Would this be a legal approach to not paying taxes on Bitcoin gains in the US?

[Elwar]

Let us say that someone has made a lot of money investing in bitcoins.

Could they set up a company in a foreign country with no capital gains or income tax, loan the company some bitcoin to get going. Then draw a foreign income from that company.

If they live outside of the US for more than 330 days and earn all of that income while away they would qualify for the foreign income exclusion which is around $96k.

Would they be able to turn their bitcoin profits into fiat income up to $96k and not pay income taxes?

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[TheButterZone]

Everything is illegal, short of exhaling CO2, and pretty soon that will be too.

[Cubic Earth]

So the company would be able turn the bitcoins into fiat at any time, and in any amount, with no tax liability?  Its a nice thought.  I bet it would be possible with enough legal help.

[Elwar]

So the company would be able turn the bitcoins into fiat at any time, and in any amount, with no tax liability?  Its a nice thought.  I bet it would be possible with enough legal help.

A country like the Bahamas or the Caymans has no capital gains taxes, so they would be able to convert from bitcoins to fiat without a tax liability if I am not mistaken.

[NewLiberty]

Not allowed if the purpose is only to avoid taxes, if intentionally masquerading it can be cited as a tax fraud felony.
It needs a "business purpose" and "economic substance" beyond and overwhelming the tax advantage and no devious conveyance.
http://en.wikipedia.org/wiki/Gregory_v._Helvering
http://www.law.cornell.edu/uscode/text/26/7201
A good estate planning lawyer may help you here, as mentioned above.