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Regulation News

IRS Working On Cryptocurrency Taxation

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IRS Working On Cryptocurrency Taxation
IRS Working On Cryptocurrency Taxation

On Oct. 9, 2019, the United States Internal Revenue Service issued Revenue Ruling 2019-24 and a series of frequently asked questions, identifying rules governing U.S. taxation of digital currencies. Taxation in the U.S. is unbelievably complex, but the new IRS guidance takes a step-by-step approach to address some of the most common issues facing holders of digital currency. The basics are as follows: If you hold digital currency and you sell or exchange it, you are subject to U.S. tax. If you are granted digital currency in the form of salary or as a result of a hard fork, you have taxable income. If you receive digital currency as a result of a gift, there is no immediate tax. U.S. taxation of digital currency is limited to U.S. persons. Who is a U.S. person? U.S. citizens, U.S. green card holders and individuals who spend more than 183 days in the country (measured using a formulaic three-year lookback). If that is you, a tax obligation may exist. 

How do you measure your gain or loss from a sale or exchange of currency? It’s the difference between your digital currency cost basis and the fair market value of the property you received in exchange. How do you know what your cost basis is? The FAQs provide detailed guidance, but essentially, the IRS allows two methods for identifying your basis: 1) You can specifically identify the exact currency sold, traced to the ledger, and use the cost of that specific currency to determine your gain or loss. 2) Or you can use the “first in, first out” method, meaning your basis is computed based on the cost of the oldest currency acquisition in your wallet, moving forward in time as you continue to sell currencies.

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What about digital currency provided as compensation for services? That type of distribution is treated as ordinary income, not a capital gain, similar to cash paid in the form of salary and wages. What about cryptocurrency forks? The Revenue Ruling holds that when a taxpayer does not receive units of a new cryptocurrency as a result of a hard fork, the taxpayer also does not have gross income. That is good news. However, when units of new cryptocurrency are distributed (either as a complete currency replacement or split with the new currency being issued but the old currency still valid), the Revenue Ruling holds that the taxpayer has accession to wealth and therefore has ordinary income. 

The amount included in gross income is equal to the fair market value of the new cryptocurrency measured as of the date that the distribution (usually via airdrop) is recorded on the distributed ledger. While the IRS materials provide much-needed guidance, there are some concerns about unexpected hard forks. Many times you find out about a hard fork after the fact. Nevertheless, the IRS takes the position that taxpayers must track and account for hard fork transactions. Thus, it places the burden on individuals to watch their wallet and trace activity throughout the year. Also, there is no “de minimis” exclusion. Meaning, every transaction involving digital currency must be reported. What about the purchase of a cup of coffee with crypto-cash? This payment gives rise to a taxable exchange. The value of the coffee you just bought less the basis in your currency you provided must be computed and reported to the IRS as a gain or loss.

Altcoin News

TON Devs Worldwide Working Together To Intervene In SEC Case Against Telegram

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TON Devs Worldwide Working Together To Intervene In SEC Case Against Telegram
TON Devs Worldwide Working Together To Intervene In SEC Case Against Telegram

A group of international Telegram Open Network (TON) contributors has submitted a court document criticizing United States regulators’ line of attack against the project. The group has formed a non-profit association, “The TON Community Foundation,” and collectively submitted the brief on Feb. 14 in the form of an amicus curiae.

 An amicus curiae is a brief that offers expertise or insight into a given case on behalf of an entity that is not formally a party to the case itself — i.e. an entity that is neither a plaintiff, defendant, nor legal counsel for either side. The court can decide whether or not to take the brief into account at its discretion.

In their filing, the contributors state that the foundation has been formed to represent a “professional community of active participants in the TON project in whose interest it is to see the TON blockchain mainnet launched as soon as possible.” The foundation comprises 20 teams in the TON global community, designated as “independent specialists with extensive blockchain experience who are involved in the actual work on the TON blockchain and who write its code, protocol, smart contracts, tools, and applications.” These 20 teams ostensibly represent over 2,000 computer scientists, engineers, programmers, and entrepreneurs — based in China, Russia, France, and Spain, among other countries.

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The foundation writes that the unanimous position of the TON dev community is that the TON blockchain is fully operational, has “state-of-the-art prelaunch security” and a developed suite of services. They contend it would, in its current state, be ready for launch as a mainnet in a “matter of seconds.” The brief focuses on particular arguments that were presented by Brown University Professor Maurice Herlihy in his review of TON for the United States Securities and Exchange Commission. 

Following Telegram’s wildly successful $1.7 billion initial coin offering for TON in 2018, the SEC had launched an investigation into the project in 2019, claiming the entity had not registered with the commission for its ICO and the network’s “Gram” tokens. The Herlihy report was submitted as evidence on behalf of the SEC in late December 2019. In its brief, the foundation argues that the court should decline the SEC’s impulse to place the industry under an “innovation-suffocating regime,” it contends. It argues that other successful blockchains — such as Bitcoin, Ethereum and Tezos — would never have launched had they been subjected to Professor Herlihy’s “academic scrutiny” and his “unrealistic standards of pre-launch performance, security, and maturity.” Moreover, despite Professor Herlihy serving as the SEC’s blockchain expert, the foundation claims he has mischaracterized the TON network in his report. It notes that he uses a blockchain definition from 2010 that has since become obsolete, which fails to account for smart contract functionality as one of the technology’s core parameters. 

What makes the TON blockchain unique, the brief outlines, is that literally “everything in its network is based on interaction with smart contracts” and “all Grams will be located in smart contracts,” so that, “in a way, TON is a smart contract platform more than a cryptocurrency one.” The rest of the foundation’s arguments against Professor Herlihy’s report provide a detailed overview of the state of the network’s services, readiness for launch, protocol, code, and security audit results.

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Regulation News

Russian Central Bank Says Crypto Transactions Are Linked With Money Laundering

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Russian Central Bank Says Crypto Transactions Are Linked With Money Laundering
Russian Central Bank Says Crypto Transactions Are Linked With Money Laundering

The Central Bank of Russia (CBR) published a new set of rules for suspicious transactions, Russian finance publication RBC reported on Feb. 17. The update broadly categorizes any cryptocurrency-linked transaction as a potential money laundering risk. The bank issued an update to directive 375-P, which lists all signs of suspicious activity that may be linked to money laundering. This is the first such update since 2012, when the initial regulations were introduced. The manual was developed in collaboration with the Federal Service for Financial Monitoring (Rosfinmonitoring). 

A central bank representative explained that this was done to “add new schemes of conducting unusual operations, with consideration to the modern developments in financial markets.” The head of the central bank had previously stated that the number of possible risk factors should be decreased. Like in other countries, if a bank or another financial service provider identifies certain transactions as suspicious, they may freeze the suspect’s account or shut it down completely in severe cases.

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Though the list may have been consolidated, the regulators added a broad clause that considers any cryptocurrency-linked activity as a potential risk. Within the same framework, cash operations require several caveats to be considered suspicious. For example, if a physical person regularly cashes out most of the money received from a legal entity. For cryptocurrencies, any activity that can be identified as buying or selling them will be considered a money laundering risk. 

This generally involves deposits and withdrawals from known exchanges. This move comes as Russian legislators still continue making amendments to the digital financial asset law, which was proposed in early 2018. The regulators’ stance toward cryptocurrency seems to have taken a turn for the worse recently, as nationwide bans on their use for payment are being considered.

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Bitcoin News

Chinese Quarantines Cash To Stop Coronavirus – Bitcoin Not An Issue

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Chinese Quarantines Cash To Stop Coronavirus - Bitcoin Not An Issue
Chinese Quarantines Cash To Stop Coronavirus - Bitcoin Not An Issue

It has been reported that China has started a quarantine of its used banknotes to try to stop the spread of the coronavirus. Meanwhile, the crypto community began to pick up on the news commenting that the use of Bitcoin as a means of payment should fix the issue.

Hubei province, where Wuhan is located, recorded a dramatic spike of almost 15,000 new cases and 242 new deaths in just 24 hours after provincial authorities changed their method for diagnosing cases on Feb 13. Dovey Wan, founding partner of Primitive Crypto claimed on twitter earlier today that the government is underreporting the numbers. BBC’s recent report informed of 2,009 new cases and 142 more deaths. According to the official figures, the total number of infected in the nation is above 68,000, and the death toll is at 1,665.

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Chinese crypto mining facilities allegedly being shut appears to have had little to no impact on Bitcoin (BTC) network hash rate. The network appears to be performing stronger than ever with hash rates continuing to rise. Mati Greenspan, the founder of Quantum Economics,said that it is hard to estimate the impact on the market right now, “How it will affect Bitcoin’s price, I really couldn’t tell you. At the moment, I don’t feel like it is.” Meanwhile a spokesperson for mining hardware manufacturer Bitmain said that they are seeing no impact at all.

While the crypto community is speculating on twitter whether Bitcoin could have been the answer to the spread of the virus through banknotes, a Coronavirus based ERC-20 corona-coin (NCOV) has been launched according to a Reddit post. According to the website, its aim is to spread awareness about the outbreak.

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