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I've been learning about cryptocurrencies, mostly from a technical stand-point to develop decentralized applications; however, to get started I purchased a few coins. When the prices rose so quickly, I got both excited and nervous. It seemed to rise too quickly based on my limited understanding. Plus, yay, if I sold, I'd make a few bucks. So I did.

Now tax season has arrived and I'm ready to pay taxes on the gains. Only problem is that coinbase.com has the money tied up on my USD Wallet, and it is locked down due them having technical difficulties. I've requested help and received no response, which was worrisome. So, I started perusing the web to see if other people were experiencing similar problems. They are. Naturally, people with issues are going to be speaking out more often and louder, but even so... the increasing echo is that people have no problems making deposits and buying coins, but selling and cashing out sometimes results in an account lockdown that I've experienced. I'm increasingly uneasy with this company and fear that it could be months (as others have experienced) before I MIGHT get access to my funds. So, this leads to the question...

Do I REALLY have a capital gains on my investment if the institution is withholding access to not just my gains, but my original investment? At this point, the returns on the books are positive, but if something fishy is going on within the company, my returns could actually be very negative.

  • First, is it a long or short term gain? If it's long term, and your income isn't that high, you might still be in the 0% capital gains bracket. – jamesqf Jan 20 '18 at 19:38
  • Definitely short term. Bought little over a month ago, market went crazy, and I shifted from app development to 'this is crazy, get out till it cools down'. I thought/hoped I was fortunate, but for as long as the gains are just a record on their site, and not spendable/usable/re-investable/withdrawable, this is by all practical uses of currency, a complete loss. – Michael Prescott Jan 20 '18 at 20:28
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As soon as sold the coins you "realized" a gain, so you owe taxes on that gain for the year in which the sale occurred.

The fact that Coinbase is wrongfully withholding your money is a completely separate issue that the IRS will not care about.

When a trustee refuses to give somebody their money and holds on to it, it is is a crime called "embezzlement". You can both sue Coinbase for embezzling your money, and you can also file a criminal complaint against them. If Coinbase is indicted or convicted of embezzlement, it will greatly strengthen any civil suit you may have filed against them. The damages in cases like this are limited only by the jury's imagination.

If you file a criminal complaint, you want to file it against the treasurer of the corporation, because that is the person who is criminally liable for the misuse of funds.

As far as customer support is concerned, most business will prioritize customer support to those customers that are suing them.

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    You might also be able to deduct the amount of the gain as a casualty loss. – jamesqf Jan 20 '18 at 19:36
  • So, coinbase.com can report that I experienced a gain, but I can't do anything with the principle or the gain... I still have to pay taxes on the gain. Huh. If this goes on for months, we could be past the tax deadline. Not only would I miss other investment opportunities, I wouldn't have the principle to pay on the gains they report, resulting in further losses. Damn. Hoping they respond AND fix their technical issues. – Michael Prescott Jan 20 '18 at 20:10
  • @MichaelPrescott You should look into the possibility of it being a loss of some kind - for example Madoff's investors were able to deduct as a "theft loss". One key difference here is that it may be only temporary. – Ganesh Sittampalam Jan 20 '18 at 20:55
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    I do not think this is correct. As I understand it, a cash basis taxpayer realizes a gain when there are no significant impediments to them accessing the gain. There is currently a significant impediment to them accessing the funds due to no fault of their own. So they have not yet realized the gain. Effectively, the funds have not yet been delivered. (I am not a lawyer or accountant.) – David Schwartz Jan 21 '18 at 0:02
  • @DavidSchwartz I hope you're right, and more so I hope it's truly a technical situation. I'd be far less stressed if not for the timing of this, and if they simply responded (Annnnd, if I hadn't read about other users spending hours and weeks trying to get help and getting no responses). They seemed to be the largest and easiest on/off ramp to cryptocurrencies, so perhaps it's my own fault for not looking hard enough for the negative before using them. – Michael Prescott Jan 21 '18 at 1:52

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