Hi @somethingsubtle, that is a great question, and another area that some specific guidance from the IRS would be helpful! That being said, I believe that we should follow IRC Section 1031, specifically the rules relates to a "like-kind exchange", wherever possible. Now, as a member of AICPA (American Insititute of CPA), I saw in a magazine that we actually sent a letter (signed by many notable CPA) to the IRS specifically asking if cryptos qualified for this treatment. I do not believe we have gotten clarification as to whether they agree or not.
Regardless, a quick summary of like-kind exchange: if you swap a piece of property for another similar (like-kind) piece of property, you can potentially defer the tax effect to a later point in time. Most commonly this is related to real estate property, but can apply in other situations as well. I think it could apply to cryptos, although between some it may be a stretch (obviously BTC and Sia, for example, have different purposes, so whether they are truly "like-kind" I'm not so sure)
Hope this helps! I will probably dive in to this specific more in future posts. Thanks for the idea!
Thanks for the insight. This was my line of thinking due to the similarities with real estate. Also just the general feeling that until the funds are back into fiat, that the gains are 'unrecognized' because the gains are still locked up in the 'property'.
I'm sure the tax man will be getting much more clear over the next few years.
Why isn't the IRS willing to clarify yet are willing to crackdown with a John Doe summons? What in your opinion is the priority of the IRS right now and how can we keep ourselves safe?
If it is "Like Kind" then it could also imply that blogging is like mining and all cryptocurrencies are taxed as if Bitcoin. Yet I don't see the logic of having it both ways for the IRS. If it's not like kind them Steem is not like Bitcoin and we have to pay taxes if we trade between Steem and Bitcoin right?
hi there @dana-edwards,
I agree - the John Doe seems like an aggressive overreach. I'm fully onboard with the need to get visibility in to criminals financial transactions, but something so wide and directionless seems like a real violation of our rights.
I think the best course of action we have to stay safe is just to be mindful of what we are doing and maintain records to the best of our abilities. I was audited once by the IRS, but actually found that they went away very easily when I quickly came up with the necessary documentation (not crypto related, however).
I think that the IRS priorities are tough to identify. They've been a bit rudderless over the past few years, notably as a result of staff cuts and the whole targeted auditing of republican non-profits/PACs. I can tell you that with less people they will be looking for the 'easy wins.' Specifically, if they see a potential large area to pull in some taxes (hint: look at the change in crypto total market cap this year) without having to send out a lot of people on the ground, they will jump at it. For now, we are safe behind the exchanges, but we don't know if that will last forever, which brings me back to my earlier point about just trying wherever possible (and within reason) to keep good records.
Your position about transacting between STEEM and BTC is correct. And to be honest, the forms required to fill out for a like-kind exchange are pretty laborious. Unless you are moving large amounts relatively infrequently between the two, I would say prepare to pay taxes like they are not (again, having good records here will help you).
I realize I've probably left you with as many questions as answers, but hope this helps :)
Cheers