The Internal Revenue Services (IRS) is the Revenue Services for United States Federal Government. IRS is the tax collecting Government agency and they are also responsible for administering the Internal Revenue Code.
Cryptocurrency and Tax
For tax purposes, in the U.S., cryptocurrency is generally treated as property (a capital asset like stocks, bonds, and other investment properties). It is not treated as currency like the U.S. dollar. That means it is treated like real estate or gold in most cases, and thus it is subject to the short and long-term capital gains tax in most cases, when held for investment.
During an interview with Bloomberg, a government official, Joe Moreno, explained how cryptocurrency can be used to fund terrorist groups to finance their operations. Joe is a partner at the white-collar defense and investigation group “Cadwalader” in Washington DC. he is also a former federal prosecutor specialized in terrorist financing at the Main Justice in Washington D.C.
Money Transferred to Terrorist Groups
Joe explained in the interview that how money has been transferring to the terrorist groups throughout the globe. He said that back in days, individuals used to funnel cash money carried over the border to the terrorist groups, or some time sent in mailboxes. Then it was Hawalas, with very little documentation. Hawalas were the alternative remittance channel that exists outside of traditional banking systems. Terrorists used this system to avoid taxes, regulators, and FBI. But in the digital age, they can send money un-documented and un-banked transactions through digital currency.
The Basic Tax Implications of Cryptocurrency (Unless you Just HODL) You Almost Certainly Owe the Short Term Capital Gains Tax.
How will Government Manage to get Tax from Cryptocurrency?
If you are individual you can mine, trade, buy or sell cryptocurrency and the government will leave you alone unless you don’t pay taxes on that. U.S. government IRS has announced that now they consider Bitcoin as the “Property” of an individual so that individual has to declare and pay the capital gain tax on it. Joe explained if you are in the business of exchanging cryptocurrency like from fiat to crypto or crypto to crypto, government will consider you as the money services business and that means now you are subject to registration of your business with FinCEN (Financial Crimes Enforcement Network). It’s part of the treasury department.
Buying cryptocurrency with USD is not a taxable event. You don’t realize gains until you trade, use, or sell your crypto. If you hold longer than a year you can realize long-term capital gains
Mixer and Tumbler
Joe also explained the terms mixer and tumbler. Enforcement authorities called these red flags because of their anonymity that keeps any person off the radar. Cryptocurrency tumbler or cryptocurrency mixer is a service offered to mix potentially identifiable or tainted cryptocurrency funds with others, so as to obscure the trail back to the fund’s original source. Tumblers have arisen to improve the anonymity of cryptocurrencies, usually, bitcoin (hence Bitcoin mixer), since the currencies provide a public ledger of all transactions.