1099's

[redwraith]

I was under the impression that only when a company reported transactions or earnings to the IRS via a W-2 or 1099 that taxes were due.  Until Mtgox or other exchanges start mailing 1099s, the gov't is not getting a cent of my bitcoin profits.  They already mishandle and steal enough of the public's money as it is.

[DeathAndTaxes]

You would be mistaken.  Taxes are due when a taxable event occurs.

If you choose to not pay your taxes at least go into it with your eyes wide open and not laboring until delusional dreams.

[dscotese]

You are talking about an ignorance tax.  Educate yourself at that link and you'll see that all you need to do is file the paperwork to show that you don't owe the taxes.

[redwraith]

You are talking about an ignorance tax.  Educate yourself at that link and you'll see that all you need to do is file the paperwork to show that you don't owe the taxes.

Thanks dscotese, I actually bought that book a few years back but decided I didn't want to take the risk of a long drawn out battle with the IRS.  I believe what it says is true though...Have you successfully filed taxes in the way he prescribes?

[dscotese]

I am in the process of amending our 2009 return.  Losthorizons (his website) shows many of the battles you fear.  Search on "every which way but loose" to find them.  It was after reading those that I decided to start getting my money back.

I almost welcome their challenges as I think a lot of times it's an education for the examiner as much as it is financially rewarding for the filer.  And if you recognize the damage done to the human race by the US federal government, it's morally rewarding too.  And most of the time, there is no battle.  We'll see...

[dscotese]

As further motivation for those reading this who are anywhere close to exploring Hendrickson's "Every Which Way But Loose" series in order to see how easy it is to get your money back, here's a video explaining how important it is that you take the plunge: The Road to Word War 3

[davidspitzer]

You are talking about an ignorance tax.  Educate yourself at that link and you'll see that all you need to do is file the paperwork to show that you don't owe the taxes.

Thanks dscotese, I actually bought that book a few years back but decided I didn't want to take the risk of a long drawn out battle with the IRS.  I believe what it says is true though...Have you successfully filed taxes in the way he prescribes?

Ask Wesley Snipes how not paying taxes worked out for him.

Taxpayers must report all income from any source and any country unless it is explicitly exempt under the U.S. tax code. There may be taxable income from certain transactions even if no money changes hands. Generally, the IRS considers all income received in the form of money, property or services to be taxable income unless the law specifically provides an exemption.

[dscotese]

You are talking about an ignorance tax.  Educate yourself at that link and you'll see that all you need to do is file the paperwork to show that you don't owe the taxes.

Thanks dscotese, I actually bought that book a few years back but decided I didn't want to take the risk of a long drawn out battle with the IRS.  I believe what it says is true though...Have you successfully filed taxes in the way he prescribes?

Ask Wesley Snipes how not paying taxes worked out for him.

Taxpayers must report all income from any source and any country unless it is explicitly exempt under the U.S. tax code. There may be taxable income from certain transactions even if no money changes hands. Generally, the IRS considers all income received in the form of money, property or services to be taxable income unless the law specifically provides an exemption.

When you write "income" above, are you talking about income as defined in the IRC?  Oops!  Trick question. They can't define it in the IRC because it already has a definition from when the 16th amendment (allegedly) passed.  You might also be interested in this legal scholarship that shows that not all money a person gets is income. 

I don't think Snipes or his accountants knew all of this, so they let the tax eaters stand on the presumption created by Snipes' employers through their information returns.  If someone provides legal documentation insinuating that you engaged in a taxable activity when you actually haven't, you will be expected to either pay taxes or straighten out the record.  I believe Snipes' accountants didn't do either, but instead expected the government to A) Figure out that the information returns were wrong, and B) Admit they were wrong, procedurally, by not attempting to collect a tax those returns indicated was due.

[davidspitzer]

You are talking about an ignorance tax.  Educate yourself at that link and you'll see that all you need to do is file the paperwork to show that you don't owe the taxes.

Thanks dscotese, I actually bought that book a few years back but decided I didn't want to take the risk of a long drawn out battle with the IRS.  I believe what it says is true though...Have you successfully filed taxes in the way he prescribes?

Ask Wesley Snipes how not paying taxes worked out for him.

Taxpayers must report all income from any source and any country unless it is explicitly exempt under the U.S. tax code. There may be taxable income from certain transactions even if no money changes hands. Generally, the IRS considers all income received in the form of money, property or services to be taxable income unless the law specifically provides an exemption.

When you write "income" above, are you talking about income as defined in the IRC?  Oops!  Trick question. They can't define it in the IRC because it already has a definition from when the 16th amendment (allegedly) passed.  You might also be interested in this legal scholarship that shows that not all money a person gets is income. 

I don't think Snipes or his accountants knew all of this, so they let the tax eaters stand on the presumption created by Snipes' employers through their information returns.  If someone provides legal documentation insinuating that you engaged in a taxable activity when you actually haven't, you will be expected to either pay taxes or straighten out the record.  I believe Snipes' accountants didn't do either, but instead expected the government to A) Figure out that the information returns were wrong, and B) Admit they were wrong, procedurally, by not attempting to collect a tax those returns indicated was due.

True not all money received is counted as income for taxation purpose. Currently the IRC defines the following for Gross Income 26 USC § 61

a) General definition
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;
( Alimony and separate maintenance payments;
(9) Annuities;
(10) Income from life insurance and endowment contracts;
(11) Pensions;
(12) Income from discharge of indebtedness;
(13) Distributive share of partnership gross income;
(14) Income in respect of a decedent; and
(15) Income from an interest in an estate or trust.
(b) Cross references
For items specifically included in gross income, see part II (sec. 71 and following). For items specifically excluded from gross income, see part III (sec. 101 and following).

===========
The 16th amendment is straightforward
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Tax lawyer Alan O. Dixler has written regarding many of the arguments presented regarding the 16th amendment by Tax Objectors:

Each year some misguided souls refuse to pay their federal income tax liability on the theory that the 16th Amendment was never properly ratified, or on the theory that the 16th Amendment lacks an enabling clause. Not surprisingly, neither the IRS nor the courts have exhibited much patience for that sort of thing. If, strictly for the purposes of this discussion, the 16th Amendment could be disregarded, the taxpayers making those frivolous claims would still be subject to the income tax. In the first place, income from personal services is taxable without apportionment in the absence of the 16th Amendment. Pollock specifically endorsed Springer's holding that such income could be taxed without apportionment. The second Pollock decision invalidated the entire 1894 income tax act, including its tax on personal services income, due to inseverability; but, unlike the 1894 act, the current code contains a severability provision. Also, given the teaching of Graves [v. New York ex rel. O'Keefe, 306 U.S. 466 (1939)] -- that the theory that taxing income from a particular source is, in effect, taxing the source itself is untenable -- the holding in Pollock that taxing income from property is the same thing as taxing the property as such cannot be viewed as good law.

In Abrams v. Commissioner, the United States Tax Court stated: "Since the ratification of the Sixteenth Amendment, it is immaterial with respect to income taxes, whether the tax is a direct or indirect tax. The whole purpose of the Sixteenth Amendment was to relieve all income taxes when imposed from [the requirement of] apportionment and from [the requirement of] a consideration of the source whence the income was derived."

=============

I agree Tax's are no fun, but advocating people to avoid paying taxes or asserting that the 16th amendment is invalid or illegal and thereby gives one grounds not to pay taxes is a recipe for personal and financial ruin. I would agree that the associated Tax Code is overly bloated and complicated and in need of revision/streamlining, but until this happens following the current tax code and paying your taxes is the best way to avoid huge penalties and or Jail time.

[Blindfolded]

You are talking about an ignorance tax.  Educate yourself at that link and you'll see that all you need to do is file the paperwork to show that you don't owe the taxes.

Thanks dscotese, I actually bought that book a few years back but decided I didn't want to take the risk of a long drawn out battle with the IRS.  I believe what it says is true though...Have you successfully filed taxes in the way he prescribes?

Ask Wesley Snipes how not paying taxes worked out for him.

Taxpayers must report all income from any source and any country unless it is explicitly exempt under the U.S. tax code. There may be taxable income from certain transactions even if no money changes hands. Generally, the IRS considers all income received in the form of money, property or services to be taxable income unless the law specifically provides an exemption.

When you write "income" above, are you talking about income as defined in the IRC?  Oops!  Trick question. They can't define it in the IRC because it already has a definition from when the 16th amendment (allegedly) passed.  You might also be interested in this legal scholarship that shows that not all money a person gets is income. 

I don't think Snipes or his accountants knew all of this, so they let the tax eaters stand on the presumption created by Snipes' employers through their information returns.  If someone provides legal documentation insinuating that you engaged in a taxable activity when you actually haven't, you will be expected to either pay taxes or straighten out the record.  I believe Snipes' accountants didn't do either, but instead expected the government to A) Figure out that the information returns were wrong, and B) Admit they were wrong, procedurally, by not attempting to collect a tax those returns indicated was due.

This has already been beaten to death in courts and the argument loses every time... good luck.

[dscotese]

Read carefully:

True not all money received is counted as income for taxation purpose. Currently the IRC defines the following for Gross Income 26 USC § 61

a) General definition
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;
( Alimony and separate maintenance payments;
(9) Annuities;
(10) Income from life insurance and endowment contracts;
(11) Pensions;
(12) Income from discharge of indebtedness;
(13) Distributive share of partnership gross income;
(14) Income in respect of a decedent; and
(15) Income from an interest in an estate or trust.
(b) Cross references
For items specifically included in gross income, see part II (sec. 71 and following). For items specifically excluded from gross income, see part III (sec. 101 and following).

===========
The 16th amendment is straightforward
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Tax lawyer Alan O. Dixler has written regarding many of the arguments presented regarding the 16th amendment by Tax Objectors:

... Also, given the teaching of Graves [v. New York ex rel. O'Keefe, 306 U.S. 466 (1939)] -- that the theory that taxing income from a particular source is, in effect, taxing the source itself is untenable -- the holding in Pollock that taxing income from property is the same thing as taxing the property as such cannot be viewed as good law.

In Abrams v. Commissioner, the United States Tax Court stated: "Since the ratification of the Sixteenth Amendment, it is immaterial with respect to income taxes, whether the tax is a direct or indirect tax. The whole purpose of the Sixteenth Amendment was to relieve all income taxes when imposed from [the requirement of] apportionment and from [the requirement of] a consideration of the source whence the income was derived."

I will repeat myself since you appear to have skipped this part:

When you write "income" above, are you talking about income as defined in the IRC?  Oops!  Trick question. They can't define it in the IRC because it already has a definition from when the 16th amendment (allegedly)* passed.  You might also be interested in this legal scholarship that shows that not all money a person gets is income. 

You can also puzzle over why 26 USC § 61 uses "means all income from whatever source derived, including (but not limited to) the following items" instead of just "includes (but is not limited to) the following items"
*The fact that it didn't actually pass is largely immaterial because its effect is very narrow, and also I think it's called "stare decisis" that when something not a law is treated as a law for a long enough period, it sort of gets grandfathered in.  Dixler pinpointed it in the section I bolded:  The effect of the amendment was to separate the income derived from a holding from its source (the holding itself).  You can see the deceit dripping from the definition you quoted for "Gross Income" when it uses the words "income (in the intro to the list) ... including... compensation for services...".  In fact, once you have been paid for your services, you have the compensation in your hand, so if you don't want to pay any income taxes, then you need to avoid earning any taxed income with that compensation.  If that sounds screwy, re-examine Dixler's statement and try to separate your compensation from the income you derive from it, if any.  If you can work out how the 1913 definition of "income" (essentially, money you get passively because you own something) could apply to "compensation for services" then you've found a way to be liable to pay taxes on the compensation itself, but I don't see how it could be done.

I agree Tax's are no fun, but advocating people to avoid paying taxes or asserting that the 16th amendment is invalid or illegal and thereby gives one grounds not to pay taxes is a recipe for personal and financial ruin. I would agree that the associated Tax Code is overly bloated and complicated and in need of revision/streamlining, but until this happens following the current tax code and paying your taxes is the best way to avoid huge penalties and or Jail time.

Amen to that!  However, I do advocate that people avoid paying taxes that are not due by understanding the difference between income and everything else they earn.

By the way, if this knowledge helps you save any money, I'd be a happy to accept donations, though I think Hendrickson should get some too as they've been persecuting him for helping people understand these things.

This has already been beaten to death in courts and the argument loses every time... good luck.

I think it's only gone to court once. Here's the story from the victims keyboard, along with a few other cases which have been mistakenly assumed to follow the tax code as I've described. Here are examples in which the government didn't bother going to court (I assume because they expected to lose), and here are the examples in which it was handled properly from the get-go.

[Dacm4n]

You are talking about an ignorance tax.  Educate yourself at that link and you'll see that all you need to do is file the paperwork to show that you don't owe the taxes.

Interesting info thanks for posting.

[zeroday]

Do you realize that according to IRS guidelines, having sex with a new girlfriend in your apartment is taxable for both parties ?

1. A girlfriend provides you with the service of satisfaction of your sexual needs, which must be reported as income.
2. You provide short term apartment rental to a girlfriend, who provides the service of satisfaction of your sexual needs, which must be reported as income.


PROOF: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Bartering-Income:

Another example of a one-on-one, non-barter exchange transaction is a plumber doing repair work for a dentist in exchange for dental services. The fair market value of the goods and services exchanged must be reported as income by both parties.

[dscotese]

Do you realize that according to IRS guidelines, having sex with a new girlfriend in your apartment is taxable for both parties ?

1. A girlfriend provides you with the service of satisfaction of your sexual needs, which must be reported as income.
2. You provide short term apartment rental to a girlfriend, who provides the service of satisfaction of your sexual needs, which must be reported as income.


PROOF: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Bartering-Income:

Another example of a one-on-one, non-barter exchange transaction is a plumber doing repair work for a dentist in exchange for dental services. The fair market value of the goods and services exchanged must be reported as income by both parties.

It's always wise to compare and contrast the law with the guidelines.  The guidelines can be misleading or wrong.  So can the people you talk to on the phone at the IRS.  Consider the conversation I had recently:
Me: I earned compensation for services that is not taxable, but I got a 1099-MISC.  How do I rebut it?
She: Why do you think it isn't taxable?
Me: It isn't income, as used in the law.
She: Ok, let me look that up in my guidelines.
Me: What guidelines will you look at?
She: "Taxable and Non-Taxable Income".
Me: Don't they have one for money people get that isn't income?
She: That's what I'm trying to look up.
Me: But that guideline is only about income.
She: Just let me look.
Me: Ok, but I'm not asking about the distinction between income that is taxable and that which is not.  I need to know how to rebut an incorrect 1099-MISC that insinuates that what I received was income at all.
She: Then you'll have to talk to the small business department.
So I avoided her dodge, and didn't bother talking to the small business department as I expect the same kind of runaround.

[Bitcoinpro]

its a pretty grey area congress may have stong powers but they cannot just back date profits and lay claim to anything they see fit,

[hanwong]

To the OP, Our system (I assume you are in the USA) is a voluntary reporting tax system. The IRS does not actively verify or audit every piece of reportable information every tax payer reports. The IRS will audit and require evidence of the information you voluntarily report when they initiate an investigation, but as a matter of procedure, they do not check up on you if there is no reason to do so. This is in part, a big reason why in recent years, they have pushed many businesses to file 1099 (information returns.) The IRS uses these electronic information returns to verify the information that is voluntarily reported by taxpayers. Information returns is the IRS's electronic method of checking up on you to make sure you are telling the truth, without having to go through the entire and very expensive process of auditing every American. But just because there is no 1099 against your name and no electronic method to check that you are connected to Bitcoins, does not mean you are given permission to break the voluntary reporting rules of the tax system. Assuming you still want to stay on the right side of the tax system, you must still voluntarily report all income regardless whether there is an electronic record of it for the IRS to match up against.

Please don't flame me and say that I said "you MUST" and "voluntarily" in the same sentence. I get it all day long from clients who pay me money to tell them what the IRS rules are. You should simply understand what the IRS rules are in regards to voluntary reporting. Then you can make your own decision based on your own personal financial situation. The above was not intended as advice. Find a trusted source and a licensed professional and pay them for professional advice.

[dscotese]

To the OP, Our system (I assume you are in the USA) is a voluntary reporting tax system. The IRS does not actively verify or audit every piece of reportable information every tax payer reports. The IRS will audit and require evidence of the information you voluntarily report when they initiate an investigation, but as a matter of procedure, they do not check up on you if there is no reason to do so. This is in part, a big reason why in recent years, they have pushed many businesses to file 1099 (information returns.) The IRS uses these electronic information returns to verify the information that is voluntarily reported by taxpayers. Information returns is the IRS's electronic method of checking up on you to make sure you are telling the truth, without having to go through the entire and very expensive process of auditing every American. But just because there is no 1099 against your name and no electronic method to check that you are connected to Bitcoins, does not mean you are given permission to break the voluntary reporting rules of the tax system. Assuming you still want to stay on the right side of the tax system, you must still voluntarily report all income regardless whether there is an electronic record of it for the IRS to match up against.

Please don't flame me and say that I said "you MUST" and "voluntarily" in the same sentence. I get it all day long from clients who pay me money to tell them what the IRS rules are. You should simply understand what the IRS rules are in regards to voluntary reporting. Then you can make your own decision based on your own personal financial situation. The above was not intended as advice. Find a trusted source and a licensed professional and pay them for professional advice.

https://bitcointalk.org/index.php?topic=169198.msg1808809#msg1808809

[hanwong]

To the OP, Our system (I assume you are in the USA) is a voluntary reporting tax system. The IRS does not actively verify or audit every piece of reportable information every tax payer reports. The IRS will audit and require evidence of the information you voluntarily report when they initiate an investigation, but as a matter of procedure, they do not check up on you if there is no reason to do so. This is in part, a big reason why in recent years, they have pushed many businesses to file 1099 (information returns.) The IRS uses these electronic information returns to verify the information that is voluntarily reported by taxpayers. Information returns is the IRS's electronic method of checking up on you to make sure you are telling the truth, without having to go through the entire and very expensive process of auditing every American. But just because there is no 1099 against your name and no electronic method to check that you are connected to Bitcoins, does not mean you are given permission to break the voluntary reporting rules of the tax system. Assuming you still want to stay on the right side of the tax system, you must still voluntarily report all income regardless whether there is an electronic record of it for the IRS to match up against.

Please don't flame me and say that I said "you MUST" and "voluntarily" in the same sentence. I get it all day long from clients who pay me money to tell them what the IRS rules are. You should simply understand what the IRS rules are in regards to voluntary reporting. Then you can make your own decision based on your own personal financial situation. The above was not intended as advice. Find a trusted source and a licensed professional and pay them for professional advice.

https://bitcointalk.org/index.php?topic=169198.msg1808809#msg1808809

I'm not a constitutional lawyer, so I will leave the arguments about whether income tax laws, rules, and regulations are constitutional. After you have made a decision as to whether to submit to the current tax system, and your answer is yes, then I can provide information as to how our current tax system might interpret your bitcoin activities.

[dscotese]

I'm not a constitutional lawyer, so I will leave the arguments about whether income tax laws, rules, and regulations are constitutional. After you have made a decision as to whether to submit to the current tax system, and your answer is yes, then I can provide information as to how our current tax system might interpret your bitcoin activities.

First, the education of which I have written does not suggest that existing "income tax laws, rules, and regulations" are not constitutional, but rather that if they meant what most people ignorantly believe them to mean, they would be.  If you study the history and the law, you will see that they are entirely constitutional, and the decision to be made is not between submitting or not, but between following the law or following the deceived masses.  But I understand why you mis-characterize what I've written.  I think...

I have been writing software for about a decade to perform tasks that software can do more efficiently than I can.  While my hourly rate has been going up, I get less and less work (because I make the computer do the work for me - and my client).  I don't have a problem with this.  It just means I have to get to know more people and expand my network.

Non sequitur?

No, it isn't.  I believe you are in a position where you earn money (or friends, or whatever) because you "provide information as to how our current tax system might interpret your bitcoin activities."  Because of this, you would rather avoid any obvious easy-ways-out for your would-be customers.  If they educate themselves, and they decide to A) Stop their "federally connected" activities (if any), and B) Recognize and point out to the IRS that they are not engaged in such activities and therefore have no "taxable income", then you are of no use to them.  Or are you?

I imagine you are an accountant, and familiar with all kinds of legislation and finances - how to interpret things, the meaning of any special terms, etc.  These are valuable skills even to people who have no taxable income.  You could, for example, be the CFO for the Bitcoin exchange that takes a huge bite out of MtGox.

Or you can keep living off the ignorance of those who are uneducated and fearful enough to rely on you to help them "minimize" their tax liabilities.  I don't think that is necessarily bad.  People choose to remain ignorant, and taking advantage of them for it is nearly as good as working to make them less ignorant.  Suffering, when it is severe enough, causes changes for the better.  To keep a clean soul, you just have to make sure you don't encourage them to remain ignorant.

What I quoted above is very well written and I like it a lot: "After you decide..." and "might interpret" are good choices.  I, obviously, prefer that people become better educated and decide in favor of keeping their money in order to legally starve the parasite government of the finances it uses to cause much war and poverty.

[hanwong]

OK, I don't know why I'm getting involved in this conversation, but I'll do it. Must be the after the tax season boredom.

I honestly didn't read the entirety of your link or your argument against paying taxes. Not because it is detrimental to my business, but because anytime I see or hear arguments against paying your taxes, I just have the natural reaction of most accountants, "oh here comes another pointless conversation of people trying to get out of paying taxes." I hear these claims all the time. Many people call it sovereign rights or something like that. I even sat through a few minutes of a video on youtube espousing this viewpoint. Whatever your reasoning for not paying taxes, might or might not be legal, ethical, or moral. I'm no judge. What I do know is that anytime anyone brings up similar arguments, a real judge ALWAYS dismisses these arguments. You might say I'm being brainwashed by the system which is set up to confine and contain tax protesters. That might be true. But the reality, and I have to deal with reality because I, my family, and my clients have to live in reality...the reality of the situation is that tax protesters always loose. If the point of your tax protest is a philosophical argument against paying taxes, then you should have a discussion with a philosopher. But if your purpose of being a tax protester is to reduce your tax bill, then as a professional accountant I will advise there are other ways to reach your goal.

In regards to the education you are offering, may I ask have you applied what you preach? Have you actively contested your federal tax bill? If so what was the IRS reaction when you brought up your arguments? I really don't need to hear your answers because I know what the IRS reaction is. Slap on the cuffs. And to be quite honest, whether the IRS is morally right or not in their actions, they have more guns than me or you. So what they say, goes. Again I go back to the point that I have to live in the real world where the IRS has the power and most of us have to play by their rules. I personally don't view my chosen profession as living off the ignorance of others. I view being a good accountant as knowing the rules of the road and helping people learn these rules, without any judgement as to the morality of the rules, and to get through life as best they can with the rules that we all choose to live by.