Taxpayers to avoid obligations by sending mining proceeds to IRAs
North American mining and hosting firm Compass Mining is offering a new tax avoidance method for savvy crypto miners that file in the United States.
In a Thursday announcement, Compass Mining said it had partnered with IRA provider Choice by Kingdom Trust to help Bitcoin users mine directly to their IRAs “without ever triggering a taxable event.”
Under current U.S. law, income is often the only taxable source of funds for many who file returns. Crypto users who purchase tokens may be required to declare the holdings in their tax returns, but may not necessarily have to pay the government anything unless they choose to cash out — a taxable event under capital gains laws.
Likewise, revenue from mining crypto is often considered income, requiring miners to pay taxes for not only generating blocks, but also liquidating the coins. Choice and Compass claim their product allows miners to avoid taxes on mining revenue “in the short term or indefinitely,” depending on the type of IRA.
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Compass specified that Choice IRA holders had to have enough funds to purchase mining hardware, with revenue sent to the account after purchasing and coming online. Choice CEO Ryan Radloff and Compass CEO Whit Gibbs seemingly shied away from labeling the product as a method of tax avoidance, instead referring to it as a “tax-advantaged” or “tax-efficient” IRA.
However, the method is not without precedent, as many wealthy people in the United States use questionable — but often perfectly legal — means to avoid paying taxes. Last month, ProPublica reported PayPal co-founder Peter Thiel had used a Roth IRA — an account generally not taxed — to invest $2,000 more than two decades ago and turn it into a $5 billion fund today, seemingly out of the IRS’ reach.
“There is a strain of thinking in America that not paying taxes is smart,” said ProPublica journalist Jesse Eisinger in a later interview. “The federal government needs to be funded for basic services to keep us safe and healthy and keep society functioning. The government depends on taxes.”
Related: Crypto couple tells court the IRS has no right to tax newly mined coins
In the case of crypto mining, the IRS seemingly broke new ground when declaring mining activities would result in taxable gross income in 2014, labeling newly generated blocks as rewards. Such taxes may provide a disadvantage to up-and-coming mining firms in the U.S. without enough capital to cover mined tokens.
Cointelegraph reached out to Compass Mining, but did not receive a response at the time of publication.