed to Ethereum’s pending upgrade to Eth 2.0, which will see the second-largest cryptocurrency’s consensus mechanism switch from proof-of-work (where computers maintain the network by running complex calculations and issuing blocks with crypto in them as a reward for miners) to proof-of-stake (where computers maintain the network by locking in large amount of wealth from validators that earn annualized interest as new blocks are issued).

“There’s a lot of people making passive income through staking,” he said. 

It gets weirder with decentralized finance. While centralized exchanges are publishing 1099 forms and sending both the IRS and taxpayers information about their transactions, decentralized platforms might not be.

“DeFi platforms aren’t issuing tax forms,” Lodha said. 

Margin trading is another issue where unsophisticated users are ending up with leveraged positions, since crypto derivatives settled in crypto essentially mean the taxpayer is receiving property at the end of the transaction. 

“There’s pretty clear guidance on non-crypto futures, like if you’re trading regulated commodity futures, that are [U.S. Commodity Futures Trading Commission] regulated, there’s like a ton of legislation around how that works,” he said. 

Crypto futures fall into a fuzzier category, particularly as unsophisticated traders (like some Robinhood users) might end up with highly leveraged positions without understanding the tax implications, he said. 

The way IRS guidance on airdrops and hard forks is currently worded may be unclear, the official added.

At present, the biggest issue the IRS has is a resource one, given how quickly the industry changes and the other issues facing the agency today, including the response to COVID-19.

“[The] industry changes so quickly that to try and keep up with the industry and make the guidance relevant [is challenging]. At the same time the IRS has been facing other legislations with regard to the Taxpayer First Act and then some of the legislation with respect to COVID,” the official said. “The biggest challenge is just kind of resource, and facing the other legislative priorities that have been coming out.”

Still, the IRS has published multiple pieces of guidance and its FAQs, which shed some light on what taxpayers might owe and how they should calculate those costs. 

Filing your taxes

What the IRS has made clear is taxpayers need to file if they made (or lost) any money as a result of exchanging their crypto for fiat or another cryptocurrency; if they gained any crypto as a result of airdrops or hard forks; or if they gained funds as a result of staking or mining. 

The IRS added a mandatory question to the U.S. tax return last year, asking if the individual held or transacted with crypto during the year. 

“That question proves intent, so if you lie to that and then the IRS finds out through [a] 1099 that exchanges issue or through scanning the blockchain … then all of a sudden it can turn criminal,” said Austin Woodward at crypto tax startup TaxBit. “It is important to take that question seriously and answer it honestly.”

The IRS is cracking down on crypto taxes this year in a way the agency hasn’t in past years, said Chandan Lodha of CoinTracker, another crypto tax service. 

He pointed to the 1040 form, last year’s updated guidance and the 10,000 warning letters the IRS sent out to taxpayers last year. IRS job postings also seem to indicate that the agency is “doubling down on hiring consultants” to track transactions and de-anonymize transactions. 

If taxpayers don’t have the necessary information to fully file their taxes, they should file for an extension, said CoinTracker’s Shehan Chandrasekara (Lodha said doing so is “super trivial” with no downside). 

He noted that the extension only allows taxpayers to file their forms later, but any payments they owe are still due on July 15. 

Just by filing an extension, taxpayers might avoid having to pay a penalty for being late on their paperwork, he said. Still, they might owe some penalties for paying late (which is better than not filing at all and potentially being audited).

“My recommendation is if somebody doesn’t have all the information to figure out their tax liability, just be more conservative,” he said. If a filer says they made more on crypto than they actually did, they’ll get whatever excess they paid back. 

Remaining compliant

The IRS takes enforcement more seriously than comparable agencies in most other countries, Woodward said, similar to the Australian Tax Office. 

The agency mailed some 10,000 letters to taxpayers in 2019, asking them to verify their crypto transactions and offering hints at how to calculate their fair holdings’ fair market value. A second set of letters warned taxpayers that they may have incorrectly reported their holdings, and detailing what the agency believed to be the correct amount owed.

“I think right now [the IRS’s taxation treatment] falls in line pretty closely with that of equities so it’s nothing new. It’s been around for you know decades now,” Woodward said. “It’s just cumbersome in the crypto space as opposed to the equity space because there’s so much more transaction volume.”

The IRS is definitely taking the space seriously though, he said, a sentiment Lodha echoed. 

There’s “significant evidence” that the IRS cares, including through its recent postings seeking expertise around crypto transactions, Lodha said.

The IRS official CoinDesk spoke to recommended using the different software tools that have been released. 

“Taxpayers should at least use the information that their exchanges provide and reflect that on their returns, and there are tools out there that they can use that interact with these exchanges that [conduct] the process now kind of seamless in the realm of someone who’s engaging in cryptocurrency transactions,” they said.

It’s important to be careful when using different software products as well, Meisler warned. Different software solutions running the same data might calculate different gains/losses due to how they interpret guidance. This could happen if one solution calculates fees different from another, for example. 

The taxpayer would still be responsible for accurately reporting their holdings to the agency, he said.

“If the guidance is lacking the taxpayer should use their best efforts and then take consistent positions from their reporting,” the IRS official said.

Disclosure

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Hodlers Can Donate Crypto to Charity to Minimize Tax Payments

With the tax deadline just around the corner, crypto holders are stressing over the dreaded capital gains tax. But they can write it off by donating to a worthy cause of their choice, according to one crypto-focused charity.  

The Giving Block, a platform that enables nonprofit organizations to accept donations in cryptocurrency and has helped raise over $1 million to support pandemic relief efforts through its #cryptoCOVID19 campaign this year, is hoping to make it easier for taxpayers to file their returns by publishing a guide on how to donate their holdings and maybe minimize some taxes.

The group collaborated with crypto tax software TAXbit to create the guide, said co-founder Alex Wilson. 

“In our opinion, most crypto users still don’t know that they can donate crypto and save money on their taxes,” Wilson said. 

Crypto and Taxes 2020: Wednesday is this year’s deadline for Americans to file their tax returns, and cryptocurrency users’ obligations are as confusing as ever. This series of articles explores the complex issues facing digital asset investors.

Read more:

Even the IRS Admits Some Crypto Tax Regulations Are ‘Not Ideal’

Crypto Taxes: Still Confused After All These Years

Even the IRS Admits Some Crypto Tax Regulations Are ‘Not Ideal’

According to the tax guide, which was first published last week, if a taxpayer donates cryptocurrency to a 501(c)(3) qualified nonprofit organization, it is a “non-taxable event for givers and receivers.” This means the donation will not be recognized as income or as a gain or loss. Donors do not have to pay capital gains tax on appreciated cryptocurrency, and will qualify for itemized charitable deductions depending on how long they held the crypto asset before the donation was made.

“If you held the cryptocurrency for more than a year (‘long-term’) prior to the donation then you will be eligible for the itemized charitable deduction for the fair market value (FMV) of the cryptocurrency at the time of contribution, in addition to not incurring a taxable gain on an appreciated asset,” said the guide. 

This claim is backed up by the IRS’s non-binding Frequently Asked Questions.

Wilson said that 29 nonprofit organizations signed up to receive funds through the COVID-19 campaign, while 50 different corporate partners came together to help raise funds and awareness. Bitcoin (BTC) was the most donated cryptocurrency followed by ethereum (ETH). 

“Now we are looking to replicate that success with the #CryptoForBlackLives campaign,” Wilson said. 

Launched last month, the initiative hopes to raise $1 million for the civil rights campaign, with about $50,000 raised so far.

The Giving Block was founded two years ago by co-founders Wilson and Pat Duffy, when they realized crypto users had a tax incentive to donate their virtual currency directly to nonprofits. Wilson said the platform currently supports over 50 nonprofit organizations.

Crypto tax attorney Justin Woodward, the guide’s author, said in a statement to the press that it was “far more tax advantageous to donate capital assets rather than traditional fiat.”

“We believe it to be the future of charitable giving,” Woodward said. 

Brave’s basic attention token (BAT) was recently added to the platform’s list of accepted cryptocurrencies. 

Disclosure

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

IRS Violated ‘Taxpayer Bill of Rights’ With 2019 Crypto Letters: Watchdog

Cryptocurrency users in the U.S. remember July 26, 2019, as the day the Internal Revenue Service (IRS) came out swinging. It now turns out the agency may have been hitting below the belt.

That day, for the first time in its history, the IRS demanded thousands of virtual currency-holding taxpayers fess up to unreported crypto trading gains.

“We have information” on your cryptocurrency accounts, the agency warned these presumably tax-flouting taxpayers in a so-called “soft letter” that took an oddly hard line for being a compliance-promoting mass mailing. What this “information” was or how the IRS had gotten it was left unexplained by Letter 6173.

More clear was this: If these taxpayers did not refile their tax returns, address the apparent crypto discrepancies or, if they believed themselves already compliant, meticulously explain how and why in a sworn response, the letter warned they could be referred for “an examination” – an audit.

The letters did not spell out to these taxpayers that they were not yet under IRS examination. America’s Taxman wanted answers – and it wanted them in 30 days or less.

Crypto and Taxes 2020: Wednesday is this year’s deadline for Americans to file their tax returns, and cryptocurrency users’ obligations are as confusing as ever. This series of articles explores the complex issues facing digital asset investors.

Read more:

IRS Violated ‘Taxpayer Bill of Rights’ With 2019 Crypto Letters: Watchdog

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Nearly a year later, the agency’s own Taxpayer Advocate Service is alleging that letter violated the Taxpayer Bill of Rights, adopted by the IRS under pressure from Congress. 

The little-noticed controversy over Letter 6173 is part of an emerging struggle over codified rights supposedly guaranteed to every federal taxpayer in the United States. It also comes as the IRS mounts a distinct but intimately related campaign to enforce cryptocurrency tax compliance across all sectors of the cryptocurrency space.

A not-so-soft letter

In 2014, the IRS adopted 10 U.S. Constitution’s Bill of Rights-like safeguards in an attempt to educate and protect a U.S public skeptical they had any rights before the IRS, according to WeiserMazars LLP. The Taxpayer Bill of Rights is codified in the Internal Revenue Code.

According to Erin M. Collins, the National Taxpayer Advocate, an independent office within the IRS that combines the roles of an ombudsman and a public defender, Letter 6173 ran roughshod over those rights.

“The Code, Congress and the IRS have repeatedly acknowledged taxpayers’ rights and protections, and this letter not only does not provide them — it undermines them,” Collins wrote in her “2021 Objectives Report to Congress,” released June 29. Collins heads the IRS’ nearly 2,000-strong team of independent advocates.

The virtual currency letter smashed through two tenets of the Taxpayer Bill of Rights – the right to privacy and the right to be informed – when it ordered taxpayers who were not under audit to submit examination-esque information to the IRS, she argued.

The Code, Congress and the IRS have repeatedly acknowledged taxpayers’ rights and protections, and this letter not only does not provide them — it undermines them.

Among Letter 6173’s demands: the taxpayer’s entire crypto trading history; a “statement of facts”; an explanation of how they got their crypto books clean; and copies of tax documents from 2013 through 2017, even though the statute of limitations caps the number of reviewable years at three. Recipients had 30 days to submit the sworn package “under penalty of perjury,” the letter said.

The IRS and the Taxpayer Advocate Service did not respond to individual requests for comment. But tax experts interviewed by CoinDesk generally agreed with Collins’ assessment of the letter.

“It does sound a little ominous,” said Mark Mazur, director of the Urban-Brookings Tax Policy Center. “Normally, in my experience, soft letters are softer in that the deadlines are, you know, indefinite – in the future or something. But this one does seem a little tougher.”

Collins called that ominous toughness “disturbing” in her congressional report. Letter 6173 “appears to be a threat directed at taxpayers who believe they are compliant,” she said, and identified it as part of a larger pattern of the IRS using soft letters to “bypass” examinations and the procedural protections they afford.

She requested the IRS remove the examination-like demands from Letter 6173 and a second unrelated soft letter on the grounds they violated compliant taxpayers’ right to privacy and right to be informed. The IRS refused. 

Nothing personal

Observers familiar with the space told CoinDesk the IRS’ soft letter was not likely a targeted attack on crypto users. 

Letter 6173 was only the most aggressive variant in a trio of soft letter types the IRS sent to more than 10,000 suspected crypto holders in the summer of 2019, but the only variant that included explicit evidentiary demands (the IRS did did not provide a breakdown of how many of each type of letter were sent out).

In fact, Roger Brown, a former IRS lawyer who now heads regulatory affairs for crypto tax firm Lukka, speculated the agency was actually trying to educate crypto holders on compliance before matters got worse.

“The IRS thought, ‘I’m doing you a favor because instead of coming after you with a very serious accusation, a notice saying you owe me this money, I’m helping you along to comply,’” he said.

Part of the reason such favors would be necessary at all is the tax system’s general incompatibility with cryptocurrency markets. It only began defining its treatment of the space in 2014.

Mazur, the tax policy expert, worked at the Treasury Department when it issued its 2014 cryptocurrency tax guidance, which he acknowledged had a rather limited scope. 

The 2014 guidance “didn’t do much more than say, ‘buying and selling virtual currency leads to gains or losses.’ It’s income. And then the analogy was like trading physical commodities,” he said. 

But that analogy failed to account for the diversity of investment types, outcomes, potentialities and novelties that are rampant in crypto space but wholly absent from traditional markets, like hard forks and air drops. Five years passed before the IRS issued its second, more expansive guidance (two months after Letter 6173).

Add to that the simpler fact that crypto traders can quickly bungle documentation as they move their cryptocurrencies between exchanges and wallets, creating intricacies that even the most adept record keeper may be hard pressed to follow, said Brown. This, plus the emerging nature of the space, makes a soft-touch, soft-letter approach all the more important. 

But the letter’s hard-line language towards compliant taxpayers becomes even more perplexing when read through that lens. The notice’s harshness blurred the line between soft inquiry and examinations, Brown said.

What’s next

Collins said in her report to Congress that the Taxpayer Advocate Service will “continue to work with the” IRS on eliminating these types of demands from soft letters, even though the agency has already refused such requests.

Taxpayers who received Letter 6173 and have not already settled could bring Collins’ argument up as evidence in court, said Mazur. 

“It could potentially lead to litigation from taxpayers who, if they’re in a dispute with the IRS for not fulfilling the request from this letter, could say, ‘Oh no, this letter is a violation of the Taxpayer Bill of Rights.’”

Meantime, the letter’s “incredibly Orwellian” demand for sworn evidence may leave compliant taxpayers feeling trapped, said Jerry Brito, executive director of the crypto advocacy nonprofit Coin Center. 

“You’ve filed a tax return [and] you’ve already signed under penalty of perjury that the information that you gave was accurate,” he said. “So this second, sort of out of nowhere, unrequired but sort of implied threat of ‘well if you don’t file this, well, what are you signaling,’ it just puts the taxpayer in a Catch-22.” 

Disclosure

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Ripple (XRP) Could Surge To $0.22 As Bullish Flag Pattern Emerges

Ripple started a downside correction from the $0.2110 resistance region against the US Dollar. XRP price seems to be following a bullish flag pattern and it could resume its rally above $0.2000 and $0.2100.

  • Ripple price is correcting lower from the $0.2118 swing high against the US dollar.
  • The price is trading nicely above the $0.1900 support and the 100 simple moving average (4-hours).
  • There is a major bullish flag forming with resistance near $0.2050 on the 4-hours chart of the XRP/USD pair (data source from Kraken).
  • The pair is likely to start a fresh rally once it clears the $0.2025 and $0.2050 resistance levels.

Ripple Price Could Resume Its Rally

This past week, we saw a sharp increase in ripple above the $0.1900 resistance. XRP price even surged above the $0.2000 level and settled well above the 100 simple moving average (4-hours).

It traded to a new monthly high at $0.2118 before starting a downside correction. There was a break below the $0.2050 level, plus the 23.6% Fib retracement level of the upward move from the $0.1741 swing low to $0.2118 high.

The price even spiked below the $0.1950 level, but the $0.1920 level acted as a strong support. More importantly, the 50% Fib retracement level of the upward move from the $0.1741 swing low to $0.2118 high is acting as a significant buy zone.

The bears made two attempts to pierce the $0.1920 support, but they failed. It seems like there is a major bullish flag forming with resistance near $0.2050 on the 4-hours chart of the XRP/USD pair.

ripple

Ripple (XRP) testing $0.1950. Source: TradingView.com

On the upside, the price is facing hurdles near $0.2025 and $0.2050. A successful close above the bullish flag resistance may perhaps restart the rally and the price might surge towards $0.2100. The next target for the bulls could be $0.2200 in the coming sessions.

Bearish Scenario for XRP

If ripple price fails to surpass the $0.2025 and $0.2050 resistance levels, there are chances of a downside extension. The main support on the downside is near the $0.1920 level.

A proper close below the $0.1920 and $0.1900 support levels could spark a sharp decline towards the $0.1750 level. An intermediate support could be $0.1880 or the 100 simple moving average (4-hours).

Technical Indicators

4-Hours MACD – The MACD for XRP/USD is slowly moving back into the bullish zone.

4-Hours RSI (Relative Strength Index) – The RSI for XRP/USD is currently just below the 50 level.

Major Support Levels – $0.1950, $0.1920 and $0.1900.

Major Resistance Levels – $0.2025, $0.2050 and $0.2110.

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A Weaker US Dollar Prediction Offsets Bitcoin Bearish Bias for Q3/2020

us dollar, bitcoin, cryptocurrency, us dollar index, btcusdt, btc usd Bitcoin Price

A Weaker US Dollar Prediction Offsets Bitcoin Bearish Bias for Q3/2020


  • Bitcoin eyes a significant plunge entering further into the third quarter as S&P 500 stocks unveil a 45 percent drop in quarterly profits.
  • The correlation between the cryptocurrency and the US benchmark index last week hit a record high.
  • Nevertheless, both the risk-on markets may limit their downside move on a weakening US dollar outlook.
  • Analysts have warned that the greenback could plunge in the coming months.

Bitcoin’s short-term outlook for the third quarter is fundamentally bearish due to its over-reliance on the S&P 500.

The two benchmarks have tailed each others’ moves since they dropped in tandem during the March 2020’s global market rout. Especially in recent weeks, the correlation between them has grown to record levels, according to data collected by Skew, a market analysis platform.

s&p 500, bitcoin, correlation

Bitcoin-S&P 500 1-month realized correlation hit record highs. Source: Skew

The S&P 500 is now sitting atop 0.94 percent year-to-date losses following a circa 43 percent retracement rally from its March 23 low.

Bitcoin likewise has recovered by more than 140 percent from its March 12 nadir. It is now maintaining its YTD gains over 27 percent. Therefore, if the S&P 500 tends to correct lower, as Bitcoinist covered here, it may allow investors to cover part of their losses by selling Bitcoin, a profitable asset so far into the year.

But despite its bearish outlook, Bitcoin investors still eyes a limited downside move due to weakening sovereign currencies.

A Risky Dollar

Nic Carter, a partner at Castle Island Ventures, stated this week that he sees enormous opportunities for Bitcoin as sovereign currencies fail. He cited growing debts in emerging markets that may end up immiserating “tens or hundreds of millions of people.

“And for some of those people, they will be able to use crypto financial rails to exit their sovereign local currency and they can go to Bitcoin,” Mr. Carter added. “They can go to the US dollar.”

But even the greenback is battling a string of weak fundamentals, so say analysts from Credit Suisse, BNP Paribas, Deutsche Bank, and Société Générale. The global reserve currency is at risk of declining in the coming months.

us dollar, bitcoin, cryptocurrency, us dollar index

US dollar index is in a free-fall after topping in March 2020. Bitcoin bottomed in the same month. Source: TradingView.com

Shahab Jalinoos, the global head of foreign exchange strategy at Credit Suisse, said that the US dollar might weaken more from its March 2020 high. He cited escalating political and health risks in the US, as well as drastic rate cuts and a flood of liquidity introduced by Federal Reserve as key bearish catalysts.

“The stars have aligned for the dollar to weaken more,” Mr. Jalinoos told FT. “The US simply faces more risks than other major economies at this point.”

The dollar is also less attractive safe-haven for investors engaged in bonds. With rates falling near zero, there are not adequate yields available on the sovereign bonds. That is also one of the reasons behind investors’ shift to risky markets like Bitcoin and the S&P 500.

Offsetting Bitcoin Bearish Bias

A weaker outlook for the US dollar may prove beneficial for Bitcoin.

The cryptocurrency has been long touted as the safe-haven against inflationary fiat assets. Institutional investors, including Paul Tudor Jones, have also opted to invest in the cryptocurrency’s derivatives as a measure of insurance against the Fed’s relentless money-printing.

us dollar, bitcoin, cryptocurrency, us dollar index, btcusdt, btc usd

Bitcoin price has started recovery ever since the US dollar index bottomed. Source: TradingView.com

Meanwhile, the S&P 500 is looking to pare part of its recent gains as data from FactSet shows a 45 percent plunge in quarterly profits. Bitcoin may follow suit, only to regain its bullish consciousness against a fundamentally weaker dollar outlook.

Rich Dad Poor Dad Author: ‘Gold Guys are Being Phased Out’

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