"President Trump named John R. Bolton, a hard-line former American ambassador to the United Nations, as his third national security adviser on Thursday, continuing a shake-up that creates one of the most hawkish national security teams of any White House in recent history. Mr. Bolton will replace Lt. Gen. H. R. McMaster, the battle-tested Army officer who was tapped last year to stabilize a turbulent foreign policy operation but who never developed a comfortable relationship with the president." Bolton was an outspoken advocate of military action during the George W. Bush administration, and has "called for action against Iran and North Korea."
The tax-overhaul bill enacted in December made one significant change to the way digital currencies such as Bitcoin are taxed, but otherwise left Congress and the Internal Revenue Service with a host of issues to resolve for investors.
There is little specific instruction coming from the IRS on how to treat the complex array of digital-currency transactions. And that is compounding difficulties not only for taxpayers as the 2018 filing season begins Jan. 29, but for the IRS, which must work on guidance for digital currencies while also implementing the sweeping new tax law.
Bob Alter, partner at McElroy, Deutsch, Mulvaney, and Carpenter, said that “because of the notoriety” of cryptocurrencies over the last six months, he expects additional IRS guidance on virtual currencies will be released.
“But again, the problem is with the new tax law they’ll have a lot of new guidance to get out as well, so how much gets lost in the process?” Alter said.
The GOP tax law does not have any provisions that explicitly target digital currencies, but the language does affect whether one type of transaction creates a taxable event, said Lisa Zarlenga, a partner at Steptoe & Johnson.
Previously, digital-currency holders could trade different varieties of currencies—such as Bitcoin for another cryptocurrency, like Ethereum—and defer capital-gains tax on the appreciating value. It’s known as a like-kind exchange, a transaction more commonly associated with fine art, racehorses, and mansions.
“What the bill does, though, is it takes away even that argument because like-kind exchanges now only apply to real estate,” Zarlenga said.
Digital currency existed on the margins of Wall Street for years, but over the past few months it has caught the attention of mainstream players. Banking titan Goldman Sachs has plans to open a Bitcoin trading desk, for instance, as Bloomberg reported in December.
Bitcoin had a price of less than 1 cent when trading first began in 2010, but its value has skyrocketed over the past year, jumping from about $900 per coin to nearly $20,000 in 2017. And other digital currencies such as Ethereum, Monero, and Ripple, riding the Bitcoin wave, have exploded in value in the past months.
According to the CoinMarketCap website, which tracks the value of major digital currencies, Bitcoin alone has a market capitalization of more than $288 billion. Throw in all the other popular currencies, and the value tops $770 billion. San Francisco-based Coinbase, one of the internet’s largest digital-currency exchanges, adds tens of thousands of new users per week.
The tax framework for digital currencies is limited, but the IRS has made some advances. The agency made its first major ruling on digital currencies in 2014, when it issued a notice classifying Bitcoin and similar currencies as property—not a foreign currency—for federal tax purposes. Taxpayers must recognize the gain or loss on the value of their bitcoin when exchanging it for other property or using it to purchase goods and services.
But non-reporting of income from digital currencies continues to plague the agency.
The Treasury inspector general for tax administration released a report in September 2016 finding that since the 2014 IRS rule, “there has been little evidence of coordination” within the agency to identify and address noncompliance issues for transactions involving digital currencies. Only about 800 to 900 taxpayers reported gains from Bitcoin in 2015, according to an IRS filing in a lawsuit against a popular digital-currency exchange.
Hundreds of millions of dollars in tax revenue are at stake, and the agency has gone to court to clamp down on what analysts say is a growing enforcement priority. In November, a judge ruled that Coinbase must turn over data on users who had made Bitcoin transactions worth more than $20,000 between 2013 and 2015, totaling nearly 15,000 accounts.
“They’re going to data-mine that information, and there are going to be agents that are going to be sent out, and there will be examples made in order to get people in compliance,” Alter said.
The IRS has moved to track Bitcoin transactions on its own. Last August, The Daily Beast reported that the IRS contracted with software company Chainalysis to help track those who use Bitcoin to avoid taxes. The company also works with anti-money-laundering agencies around the world.
Still, Alter said key reporting questions, such as whether digital currency accounts on non-U.S. exchanges need to be reported under IRS foreign-bank and financial-accounts rules, remain unanswered by the agency.
In August, Bitcoin split into two currencies, Bitcoin and Bitcoin Cash, which is designed to be easier for retail use. Bitcoin holders received an equal amount of Bitcoin Cash at the time of the split. Bitcoin Cash is now valued at $2,400, creating billions in new wealth, but there’s no guidance from the IRS as to whether the split is a taxable event, Alter said.
Some on Capitol Hill have sought to insulate small-time Bitcoin users from the tax collector. In February, 11 House members formed the bipartisan Blockchain Caucus, named after the online ledger used to track Bitcoin transactions.
Its cochairmen, Reps. Jared Polis and David Schweikert, unveiled a bill in September that would exempt capital-gains taxes when a taxpayer uses a digital currency to make a purchase of less than $600, such as at a restaurant or online shop that accepts Bitcoin. The idea is to raise the incentive for people to use digital currencies for day-to-day transactions.
The cosponsors attempted to attach the language to the tax-overhaul bill, but they were unsuccessful. An aide to Polis said that they will push lawmakers to include the language in an upcoming tax-extenders bill, which renews a number of temporary tax breaks.
Tax professionals are increasingly seeing clients, who may not know how to properly report their Bitcoin gains, experiencing a windfall in income. But as word of IRS crackdowns spread, more are looking to square their accounts with the taxman.
“People are starting to hear things now; it’s filtering through to chat groups and things like that,” Zarlenga said. “And I’m starting getting inquiries from individuals saying, ‘I just want to report this right; can you help me?’”
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"When a Russian news agency reached out to George Papadopoulos to request an interview shortly before the 2016 election," deputy communications director Bryan Lanza encouraged him to respond. "You should do it," Lanza wrote in a September 2016 email, "emphasizing the benefits of a U.S. 'partnership with Russia.'" The Trump campaign has "sought to paint the 30-year old energy consultant as a low level volunteer" in the campaign, but recently disclosed emails show that Papadopoulos had contact with "senior campaign figures" in the Trump campaign, "such as chief executive Stephen K. Bannon and adviser Michael Flynn," who encouraged him to "broker ties between Trump and top foreign officials."