Compass Mining a mining and hosting company based in North America has introduced a new tax evasion strategy for savvy crypto miners that register in the United States.
Compass Mining announced on Thursday that it had teamed up with IRA provider Choice by Kingdom Trust to allow Bitcoin users to mine directly into their IRAs “without ever triggering a taxable event.”
For many people who file returns, income is their only taxable source of funds under current US law.
Crypto users who buy tokens may have to record their holdings on their tax returns, but they may not have to pay anything to the government unless they cash out, which is a taxable event under capital gains regulations.
Similarly, cryptocurrency mining earnings are frequently treated as income, requiring miners to pay taxes not only for generating blocks but also for liquidating the currencies.
Depending on the type of IRA, Choice and Compass claim that their solution allows miners to avoid taxes on mining money “in the short term or indefinitely.”
Choice IRA participants were required to have enough funds to acquire mining hardware, with revenue being remitted to the account after the hardware was purchased and brought online, according to Compass.
Choice CEO Ryan Radloff and Compass CEO Whit Gibbs both avoided referring to the product as a tax-advantaged or “tax-efficient” IRA, instead referring to it as a “tax-advantaged” or “tax-efficient” IRA.
However, the practice is not without precedent, as many wealthy Americans utilize dubious — but frequently completely legal — methods to avoid paying taxes.
Last month, ProPublica reported that PayPal co-founder Peter Thiel had invested $2,000 in a Roth IRA – a tax-free account — more than two decades ago and turned it into a $5 billion fund today, presumably out of reach of the IRS.
In a later interview, ProPublica journalist Jesse Eisinger observed, “There is a strain of thinking in America that not paying taxes is smart.”
“Funding for essential services is required by the federal government to keep us safe and healthy and society running. Taxes are the lifeblood of the government.”
In the instance of cryptocurrency mining, the IRS appeared to break new ground in 2014 when it declared that mining activities would result in taxable gross income, classifying newly created blocks as incentives.
Such taxes may put new mining companies in the United States at a disadvantage if they don’t have enough money to cover mined tokens.