Everyone Panic. There's a lawyer among us. [FinCEN Walkthrough on p2]

[MSantori]

I looked at Coinlenders, and it isn't the loaning that worries me.  It's the depository products.  I'm not a banking attorney, and I don't know the details of his offerings, but I can't believe that Coinlenders isn't acting as a depository institution.

[darkmule]

As to challenging this designation, well, where to start?  The bar for challenging an administrative rule is a very high one: the rule must be "arbitrary and capricious".  These rules don't strike me as such.  In any event, the cost of challenging the rules would likely top a million dollars for competent litigators in the field to bring such a case to completion.

Do you think the recent Arlington v. FCC decision increases this deferential standard of review, or just extends it to an agency's interpretation of its jurisdiction, and in either event, does it have any likely relevance to Bitcoin regulations?

[Bitco]

Do you think the recent Arlington v. FCC decision increases this deferential standard of review, or just extends it to an agency's interpretation of its jurisdiction, and in either event, does it have any likely relevance to Bitcoin regulations?

Arlington v. FCC challenged the agency's interpretation of "a reasonable period of time” as 90 to 150 days.  The court held that this was reasonable.

You may want to contrast this with American Library Association v. FCC in which the DC Circuit held that the agency exceeded its authority.  The law did not allow the FCC to rule on copyright and recording devices, even if it was related to broadcast TV.

[dwolfman]

I do have a question, as a result of another thread.

I had noticed that in parts of the FinCEN guidelines it mentions the phrase "engaged as a business" in various places.

I take this to mean that if my bitcoin activities are not a primary (or even secondary) business activity for myself, that I likely don't need to register anywhere.

Currently I do mine bitcoins, but with such limited hardware (only have about 500 MHash/s worth) that it's not worth it in terms of profit.  I plan on just buying bitcoins as a type of savings account, and doing some limited trading on CampBX to try and make it grow at least a little.  More than likely I'll stop mining soon, as it's costing more in electricity than what I'm getting back in bitcoins.

Anyway, thoughts?  Does it sound like I'm interpreting that right?

[Viceroy]

I don't think you are.  If you are mining coins and holding them then you are a money transmitter.  If you are mining coins and using them to pay for your bills you are not a money transmitter.

I am not a lawyer and even if I were I'm not sure I'd be right with my answer but that is my "take" on it.

[MSantori]

I don't think you are.  If you are mining coins and holding them then you are a money transmitter. 

No, this is a common misconception.  Only those engaged as a business in mining and then converting the BTC to fiat are money transmitters.

[Viceroy]

I don't think you are.  If you are mining coins and holding them then you are a money transmitter.  

No, this is a common misconception.  Only those engaged as a business in mining and then converting the BTC to fiat are money transmitters.

Isn't that the same thing?  If a miner is mining to pay his bills that is not engaging in business.  If the miner is producing coins and selling them for money which the miner then places into the bank he is engaging in business and therefore a money transmitter.

My "take" comes from this:

FinCEN’s position as it relates to bitcoin can be summed up as follows:

A person may spend money to purchase bitcoin or mine bitcoin and then exchange the currency for goods and/or services without having to register with FinCEN as an MSB.
If a person receives real money in exchange for their bitcoin they MAY have to register with FinCEN.
If a miner exchanges their mined bitcoin for real money they MUST register with FinCEN.
Anyone transacting bitcoin on someone else’s behalf MUST register with FinCEN.

https://bitcoinfoundation.org/blog/?p=152

[dwolfman]

Pretty sure there is a BIG difference, legally, between "engaging IN business" and "engaging AS A business". 

Am I right MSantori?

At least it sounds like I'm understanding the info correctly, based on your response.

[btceic]

I don't think you are.  If you are mining coins and holding them then you are a money transmitter. 

No, this is a common misconception.  Only those engaged as a business in mining and then converting the BTC to fiat are money transmitters.

What is the definition of "as a business"?

At what point does my hobby become a business?

[MSantori]

As I read the guidance, operating as a business is a predicate to enforcement, but I'm probably in the minority. Let's dissect it:

"This guidance refers to the participants in generic virtual currency arrangements, using the terms "user," "exchanger," and "administrator".

So, a participant in a virtual currency arrangement is either a user, exchanger, administrator, or some some combination of those three (according to the footnote).

"A user is a person that obtains virtual currency to purchase goods or services."

"A user of virtual currency is not an MSB under FinCEN's regulations and therefore is not subject to MSB registration, reporting, and recordkeeping regulations."

"However, an administrator or exchanger is an MSB under FinCEN's regulations, specifically, a money transmitter"

"An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency. An administrator is a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency"

So, to be an MSB, one must be at least an exchanger or administrator, but to be an exchanger or money transmitter, one must be engaged in a business.  

We could stop here, but we wouldn't be getting the full picture - and the problem with my (or anyone's) analysis.  Moving on:

"FinCEN has reviewed different activities involving virtual currency and has made determinations regarding the appropriate regulatory treatment of administrators and exchangers under three scenarios: brokers and dealers of e-currencies and e-precious metals; centralized convertible virtual currencies; and de-centralized convertible virtual currencies."

FinCEN then sets forth the circumstances under which administrators and exchangers are MSBs.  One of those circumstances is when an exchanger or administrator:

"creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent"

FinCEN did something funny here, though.  It didn't explicitly say that only "exchangers and administrators" who do this are MSBs.  It said any "person" who does this is an MSB, without regard to whether that person is an exchanger or administrator.  It's something of an oddity, since the three preceding headings and literally all of the language within them assume that only exchangers or administrators can be MSBs.  Thus, if you take this language literally, and forget about the rest of the guidance, then FinCEN has created a fourth category of persons: a person who is neither a user, exchanger nor administrator!  That interpretation can't be right, because it would contradict the very first premise FinCEN gave us to work with.  My theory: FinCEN didn't mean to say "person".  It meant to say "administrators" or "exchangers or administrators", just like it did in every preceding paragraph.  Ultimately, I believe enforcement will turn on your specific circumstances.

I realize I may be in the minority here, and I may just be dead wrong.  That's the sad state of affairs afflicting this industry.

TL;DR: Santori thinks you've got to be engaged in a business to be an MSB under the guidelines, but he may be wrong, and you shouldn't bank on him being right without giving him the chance to really understand the facts of your case.

[MSantori]

What is the definition of "as a business"?

At what point does my hobby become a business?

I believe the relevant inquiry is generally whether you are doing it "for profit", but the CFR or BSA may actually include it as a defined term.     Your strikes me as a pretty important question.  I will look into it.

[dwolfman]

I understand that we may be all wrong on this until FinCEN and others really weigh in on this.  For right now this will be my guiding idea, that I won't worry about it since I can't make a profit at this right now anyway and I'm not running it as a business either. 

So far this is just a hobby of mine so that's how I'll treat it for all the legal side of this.

However, I'll definitely look at the legal side again once I start saving money like it's a savings account and doing some trading with a bot to generate the "interest" I would have gotten with it in a bank.

See, I'm going about it like this since I'm pretty sure the banks that foreclosed on me a few years ago would garnish anything I put into a regular savings account.  Hopefully, this will let me get enough together so I can pay for a bankruptcy to clear all that up and let me start over again.

[Bitco]

What is the definition of "as a business"?

At what point does my hobby become a business?

I believe the relevant inquiry is generally whether you are doing it "for profit", but the CFR or BSA may actually include it as a defined term.     Your strikes me as a pretty important question.  I will look into it.

It's a tough question, but it's more than just profit.

If I bought gold and made a profit, does that make me a precious metals dealer?  No.
If I bought shares of AMZN and made a profit, does that make me a securities dealer?  No.
If I bought bitcoins a year ago, does that make me a money transmitting business?

[btceic]

Possibly relevant, a UK city is using local currency, which is akin to what we are doing except it is digital only and worldwide

https://bitcointalk.org/index.php?topic=236424

[btceic]

Moved from another thread:

so to sum things up as far as your interpretation of the current guidelines is; anybody in the us that mines will be required to be licenced?

No, quite the opposite.  My (unpopular) position is that only miners operating as a business must register according to the guidance.  I believe that the guidance is unclear, and that I may certainly be wrong about this position.  It's just my interpretation of an imperfect document.

Ok,
Which brings me back to the "as a business" definition.

Here is what I found in a ~10 minute search on the subject:
http://www.irs.gov/uac/Business-or-Hobby%3F-Answer-Has-Implications-for-Deductions

<snip/>................. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.

In order to make this determination, taxpayers should consider the following factors:

• Does the time and effort put into the activity indicate an intention to make a profit?
• Does the taxpayer depend on income from the activity?
• If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
• Has the taxpayer changed methods of operation to improve profitability?
• Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
• Has the taxpayer made a profit in similar activities in the past?
• Does the activity make a profit in some years?
• Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?

In my case:

• Yes
• No, but I would like it to be
• Possibly
• Possibly
• Yes
• No
• Yes
• Yes if the value of BTC goes up, less the deductions for depreciating mining equipment if any

The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.

[MSantori]

Typically, the rules of statutory interpretation dictate that we look first to the definitions contained in the statute itself.  Your reference the Internal Revenue Code (IRC) would in most cases be a wrong turn.  As far as I can tell, though, there is no definition of "business" or "as a business" in 103.11.  So, you're not crazy to look to other guidance, and the IRC strikes me as a good a guide as any.  That particular piece of guidance you quoted follows the IRC, which in turn follows many of the common-law factors for determining whether a person is engaged in a business for a variety of purposes.

I know, it's not a satisfying answer.  There are very few of those to be found in this area of the law.

[flavius]

what does the law have to do with bitcoin.....? why are you even here

[MSantori]

What MSantori has posted is pretty much in line with what my attorney has said as well.  Since I can't afford the MT licensing, I've had no choice but to dissolve my bitcoin-selling business, in spite of being fully registered with FinCEN.  Sad times. 

What approximate level of money does "can't afford" involve.

Hi profmac.  There is a post at the bottom of page 3 of this thread that lays this out.

[ProfMac]

What MSantori has posted is pretty much in line with what my attorney has said as well.  Since I can't afford the MT licensing, I've had no choice but to dissolve my bitcoin-selling business, in spite of being fully registered with FinCEN.  Sad times. 

What approximate level of money does "can't afford" involve.

Hi profmac.  There is a post at the bottom of page 3 of this thread that lays this out.

Thanks.  I've now read the entire thread, and deleted my post.

[MSantori]

Hah!  Glad to see someone else finds this stuff interesting!