Not a lawyer or accountant here but I think it would be reasonable to only treat the eventual on-chain withdraw as a taxable event.
Until then, you have deposited some value in a number of lightening network nodes and have been negotiating a set of pairwise IOUs with them for later.
DeFi/staking has a similar problem and I believe waiting until gains and losses are realized will be the way it goes down.
For now, make a good faith effort to pay taxes or expect some friction later.
Not a lawyer or accountant here but I think it would be reasonable to only treat
the eventual on-chain withdraw as a taxable event.
IAAL. Specifically, a tax lawyer. It would not be reasonable to treat the on-chain event as sole the taxable event.
Every transaction in a cryptocurrency is a taxable event.
This is the same tax treatment that applies any time a non-USD currency is used in a transaction (by an American). Similar rules apply to citizens of EU countries.
I do 1000 streaming transactions on a channel. When the channel is closed (withdrawn back to the L1 chain, or settled - offchain is the wrong term here Lightning is an L2 "channel"), the transactions are summarized and you can tax that summary event.
It's a linear sum of taxes. Of course there are scenarios that complicates things like variable sales tax rates based on transaction type/location/good, but that's an extended conversation.
If you really want tax enforcement, governments should be looking to develop CBDC integration on the merchant side with bridge support for major crypto currencies. Given Intuit's iron grip on tax lobbying I don't have much hope for innovate tax schemes though.
By the same logic, anything you do on a custodial exchange could never be a taxable event because it's never settled on-chain. I'd be extremely surprised if the IRS would share your view.
That's right, moving sats via LN is done off-chain. Once the channel closes, that's when it settles to L1, at which point tools like Rotki can help you figure it out.
hmmmmmmmm, you can't get those IOUs back though so you need to keep a record of transaction as they are no longer under your control, if you want to be compliant
Until then, you have deposited some value in a number of lightening network nodes and have been negotiating a set of pairwise IOUs with them for later.
DeFi/staking has a similar problem and I believe waiting until gains and losses are realized will be the way it goes down.
For now, make a good faith effort to pay taxes or expect some friction later.