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Don't know if you boys have discussed the concept of constructive receipt when talking about business income derived from mining. I see alot of chatter here about having to keep track of every coin when you mine it and receive it from your pool. Since none of you ever pay an accountant, I suggest you google constructive receipt and learn about this accounting concept and think how you can apply it to the actual receipt of value for your mining activities. I'll give you a hint, you're going to have to make the argument that you actually can't use the coins you receive as a mining reward until you convert them to fiat because, well you know digital currencies are worthless and cannot be used in real life...
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Hi everyone
A few questions regarding the IRS ruling.
1. Is is final? i.e., when they ask for comments/questions does that mean they are seeking feedback on their initial view?
2. Where is the technical analysis to support the position that it is property and not a currency? The paper itself is cursory and contains almost no legal analysis to support the conclusion.
3. Can US taxpayers take a position it is currency and fight it out in the courts? i.e., I would think the IRS is not the arbiter of whether virtual currencies are property or not. It is a legal question rather than a decision to be made by the IRS?
I am a tax professional (outside the US) and would be very willing to assist in making submissions regarding this. The ruling is obviously not a good outcome and without seeing any legal analysis seems contrived to argue this is "property".
Being a fellow tax professional, I think you know the answers to your questions, but it's good to illuminate the masses on this forum who are not familiar. This is what will happen... In a few years, the IRS will audit a taxpayer for under reporting income. This taxpayer will be claiming he only has 5k of income, yet he lives in a million dollar apartment and drives a tesla, without any discernible sources of salary wage income. The IRS field agents have heard of these people, they are called bitcoiners. Under pressure, the taxpayer will admit he has been mining bitcoins, trading bitcoins, spending bitcoins. The IRS will impose capital gains rules on this income, according to n-14-21. The taxpayer realizes he might have a better tax treatment if he took another supportable position (google that term boys and learn something). The IRS stands by n-14-21 and we go to tax court. Tax court is not like a regular court where lawyers grandstand and try evidence and facts. Tax court is much more analogous to arbitration where each side presents their argument and a federal tax court magistrate decides the best solution. Perhaps the taxpayer hires me, and I make a convincing argument in front of the tax court and this taxpayer will then receive the beneficial tax treatment that all the silly bitcoiners are trying to get with a petition to the IRS. FYI, no where in the IRM is there a chapter regarding online petitions to change IRS rulings. The IRS will have to abide by the tax court ruling in this case only. Tax court does not set precedent for any other taxpayers. So the next bitcoiner hears about the tax court victory of yours truly, and decides he wants to take the same supportable position. The IRS once again goes to tax court against the second bitcoiner and we win again. Now the IRS has suffered two defeats in tax court. Eventually a revenue manager will see all these defeats and decide it isn't worth it for the service to fight these cases again and again and lose again and again...to me. So that my friends is how to change this ruling. You go to tax court and look for a favorable ruling from a magistrate. Then you do it again and again and eventually the IRS figures out this bitcoin thing is a money loser for them and then they will go after some other thing for revenue. There's also another venue you can pursue, federal appeals court. But that's a story for another night. This sounds good and all, but what if the case(s) are lost against the IRS? Then the IRS has won and they have gained from doing it, and they will do it again and again... I don't see how the IRS would lose that case if the tax avoiding citizen didn't pay their taxes. That makes the citizen guilty doesn't it? What makes you feel so confident that they would lose as you portray in your example? Is it because it will be unprovable how much the citizen owes due to the anonymous nature of the blockchain? (In the future, I expect FULL anonymity features) all is fair in love and tax court. if the IRS wins, then they win fair and square and the taxpayer pays the tax assessment. most people won't go to tax court unless they have a semi strong argument. the IRS loses or settles the majority of tax court cases. you want to find out my tax court strategies? My retainer is $50K, bitcoin accepted here. SE taxes paid. then capital G/L calculated |
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wow.. i see you havnt spoken to an accountant.
you pay tax when you get your FIAT for that coin.. you work out the gain/profit or loss by looking at the fiat value of the bitcoin when mined and the fiat you receive when selling.
imagine you mined 1 bitcoin and you paid tax on todays valuation of $450. the tax is paid. what about when the price moves tomorrow. do you pay tax again on a rise. and ask for a refund on a drop. NO no no
now then. when you mine a bitcoin you wait until you have sold the bitcoin for coldhard fiat in your bank, then you look at the price value at the time of the fiat sale and you calculate that against the initial price at the time of mining..
you dont have to keep a log of every $ movement whilst hoarding, because the maths of adding and subtracting every movement would end up with the same total as just taking the numbers at the start and the end..
i seriously dont know why people are too lazy to speak to an accountant. but then think they have to do lots of work suddenly, when its not needed.
the mind boggles
From IRS Notice 2014-21 (that LostDutchman linked to): Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities?
A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.
I don't need an accountant to understand that. I'm not an accountant or a tax professional, but the IRS notice was written in plain english and as someone who does their own taxes, it seems straightforward. There's two separate things, as I understand it: 1) an income generated when the bitcoin is mined based on the market value at the time it was mined (regardless of whether it's ever sold). This gets reported and taxed as income (could be business or hobby income, but that's a separate question) 2) a capital gain or loss when the bitcoin is sold or spent. If it was mined, then the cost/basis is the market value at the time it was mined that was already taxed as income. If you're not selling the bitcoins that you're mining, you still have to come up with the USD to pay tax on the income. No, you don't have to keep tracking every rise and drop. You just have to track it at the time it was mined (cost/basis, reported as income), and the time it was finally sold (to calculate a capital gain or loss). I don't do my own heart surgery or program my own computer so you should stop doing your own taxes. |
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Hi everyone
A few questions regarding the IRS ruling.
1. Is is final? i.e., when they ask for comments/questions does that mean they are seeking feedback on their initial view?
2. Where is the technical analysis to support the position that it is property and not a currency? The paper itself is cursory and contains almost no legal analysis to support the conclusion.
3. Can US taxpayers take a position it is currency and fight it out in the courts? i.e., I would think the IRS is not the arbiter of whether virtual currencies are property or not. It is a legal question rather than a decision to be made by the IRS?
I am a tax professional (outside the US) and would be very willing to assist in making submissions regarding this. The ruling is obviously not a good outcome and without seeing any legal analysis seems contrived to argue this is "property".
Being a fellow tax professional, I think you know the answers to your questions, but it's good to illuminate the masses on this forum who are not familiar. This is what will happen... In a few years, the IRS will audit a taxpayer for under reporting income. This taxpayer will be claiming he only has 5k of income, yet he lives in a million dollar apartment and drives a tesla, without any discernible sources of salary wage income. The IRS field agents have heard of these people, they are called bitcoiners. Under pressure, the taxpayer will admit he has been mining bitcoins, trading bitcoins, spending bitcoins. The IRS will impose capital gains rules on this income, according to n-14-21. The taxpayer realizes he might have a better tax treatment if he took another supportable position (google that term boys and learn something). The IRS stands by n-14-21 and we go to tax court. Tax court is not like a regular court where lawyers grandstand and try evidence and facts. Tax court is much more analogous to arbitration where each side presents their argument and a federal tax court magistrate decides the best solution. Perhaps the taxpayer hires me, and I make a convincing argument in front of the tax court and this taxpayer will then receive the beneficial tax treatment that all the silly bitcoiners are trying to get with a petition to the IRS. FYI, no where in the IRM is there a chapter regarding online petitions to change IRS rulings. The IRS will have to abide by the tax court ruling in this case only. Tax court does not set precedent for any other taxpayers. So the next bitcoiner hears about the tax court victory of yours truly, and decides he wants to take the same supportable position. The IRS once again goes to tax court against the second bitcoiner and we win again. Now the IRS has suffered two defeats in tax court. Eventually a revenue manager will see all these defeats and decide it isn't worth it for the service to fight these cases again and again and lose again and again...to me. So that my friends is how to change this ruling. You go to tax court and look for a favorable ruling from a magistrate. Then you do it again and again and eventually the IRS figures out this bitcoin thing is a money loser for them and then they will go after some other thing for revenue. There's also another venue you can pursue, federal appeals court. But that's a story for another night. |
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"But Mr. Lawsky said such companies would still need to show they are following anti-money-laundering rules, because, "if there's a choice between preventing money laundering and innovation, we're always going to choose squelching money-laundering first."
That must be the most disingenuous BS statement I've read in a long time. It would be nice to see one of the presenters throw in a mention of HSBC and JPMorgan et al and ask the regulators to explain why they allow the too big to bail criminals openly get away with money laundering and in particular drug cartel money laundering.
a bureaucrat and/or politician being disingenuous? You don't say? |
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First part was quite positive
I like the part about mega VCs investing in massive data centers to mine bitcoins. They're concerned about money laundering via bitcoins, but when given an example, nobody flinches. Care for another example? Have you noticed all those Bitcoin Miner product sites lately? Not the ones discussed on this forum via threads introduced by their owners, of which are then turned into some sort of flame war or scam thread, but the other ones. The handsomely built ones, with all the bells and whistles, with order pages in place. Those, those that you'll never hear a single complaint about by nary a customer. Why? Because the owners are their only customers. The above hit me like a ton a bricks only a few minutes into that first video. Every one of those sites that I eluded to above can easily transact, then covert to fiat directed to their bank accounts, a quarter to a half million dollars in sales and, get this, the entities could all be registered and totally in compliance. For those playing at home desiring to know exactly how the above is played out, simply ask, whereupon I'll pen a detailed post outlining the simple procedure. ~TMI BTCITW I hear what you're saying, but do you have any evidence? |
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Does the entertainment factory at CNBC make stocks more valuable?
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As with many people who break the law, Charlie might have thought it right to break the law. Few criminals are sociopaths. Most feel what they are doing is right. If this is the case, and from what I've read about Charlie and what I know of the libertarian side of bitcoin, I am surprised there aren't more people coming to his defense. Where are the people saying "who did he really hurt?" "the war on drugs is bs and Charlie was only providing his service to non-criminal drug dealers." OR are we more concerned about bitcoin going to $10,000 than seeing justice for a young man that was universally liked and respected in the bitcoin world prior to Jan 27, 2014?
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I suppose "fairness" is one way of saying it, but honestly, I'd just be happy with consistency at this point. Why do we change subsidies for say, agriculture every year? I live in Iowa and I'd be happy with just eliminating everything, including ethanol subsidies. All I'd ask is that we get rid of oil and other subsidies as well. Let them all compete on an even keel, the market will sort them out. If something is "bad" then the environmentalists will boycott that product and the companies that distribute it, thus decreasing demand. It seems kind of self-explanatory at this point, I'm not sure why government in particular has to be involved.
Anyway, I'm preaching to the choir I'm sure. Sanity simply has no place in politics.
Sanity has no place in taxation either. So here's a story about tax fairness... I have a friend he's in the cigar business. Totally legal business, but of course it's frowned upon by the government and society at large what with all the cancer thing and of course the smell of cigar smoke. He must pay 75% excise taxes on cigar sales. Is this fair to the cigar business? Imposing such a high tax? Or if you took the tax away, now is it fair to the rest of normal society who hates smelling cigar smoke and paying for cancer treatment? Tax policy is not about fairness, and many times it is about the opposite of fairness, which is power. Non-smokers have the power. Iowa corn farmers have the power. Which side of the power coin (u see what I did there?) do you think bitcoin falls on? And what do you think the ultimate tax treatment for bitcoin will be? Fair or unfair to bitcoiners? |
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I was a CPA for over 10 years working in an International Firm
and an NYSE listed bank. I am also a miner. I've been a corporate
CFO and COO over 20 years since then….
Thanks, and I seriously mean thanks for contributing. You and hanwong's comments are both appreciated. I do trust my tax advisor to handle this professionally and I actually spoke with her this weekend about it, but I can tell you there's not only a dearth of people informed on how to do this, but a dearth of accountants that are *willing* to do it, so the fact that you're willing to provide any advice at all, with or without the disclaimers is beneficial. I don't think Goat or I really have any animosity toward the IRS itself, but I, at least, feel like if those with billions of dollars in assets, like the Warren Buffets of the world get to talk like they aren't being taxed enough while still setting up charitable trust funds with billions in holdings for their kids, there's definitely a double-standard going on. It's like they want the rest of us to be punished for not taking advantage of loopholes which they consistently abuse. I don't want there to be loopholes I have to pay to take advantage of, I'd rather see a system where everyone just pays a set rate and the gov't doesn't pick who gets credits and who gets subsidies. I believe that's probably the biggest problem with fiat, anyway, the way it's been gamed. Anymore the amount of paper with numbers on them you hold is meaningless, it's the power with which you wield it that matters. I'm not sure why this ruse wasn't uncovered earlier, honestly. We owe Satoshi a lot more than we think. your looking for fairness in the tax system what's the old saying "who said life is supposed to be fair?" |
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lol she made her money in thailand and paid thai taxes on it. just cuz she married an american does not mean she should pay us taxes. you are now trolling im sure so i will ignore you from now on. thanks for the help  The following is free information for entertainment purposes solely, does not include any specific tax advise, and cannot be used to avoid penalties... ur welcome. to be clear, I don't believe I said the non US wife needs to pay US taxes on Thai income. In fact the last post to another poster, I said that if the wife is truly a non US person and the US citizen chooses to file MFS, then the wife's income may be excluded from the US income tax return. But my overall point in that last post was that, in an audit situation this will be hard to explain, a US citizen not having filed or paid taxes in years, living abroad with no income, with a wife that can buy a 200K car, now you go to the IRS asking for a favorable tax treatment of bitcoin gains. In that type of situation, I do not foresee a favorable encounter with the IRS. Although the rules and the law states one thing, how field agents apply these rules and laws to your specific situation is an entirely different story. In my opinion, if I saw this situation, I know what the field agent would do. He would launch a rectal audit to try to sniff out if you've done anything wrong in the past. Now if you survive that audit because you absolutely haven't done anything wrong in the past, then congrats. It's just like a black kid wearing a hoody walking down the street. He's done nothing wrong, but that doesn't prevent the police from stopping him and asking him questions. Now go and ask how many black kids have been stopped by police having done nothing wrong, but ended up in trouble anyways. In any event, since I'm ignored  , I hope that little story was illustrative and helpful to others who are in delicate tax situations. |
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hanwong, his wife is not a U.S. person, correct? So he has to file "Married, filing separately", and his wife is not required to do anything, correct? I understand why his wife needs a taxpayer identification number (to list on his filing), but why does she need to pay U.S. taxes too?
The following is free information for entertainment purposes solely, does not include any specific tax advise, and cannot be used to avoid penalties... To determine whether the spouse is or is not a US person is fairly complicated with a long list of tests. The US citizen has the option to file MFS or MFJ, with many advantages and disadvantages to consider. If the wife is truly a non US person, and he chooses to file MFS, then her income MAY be kept off of his income tax return. As always the true test if this possible scenario of keeping her income off of his US income tax return, contains many many hoops you must jump through. If your just asking about what the law is, then the above statement is correct. If you care about how a real life situation where a US citizen hasn't filed or paid any taxes in years, lives abroad, has a wife that can afford a 200K car, but your still asking the IRS to give you the best possible tax treatment of your bitcoins so that you can minimize your pound of flesh you have to give up, well I have no comment there. |
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lol US bank account plus ATM. Only need to report foreign accounts over $10,000. Did not happen.
Thanks for your concern but on this issue I'm not worried.
Trying to get the other issues (real ones) sorted.
tbh the issues with bitcoin taxation aren't that thorny. any good accountant you can find will be able to sort it out. Just pay your dues to the man and you should be fine. |
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If there was no income no reason to file correct?
I was not in the USA but I was also not working and had no income of any sort.
So I did not have anything to pay, that I'm sure of. However is there a law saying I must file every year even if no money is owed? I kind of doubt that but I have been wrong before.
The following is free information for entertainment purposes solely, does not include any specific tax advise, and cannot be used to avoid penalties... Correct, if you made $0 income then you do not need to file. However, very few people actually make $0 income. If you had self-employment income over $400, then you must file (for all you tax geeks out there, he must pay SE tax) Do you really think you can make the argument that you didn't engage in any sort of activity that led to the creation of $400 of profit for yourself in a year? Not even selling pineapples in Bangkok? Yes I can. I lived off of income I had already paid taxes on (I had a business that I sold before) while I was a student. Had I worked I would have been deported and or jailed. I had no income of any sort at all. If anything the US Govt would owe me money. Only income I could even think that I might have had was interest in my bank account and if I made any at all it was way less than $400 a year! The following is free information for entertainment purposes solely, does not include any specific tax advise, and cannot be used to avoid penalties... I'm just playing agent Smith here... IRS Agent Smith thinks :I don't like the tone this guy is taking with me. He is not submitting to my authority: "So you had a bank account? Foreign bank account? (go google the penalties for not reporting a foreign bank account)" "So you received interest of less than $400 a year? How did you survive living on less than $400 a year? Possibly some illegal activities?" "Oh you didn't live off of your interest income, you lived off of savings? Let's take a look at those years you earned all that "already taxed income" and see what if we can make some adjustments." Morphs back into Morpheus...You see how this game goes when you think you didn't do anything wrong? There is nothing wrong in trying to minimize your taxes. But when you take the attitude, that many in this community have, that I am going to use the law to get around the simple fact (but not a law) that the IRS will get a certain percent of what you make, then you will start getting into trouble. |
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If there was no income no reason to file correct?
I was not in the USA but I was also not working and had no income of any sort.
So I did not have anything to pay, that I'm sure of. However is there a law saying I must file every year even if no money is owed? I kind of doubt that but I have been wrong before.
The following is free information for entertainment purposes solely, does not include any specific tax advise, and cannot be used to avoid penalties... Correct, if you made $0 income then you do not need to file. However, very few people actually make $0 income. If you had self-employment income over $400, then you must file (for all you tax geeks out there, he must pay SE tax) Do you really think you can make the argument that you didn't engage in any sort of activity that led to the creation of $400 of profit for yourself in a year? Not even selling pineapples in Bangkok? |
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Barter transactions (bitcoin for bicycles, etc) -- i Think it only matters if its not a one-off transaction.
The IRS really is not in the business of going after a $1000 here or there… just not enough meat on the bone...
JD
Thanks for the above post. But lets say hypothetically an American living in Thailand for years bought mining equipment using Thai Baht, then mined BTC in Thailand, held that BTC for 2 years and then used it to buy a car worth $220,000? Capital gains taxes should be paid? If not what sort of taxes? This is not what happened in real life, as my wife bought the car with her BTC. But I did not use mine becasue I have no idea how to pay taxes on it. She as not being an American does not have to pay US taxes as far as I understand it. The following is free information for entertainment purposes solely, does not include any specific tax advise, and cannot be used to avoid penalties... The first thing this hypothetical guy needs to do is get his wife an ITIN (individual tax identification number similar to a SSN but only for tax filing purposes), so that she can be included on his US income tax returns. All US citizens must file income tax returns, and if the US citizen is married, the spouse, even if she is not a US person, must be included in the return. The US citizen must file a return that has an accurate filing status (Married Filing Jointly or Married Filing Separately -- advantages and disadvantages to either) In either case, you must file married and declare your non-US person wife. To file, but to not include your spouse, is incorrect and illegal. Whether her income is included on your tax return depends a many details. The second thing is, an American living overseas, running a business denominated in a foreign currency does not release the American from his legal obligations to file and pay taxes as a US citizen living and working abroad. You will file your income taxes and denominate your income in USD, converted from Thai Baht based on average annual FX conversion rate. The third thing is, yes capital gains is the most advantageous method of paying taxes on your bitcoins, but will it hold up in court is another issue up for debate with no definitive answer at the moment. Lastly, I assume, and I apologize if I am making an incorrect assumption, this hypothetical American has been living abroad for many years and has failed to file income tax returns either because he did not make much income, wanted to give a big F U to Uncle Sam which is probably why he moved abroad in the first place, or just was lazy and Uncle Sam wasn't there to make sure he did the right thing. Whatever the reason might be, not filing and not paying taxes while living abroad is the same as not filing and not paying taxes while living in 'merica, it's illegal. If you do have unfiled tax years, get that taken care of first. Then worry about the correct treatment of your bitcoin gains. |
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Can I sell through a corporation then pay myself a salary to avoid capital gains, giant bracket and se tax?
This is possible, but you would be well advised to retain a tax adviser to help you execute your plans. |
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the preferential capital gains rates and the active currency trader loophole, are sweet heart tax deals politicians give to "constituents" aka donors aka money masters. I highly doubt the bitcoin crowd will ever have the ear of anyone on the House Ways and Means Committee and therefore I would expect the worst tax treatment for bitcoin taxation.
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The IRS doesnt give 2 shits about your bitcoins....as long as you are paying them what they want....they leave you be....when you cause waves and try to cheat....thats when the fun begins....
+1 |
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