In this thread I there was a discussion of the Lets Go Biden Token (LGBT) scam crypto currency. In which a group created 300 trillion Crypto tokens which they started up a market for, the going price is about 5 million tokens to the dollar, so they effectively created 60 million dollars for themselves out of nothing. Of course all of this is on paper and they don’t actually have that money in their pocket unless they can convince some gullible suckers to buy the rest of their 300 trillion at that going rate. How would this be taxed?
So it sounds like it would be something like unrealized capital gains. But That would seem to suggest that as long as they keep it in crypto and use it to buy things that are directly purchasable in crypto they would never have to pay taxes on it.
I kind of need an answer fast because as pointed out in that thread I just became a trillionaire and am a little worried how I’m going to cover it.
IRS FAQ on Virtual Currency and taxes.
If you mine cryptocurrency, the market value of what you mined is treated as income and you pay normal income taxes on it. That value is your basis.
If you sell cryptocurrency for more (or less) than it was worth when you acquired it, then it’s treated as a capital gain (loss) and you pay taxes on the difference.
In the LGB case, it would depend on specifics, but if they mined all the coins at the start and then sold them, they’d plausibly have $0 in income (the coins were worth nothing when initially created), and pay short or long-term capital gains taxes on the amount they sold them for. If they mined them as they went, then whatever market value existed at the time would count as normal income, etc.
They could plausibly come up with an argument that the coins were worth something when mined, but I don’t think anyone would do such a thing because why would you volunteer to pay extra taxes?
Keep it in crypto meaning “keep it in the same cryptocurrency asset”: yes, no taxes owed. Buy things (real goods, different cryptocurrency): pay up.