Good morning folks. The IRS is holding a crypto summit today and I'll be attending for @coindesk. Thread starts here. Need some context? Here ya go: coindesk.com/the-irs-is-inv… #IRScrypto
Here's today's agenda #IRScrypto 
We haven't formally begun yet, but some audience members are asking questions they'd like to see addressed. One member asked if the IRS would respond to the GAO report (see: coindesk.com/irs-refused-to…) #IRScrypto
The phrase "wild wild west" has been uttered, for those of you who had it on your bingo cards #IRScrypto
Questions have ranged from payroll to lending to staking so far #IRScrypto
We are starting, with Kirk Peifer (IRS-CI), Robert Materazzi (@LukkaTech), Jesse Spiro (@chainalysis) and Arnold Spencer (@Coin_Source) #IRScrypto
So the format is IRS moderators asking panelists qs. First up, Peifer asks about the real risk of regulatory arbitrage. Spiro says it's a real concern, references @FATFNews #IRScrypto
"@chainalysis has just put out its 2020 crypto crime report, I encourage you to read it," Spiro says #IRScrypto
Uncertainty is an ongoing issue, Spiro says, adds that a lot of folks still don't necessarily know or understand that they may be subject to ie the Bank Secrecy Act #IRScrypto
There's a lot of regulatory questions, Spencer says. Some jurisdictions (NY) are much more strict than others, some regulators say "we think this is just international currency exchange," some companies don't register with FinCEN, etc #IRScrypto
Long-term, there's likely to be more regulation etc, Spencer says. Also adds that crypto's great for law enforcement #IRScrypto
One audience member is asking why you might not see some transactions on the blockchain itself (ie is the wallet provider or entity marking the transactions internally?) #IRScrypto
Conducting or recording transactions has a cost, and some entities might want to reduce that cost so they'll record the transactions on a centralized database ("which is ironic") rather than store everything on-chain, Materrazi says (paraphrased) #IRScrypto
Audience q, summarized: Can you track every unique bitcoin? (and how) #IRScrypto
You can track them down to the decimal, Spiro says (Materrazi says it's important to distinguish you're tracking transactions). Spiro explains how Chainalysis might track transactions to follow bitcoin from wallet to wallet #IRScrypto
If you're a legitimate business ...there is no way you want to get involved in any kind of dirty coin, an audience member says re: regulatory arbitrage. "There's a big difference between Switzerland, which has very clear guidance," and other nations. Also cites Wyoming #IRScrypto
There were a number of questions about regulatory issues and concerns but someone at the front is asking the panelists to move back toward technology questions (this is the tech update panel) #IRScrypto
Next q is about fighting mixing services and privacy coins #IRScrypto
Privacy coins are going to have increasing hurdles in terms of liquidity and adoption due to regulation, Spiro says #IRScrypto
Some color: there have been questions so far on what regulatory arbitrage and privacy coins are. Definitely a divide between CT/crypto space understanding vs the non-crypto space here #IRScrypto
Panelists are explaining how privacy coins work right now. Spiro says the reason he thinks there might be liquidity concerns is there is now a perception that there's additional risk associated with them from exchanges #IRScrypto
"I'm getting the sense there's a wide array of sophistication in the room," Spencer says to chuckles #IRScrypto
Spencer's backing up, providing a brief history of the crypto space, starting with bitcoin, moving to other coins which were made for fun (dunno which canine-themed crypto he [hopefully] may be referencing), says most transactions are public #IRScrypto
Some entities/individuals want to obfuscate origin and identity with transactions, hence tumblers, mixers, etc. "That has attracted people who want to be anonymous, that has attracted criminal communities," Spencer says. #IRScrypto
Going back to regulations, if a regulator says all transactions must be public and on the blockchain, "how do you enforce that?" #IRScrypto
There's an audience question about crypto tax calculators. There's been an explosion of tax calculator offerings online since the IRS added the crypto question to the 1040 (coindesk.com/the-irs-will-n…) #IRScrypto
Audience member says he ran the same dataset through a number of these tax calculators and got different results for liabilities, and is asking if that's due to uncertainty, etc #IRScrypto
I'll post a full transcription later but tl;dr there's a lot of factors to consider and "just knowing that detail is very challenging when you apply an accounting method across a lot of transactions," Materrazi says #IRScrypto
Next q is about calculating cost basis #IRScrypto
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So Materrazi says you have to look at a number of factors, software needs to look at whether fees were charged in fiat, whether there were transfers not recorded on the blockchain, etc #IRScrypto
There's 20-30 million users holding crypto assets in the US right now, audience member says. "Are we in a no-go position to bring them compliant [wrt tax reporting]?" #IRScrypto
.@lukkatech has a solution for users, Materrazi says, it accounts for 4k assets and exchanges #IRScrypto
Audience member asked about using public explorers for pricing and such #IRScrypto
The higher volume you have, the more likely is you're missing some data. Finding a price by sourcing something without SOC controls might mean your data isn't entirely accurate, might be better to pull from an exchange (presumably with SOC controls) Materrazi says #IRScrypto
Audience member's clarifying that we're talking about transactions only right now, not mining etc just buy-sell trades #IRScrypto
"We might be overcomplicating things," starts another audience member. "How do people get into coins?" - ie are they just buying a few hundred $$ worth of crypto on an exchange using fiat? If so you should know what your cost-basis is "because you just [bought] it" #IRScrypto
"We might be focusing on the edge cases," the audience member asks. "What do 99 percent of people do?" #IRScrypto
"Use bitcoin teller machines," Spencer jokes #IRScrypto
We're now down to explaining what Satoshis are. Spencer says you can buy as little as $5 in BTC on one of Coinsource's machines, which is a fraction of a bitcoin and that's when one audience member looked a little shell-shocked #IRScrypto
When you buy bitcoin from Coinsource, you own that bitcoin and the relationship ends once the transaction ends. An exchange is different, users have an ongoing relationship with these, Spencer says #IRScrypto
For compliance reasons, we track our customers, Spencer says. If an individual maxes out his BTC buys day after day after day, they might get some special attention #IRScrypto
Audience q: [@chainalysis] can track bitcoin down to a little level, but a consumer can't get that same level of tracking? #IRScrypto
First panel's ended, we're taking a break and reconvening at 10:35 ET #IRScrypto
We are back, with John Cardone (IRS), Sulolit Mukherjee (@coinbase), Lisa Askenazy Felix (@krakenfx) and Jamison Sites (RSM Tax LLP) #IRScrypto
Cardone is starting by discussing the GAO report on a broker's requirements for third-party reporting (this is the one GAO recommendation the IRS has agreed to) #IRScrypto
Coinbase's tax VP asks if the exchange needs W-8 and W-9 forms, saying KYC is a broader issue than just tax liability #IRScrypto
Cardone asks if anyone's doing this. VP (who I think might be Kyle Zander?) says he wants to pose the question. Felix says there is no clarity around this right now #IRScrypto
Felix is telling the IRS folks to invest $5 of their own on an exchange so they can see what they get in terms of tax docs and info #IRScrypto
What we have right now is a classification of crypto as undifferentiated property. There's a thought that the 1099-K form is the right form, but there are competing trains of thought on what the right form exchanges should file actually is #IRScrypto
^ Re: that debate, @UpholdInc and @TaxBit think the 1099-K is wrong and companies should instead be filing 1099-Bs, as I covered this morning coindesk.com/uphold-teams-u… #IRScrypto
This was Mukherjee, sorry
If we want common-sense rules, I think we need to step back and ask 'how much burden is this putting, Felix says #IRScrypto
Felix pointed to microtransactions as one example of something that could be better clarified #IRScrypto
Your public key is like your email address, your private key is like your password, Sites says #IRScrypto
"We're getting to fringe questions of is the 1099-B correct? Probably not," Sites says after a long explanation about using multiple types of exchanges etc (so unrelated to the uphold/taxbit thing afaict) #IRScrypto
Next audience q is more just a note about the IRS sending these letters last year coindesk.com/new-irs-warnin… #IRScrypto
Audience q: How do Idex and Uniswap make money? #IRScrypto
The phrase "level-set" has been used multiple times today #IRScrypto
You don't know if you're getting dirty coins or clean coins, most people aren't going to want to take that risk, Felix says #IRScypto
Cardone moves onto the next q: "A lot of you represent third-party companies in an industry that" is trying to get rid of third-parties #IRScrypto
The biggest risk in this industry has been security, Felix says. Kraken was formed in the wake of Mt Gox to create a safe place to "buy sell and trade" crypto (I actually did not know this bit of history #IRScrypto
"The rules don't exist today to tell you exactly [how] to [file taxes]," Felix says. #IRScrypto
There's a lack of legislative guidance on this, Sites says. Regulators are trying to do their thing but it's a "patchwork" in lieu of actual legislative action #IRScrypto
Brief mixup between crypto as a commodity (which the CFTC treats it as) and property (which the IRS treats it as) but Felix says it sometimes acts like foreign currency. She's asking why is the IRS treating it as property? #IRScrypto
Clarification: "Why aren't we treated like ForEx" traders, is the q Felix is asking #IRScrypto
Someone who I think is an IRS employee says crypto has to reach a tipping point where "it's widely accepted as currency" for this to happen, but it doesn't yet have that broad enough acceptance #IRScrypto
It's probably up to @USTreasury to make that distinction, audience member said #IRScrypto
Interagency and intergovernmental cooperation would be good, Felix says #IRScrypto
Q about 1099-B reporting. Mukherjee says he struggles to see the expansion of it unless there's some "creative" use of the relevant regs but it's worth a wider discussion #IRScrypto
Someone else is asking if it's even possible for some exchanges to file 1099-Bs #IRScrypto
"We want some clarity on what the law provides today ... we want to be compliant," says Coinbase's tax VP #IRScrypto
We get questions all the time, says an another audience member, who says he's from the advisor industry. #IRScrypto
"It's fine to say in the absence of anything we've seen we [should use 1099 forms], but if the IRS turns around and says 'no reporting required,' we've [caused our clients] tremendous expense," he said. #IRScrypto
Another audience member asks what percent of trades are crypto-to-fiat. Exchange reps say they'd have to get back. Sites says maybe you can check CMC though it's unclear whether the data is always accurate or if there are relevant trading pairs for all cryptos #IRScrypto
We should add [stablecoins] to our issues list, Felix says #IRScrypto
Some stablecoins fluctuate from $0.80-$1.06, and some fail altogether, Sites points out #IRScrypto
And lunch break. Back in an hour
And we are back at the #IRScrypto summit. Panel 3: Tax Return Preparation, ft. Trish Turner (IRS), Michael Meisler (@EYnews), Amy Wang (@AICPA) and Seth Wilks (@profitstance)
We're starting with the 1040 Schedule 1 and its new crypto question. Wang says the AICPA was building a toolkit for crypto before the question actually made it onto the form #IRScrypto
There's a lot of confusion on how to answer the question and how to file the Schedule 1, Wang says. #IRScrypto
"It is nice to know that our kids who play Fortnite don't need to file," Meisler says ("for now," adds someone) #IRScrypto
One of the questions is -- if you bought crypto but no transaction occurred which resulted in a gain or a loss, what do you file exactly, says Wang #IRScrypto
After the whole "are v-bucks and roblox virtual currencies" question became a thing, the AICPA started looking at these video game currencies, Wang says (context: )
V-bucks can't be converted into cash at all, but "a minimum amount" of roblox can in fact be converted to USD, Wang says #IRScrypto
"We can use some guidance," Meisler says #IRScrypto
Wang says "We need guidance that says 'a financial interest does not mean the mere buying or holding of virtual currency'" because right now she's not sure the IRS can ask for that but this might change under FATCA #IRScrypto
The definition of "financial interest" is unclear right now w/ regard to crypto, Wang says #IRScrypto
Audience member is saying there needs to be some clarity on when you can report crypto, pointing to airdrops as an example. #IRScrypto
"It would certainly be more helpful if there was published guidance ... rather than just these frequently-asked-questions because in the absence of that what we have is 'well, this isn't really authority,'" Meisler says #IRScrypto
On cost basis: Meisler says it's unclear if first-in-first-out or last-in-first-out is best, what happens if a person buys on one exchange and sells on another, or if an exchange reports a 1099 but the assets being reported were already transferred to another exchange #IRScrypto
All of the panelists are basically saying "we aren't 100% sure what to tell clients because the guidance is unclear and the language isn't binding" and asking the IRS to provide some more clear guidance with authority #IRScrypto
Wilks says consistency is important when filing right now, but if there is a question of how to file if you use FIFO one year but want to move to LIFO for whatever reason #IRScrypto
Audience member asks "what if I buy all of my bitcoins on Coinbase and transfer to Kraken for disposal, how do I match those?"
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It should be fine as long as you properly identify the bitcoin, Meisler said #IRScrypto
I'm going to really heavily paraphrase the substance but not the language of the next question: Say Party A wants to buy 10 BTC, Party B has 1 BTC to sell, the exchange will aggregate that 1 BTC and 9 other BTC into the buy order for 10 BTC. What's that do to the ID? #IRScrypto
(From the lens of specific identification for transactions) #IRScrypto
Well the thread broke so catch part 2 here:
