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Are You a Bitcoin Criminal?

By Internet Lawyer

bitcoin income tax fraudFor years, many entrepreneurs mistakenly thought that income received via PayPal was exempt from taxation.

Some got away with not paying taxes on such income. Others were nailed in tax audits for underreporting income.

Bitcoin is the new PayPal

Today, Bitcoin and other crypto currencies are used in the same way as PayPal used to be, a method of receiving business income while not reporting it and paying taxes.

There’s nothing wrong with legally minimizing what you pay in income taxes by taking advantage of existing loopholes in tax law. However, there is not, nor has there ever been, a loophole available for income that you can hide and not report. That’s tax evasion (tax fraud), and it remains illegal.

The Alleged Dangers of Bitcoin Use

A parade of imaginary and real horribles is already being used by Uncle Sam to justify a crackdown on Bitcoin. These include alleged abuses involving digital payments that:

  • support terrorists;
  • pay for drugs;
  • launder money for drug cartels;
  • pay for child pornography;
  • fund assassinations;
  • pay for Internet gambling; and
  • promote tax fraud.

Perception is being heavily manipulated with anecdotal evidence to support regulation and control to protect the public. Legitimate Bitcoin transactions are not highlighted. The shady Silk Road underworld is the bogeyman.

The Illusion of Bitcoin Anonymity

Fanboys of Bitcoin and other encrypted digital currencies brag that anonymity ensures they can transact business beyond the reach of the law. That’s as naïve as thinking the National Security Agency (NSA) can’t track everything you do online if it wants to.

Governments around the globe are starting to respond to cryptocurrencies through a variety of methods. Regulation and taxation are inevitable…and that means the purported anonymity will disappear.

This isn’t taking a position in favor of such, just recognizing that there is every incentive and the ability by governments to ensure that Bitcoin will be controlled and related income taxed.

In the United States, you can expect to see action by at least the following government agencies:

  • Financial Crimes Enforcement Network (FinCEN);
  • Internal Revenue Service (IRS);
  • Federal Trade Commission (FTC);
  • Bureau of Alcohol, Tobacco, Firearms, and Explosives (BATFE);
  • Drug Enforcement Administration (DEA);
  • Federal Bureau of Investigation (FBI);
  • States’ Departments of Revenue (state equivalent of IRS); and
  • States’ Consumer Protection Agencies (state equivalent of FTC)

Can You Use Bitcoin Without Becoming a Criminal?

As long as Bitcoin remains a legal means of conducting ecommerce, you can use it. The key is to comply with laws and regulations that apply to such use.

Using Bitcoins or another cryptocurrency isn’t a legal loophole. If you owe taxes, pay them. If it’s illegal to buy something (e.g. cocaine), paying for it with Bitcoin doesn’t suddenly make the purchase legal.

Should Bitcoins Become Illegal Digital Currency?

By Internet Lawyer

How does bitcoin digital currency work?

Bitcoin digital currency differs from traditional currencies and has become an increasingly prominent method of payment in the world of internet commerce.

Traditional currencies are regulated by governments, but Bitcoin digital currency is only regulated by its value to users and its expected value in the future. This allows Bitcoin digital currency users to feel somewhat secure since no government can arbitrarily reduce the value of the currency. Bitcoin digital currency receives further praise from users as transactions with Bitcoin digital currency can be made with more anonymity than traditional currencies afford.

Why do some legislators want to make Bitcoin digital currency illegal?

Some legislators have commented that the anonymity that Bitcoin digital currency users enjoy has been abused. According to these legislators, online services such as ‘Silk Road’ require the use of Bitcoin digital currency for all online transactions. To legislators, this requirement by ‘Silk Road’ and similar services provides a truly anonymous marketplace in which contraband can be transferred.

Though ‘Silk Road’ warns users not to abuse the anonymous marketplace for the transfer of truly dangerous materials, some in government fear that ‘Silk Road’ and related sites have used Bitcoin digital currency technology for nefarious purposes. These legislators claim that Bitcoin digital currency has enabled ‘Silk Road’ to establish an online mega marketplace where drug traffickers cannot be easily traced or stopped. Legislators fear that unless Bitcoin digital currency is banned, drug trafficking will become as easy as shopping at internet retail sites, like Amazon.com.

What efforts have been taken to curb the usage of Bitcoin digital currency?

Having read about sites like ‘Silk Road’ and the potential abuse posed by Bitcoin digital currency, Democratic Senators Charles Schumer and Joe Manchin wrote the US Attorney General, warning him about anonymous drug trafficking over the internet. Though no legislative efforts have yet been undertaken to restrict or ban the usage of Bitcoin digital currency, the United States will perhaps soon see efforts made to stop illegal drug trafficking through placing impediments on the usage of Bitcoin digital currency.

Proponents of Bitcoin digital currency argue, however, that drug trafficking could be stopped without having to place limitations or restrictions on the usage of Bitcoins. Instead, they argue, law enforcement officials could use available technology to track down individuals abusing Bitcoin digital currency, and prosecute them accordingly. Bitcoin proponents concede that while identities of all Bitcoin parties are anonymous, there are many ways in which law enforcement would be able to target offenders through analysis and research of individual habits on the internet.