My subtle suggestion is it's not money laundering when nobody gets arrested, just as there is no serious terror threat when you can count the number of terror incidents in a decade on one hand. (note: I'm not suggesting we need more money laundering or terror incidents, rather that we need to rethink our "wars on" these things)

Here is a relevant quote from Business Insider:

http://www.businessinsider.com/irs-bitcoin-is-property-not-currency-full-release-2014-3

Bitcoin has many strengths. One is being decentralized, another is being market driven, and still another is being global. These factors make it incredibly resilient. Any one factor which might affect it, such as totalitarian governments (e.g. N. Korea), localized pricing pressures, or environmental disasters (like Chile's recent tsunami), etc. won't really affect the whole. There are multi-million dollar mining operations intentionally positioning themselves to take advantage of energy costs. There may be slight network quirks from time to time (like 2 hr + confirmations), but you'd never expect to see 95% of global hashing power vanish suddenly.

slush, FWIW I think the Trezor is indeed safe for now when it and Bitcoin are not so popular in the mainstream. I used that title to make a point. I'd rather have people thinking something which is secure could be insecure than vice versa. I hope to avoid a situation where it's commonly believed the Trezor is safe for storing 50-100K USD plus of value, only to see it vanish because some hackers set up successful real world MITM attacks.


I agree.

That's why I made this post (with a proposed a solution).

What if the drug dealer used HSBC bank?

LOL this looks like a Ripple pump/promo in disguise. A lot of people sure seem to have an interest in selling Ripple, rather than letting people figure its worth on its own merit as happened with Bitcoin.

Thankfully, it looks like Open Transactions will completely negate the need for Ripple.

The Bitcoin Trezor has the potential to be a user friendly ultra-secure way to store and use bitcoin, something which has been sorely lacking.

It seems Mike Hearn has been first to receive his Trezor:

https://plus.google.com/+MikeHearn/posts/UbvCG78WpjM

While the product looks great I would caution there may be a hole in the security. Trezor is safe from virus stealing software because it's isolated from any software which might be compromised by hackers. That's only true if hackers don't have access to the actual Trezor, though. (or a look alike which can pass as one)

I've previously said any private key producing software needs some sort of checksum availability for users. This is true also of the Trezor. I won't go into detail about how it might be compromised, but its transit is the source of concern. Boxes are sent with a tamper evident hologram, but the Casascius coin hack showed us the vulnerability with that. The device IMO should be able to call back to the company website to verify the software has not changed.

People are going to put their trust and money into security solutions we tell them to, so we need to make sure those solutions are really secure.

Funny I thought about this contradiction a few hours ago.

I give up.

You said, for example:


You have repeatedly emphasized this position throughout the thread despite me, and a tax attorney, saying documenting all the transactions is the way it works in the United States. When you express a contradicting position it's called an argument. This isn't necessarily a bad thing. It's not like I feel hostility toward you. It's just I believe accuracy is preferable. To be accurate in a discussion where there are no experts one relies more heavily on the substance of the arguments.

The only thing either of us can offer is our point of view, drawing from whatever resources we each have. All else being equal, and given the subject matter, one would expect a person actually involved in the system in question to have more credibility behind their words, so long as what they said made sense. If I started speaking authoritatively about what is and isn't required for Canadian capital gains reporting I'd personally feel embarrassed if a Canadian citizen joined the discussion who took issue with what I said, let alone think of directly challenging them. How could I possibly be equal in historical knowledge, not being a studied expert.

Now, a U.S. citizen arguing against a U.S. citizen I can see, or a Canadian arguing against a Canadian, but a foreigner arguing against a native on subject matter of the native's country seems silly, absent a special case, like the foreigner having insight as a studied expert. That wasn't the case with you, though.


See you've done it again. You made an authoritative statement concerning the IRS when the knowledge you should possess naturally doesn't pertain to it. You said "I believe" here but really not elsewhere. When a citizen tries to explain how a system they're familiar with works, if it makes sense you should probably give it some credence.

I acknowledged not being a lawyer before making my tax remarks. Peter R had the good sense to do the same, but I haven't seen that from you. For you to make the statement above I find it troubling, that is unless of course you are a lawyer or tax professional.



That's why I asked. I thought I'd read something about it. So you're from Canada.

Regardless of the myriad of words from each of us, you don't see anything peculiar about keeping up an argument against a U.S. citizen that has actually been in the country's tax system for decades, as a Canadian?

Aaaand silence ...

Let me ask you something. Are you a U.S. citizen?

Well, it's whatever you meant then. I (as well as the tax attorney) say every transaction counts for documentation; you said that's wrong.


My argument is not against specific lots. My view is that's a valid technique. What we seem to disagree on is what the government is likely to view as potential taxable events.



I didn't say it avoided capital gains. Once again, my disagreement with you is only over the accounting and reporting methodology, not whether or not specific lots can be used to offset capital gains.

If I can't get you to grasp what I've explicitly stated is what I disagree with you on I don't see any usefulness in continuing the back and forth, especially since neither of us are tax experts.

Okay, I can see you disagreeing with me as I'm not a lawyer, but now you're disagreeing with the actual tax attorney quoted by Business Insider as well as a Georgetown Law professor. You really think you're seeing something they don't?

Let me try to explain it this way. Gold is in the exact same situation as Bitcoin. Gold is viewed as property instead of currency. If you exchange gold for other property you can also realize capital gains and losses.

Technically, anytime this happens you're supposed to report any gains. If you're in the business of regularly exchanging gold for other property you should have an accounting system which assesses the value of gold at the time of trade versus the fair market value, in U.S. dollars, of the good or service being acquired.

It's not simply enough to tell the IRS, oh, well due to the way we buy our gold we never have any capital gain events. That's not how it works. It's because you're doing something outside the dollar system that raises the scrutiny, which could very well result in an audit. If you are audited the auditor will tell you what may have resulted in capital gains. Since, again, you're transacting outside the U.S. dollar system with property having a value which fluctuates every transaction is within question for the audit. If you want to then show your lump sum purchase history and think that will fly, good luck. My opinion is it won't, and I believe that's what these actual tax experts are explaining when they say every transaction should be documented and assessed.

I may still misunderstand exactly what he's proposing, but I don't think I misunderstand the implications of the IRS guidance. Again, regardless of this thread every Bitcoin transaction can be a taxable event. That's what the tax attorney I linked says:



That's just it. It's never a good idea generally, when discussing US taxes, to talk about tax avoidance 


I don't think so, but it's possible.



I didn't say that. What I disagree with you on is accounting and reporting methodology.


I did.

Hey, I've got to step out now but I do think this thread/idea has merit!

Okay, now I understand what you're talking about. That won't work. You're saying the wallet is set up where the coins you spend are always spent at a time when their value with respect to U.S. dollars has declined, so that there is no capital gain on the trade and nothing to report. There are two problems with that. First, it's possible for the exchange rate, overall, to keep increasing during your spending period. Second, the IRS won't take your word for it there was no capital gain, like teachers in school they want you to "show your work".


There is no way you could do that, because nobody and no software can predict what the market price will be at any time in the future.


The way I envision it that's quite possible. Software can produce extremely precise and organized reporting.


That's not how it works. I think you said you were not from the US? In fact this is the problem you quoted from that Georgetown Law professor, Levitin:

http://www.theatlantic.com/technology/archive/2014/03/why-bitcoin-can-no-longer-work-as-a-virtual-currency-in-1-paragraph/359648/

It's the fact that every single bitcoin trade can be viewed as a taxable gain or loss event, with them classified as property, which causes Levitin to argue they are now unworkable as currency. That's why Bitcoin Foundation's legal counsel says the classification results in unrealistic and cumbersome reporting requirements.

Average people are generally not meticulous enough to keep up with every property trade they perform, especially when that property behaves more like a currency. Add to that potential capital gains to report and you end up with a potential financial accounting nightmare for Bitcoin currency users. The idea you have about offsetting gains with losses though using smart software decisions counters that. What I'm saying is in addition the software, if designed intuitively, can also make the accounting and documentation effortless. It's a double win.

Regardless of any ZGL wallet Bitcoin users would be expected to show capital gains (or losses) on every bitcoin transaction. Even if those were all at a loss transaction documentation should still be made and records kept in case of audit. That's how it works in the U.S.

I'm not sure I understand what you're saying here. According to the Wall Street Journal's Q&A on the IRS guidance any transaction with the coins would (or I should say could) be a taxable gain (or loss) event.


We might be saying the same thing, but to clarify, what I'm saying is I see the ZGL wallet as recording all relevant tax activity surrounding coins. For example, it starts at 0, but when it receives coins they are marked with the current exchange rate for tax basis. Depending on what the exchange rate does, a user could decide whether to make a real world purchase or delay it for tax benefit. If the exchange rate rose they would have a capital gain if the fair market value of what they were "purchasing" (exchanging for their coins) was commensurate, or in other words had a value which exceeded the original lower cost basis. That's a complicated way of saying the bitcoin sale was pegged to U.S. dollars.

In order to offset that capital gain the wallet could also hold coins purchased at a higher rate reflecting a capital loss relative to the exchange rate at the time of the purchase. By using a calculated portion of each of these higher and lower cost basis coins the final trade would result in a capital gain and loss of exactly zero.

Since shopping habits and coin purchases can be haphazard, I see the wallet as maintaining some amount of capital gain or loss at any given time, which could prompt users to adjust their behavior accordingly for beneficial tax effect.

Again, we might be saying the same thing. The part where you lose me is when you talk about calculating events on a weekly, monthly, etc. time frame, because that's not a way I see it working unless users spending habits followed that structure. Every single trade is potentially a capital gain or loss event no matter when it occurs. However, the wallet could track all that info and behave such that over time against a backdrop of volatile exchange rates a user could end up with marginal capital gain or loss, with fairly little effort.


I agree. We are saying the same thing here.

Disclaimer: I am not a lawyer and this is not tax advice.


Not entirely. The way I see it working a user would need to jot a note of every transaction with the software, and probably keep a physical receipt too. The wallet would keep its own ledger of coin identifications, which coins were received when, for how much, and which were spent when and for how much.


Not really. According to the Wall Street Journal's Q&A the fair market value of coins can be determined by a listed exchange rate based on supply and demand, which is consistently applied. Choosing any large Bitcoin exchange as a data source should be fine.


I don't see why. You wouldn't realize a capital gain or loss on coins until some transaction. The wallet IMO should have an informative interface showing how much in total capital gains or losses a user had at any given time, given the current exchange rate. There would be actual capital gains and potential capital gains (or loss), the actual ones being records of noted transactions which took place.

By checking the Capital Gain Tracker a user could make informed decisions about when to purchase or sell coins (or market goods and services) for tax benefit. For anyone thinking this is an unfair tax loophole scheme I'd argue it's not. Sales tax on purchases would still apply, and probably not be under reported since customers would prefer a receipt for their own tax records. From the property owner (Bitcoin holder) perspective it's simply smart asset management, with diligent record keeping. There is no law against that.


If you wanted to force a realized capital gain (or loss) I agree this should work. The new property received would enter the wallet system at the current fair market exchange rate.


That's the whole point of the wallet, to keep track of and intentionally use certain pieces of property (coins) at different times. Making notes of the transaction with the wallet software along with keeping physical receipt records should suffice.


I believe that's correct. The U.S. tax system is sold as "voluntary compliance", meaning tax payers self report what they owe and how they concluded that. The catch is you have to be correct in the event of an audit or possibly face back penalties and interest. This is where keeping good records comes in. A person who can produce detailed records has a good basis for an argument, even if they made a mistake, although tax could still be due.


I don't believe that applies. Definition of the word frivolous: not having any serious purpose or value. That's the opposite of the detailed transaction records the ZGL wallet creates.

http://www.law.cornell.edu/uscode/text/26/6702

That's an amusing graphic.

First because it looks comical. Second, because the price of bitcoins was $13 in January a year ago.