Taxation

[asdf]

What if I'm operating entirely within the bitcoin economy? I earn ONLY bitcoins and buy things for bitcoins ONLY. I never touch any $.

In this case, I pay no taxes and the government knows nothing of my activities except that I'm "unemployed". Maybe I could take a part time job (putting me in a low tax bracket) just to keep the suspicion off.

What are the legal implications for this and what are the chances of getting caught?

[jgarzik]

That would certainly be violating the law (the tax code): http://www.irs.gov/taxtopics/tc420.html

I won't speculate on your chances of being caught...

[silverman]

There are two factors to consider; your liability, and your tax rate. The rate is determined by your income, and the income is calculated in U.S. dollars (Federal Reserve Notes, actually). If you are unemployed, then you are definitely liable, so the key to your question would be the amount of Bitcoins, expressed in Federal Reserve Notes, and termed as U.S. dollars.

If they are equivalent, and if you are using Bitcoins to bypass your fair share of taxes, then you are a tax cheat.

But I know of no equivalence between Bitcoins and FRNs. They belong to two unrelated accounting systems. As long as no one says anything blatantly stupid, such as "Rate of BTC to USD = $0.25", the Bitcoin will be useless in determining your tax rate.

[jgarzik]

But I know of no equivalence between Bitcoins and FRNs. They belong to two unrelated accounting systems. As long as no one says anything blatantly stupid, such as "Rate of BTC to USD = $0.25", the Bitcoin will be useless in determining your tax rate.

You mean, like the numbers found on http://www.bitcoinwatch.com/ ?

[FreeMoney]

But I know of no equivalence between Bitcoins and FRNs. They belong to two unrelated accounting systems. As long as no one says anything blatantly stupid, such as "Rate of BTC to USD = $0.25", the Bitcoin will be useless in determining your tax rate.

Which is the important part? That you remain ignorant of a conversion rate or that no single person in the world utters it? And what if 14 people say 13 different rates?

[silverman]

Do you see what you're up against?

Even though our system of taxation is based upon voluntary assessment and payment, not upon distraint (you might wish to Google that phrase) the IRS can usually find useful idiots like the two above who "know what the law means" to sell you out.

Just ask them the IRS definition of "income", chapter and verse, if you want to see how bright they are.

[jgarzik]

lol, apparently the two CPAs I queried are useful idiots too

Sometimes this board can get pretty silly and imaginative, when it comes to naive attempts to dodge the taxman.

[MoonShadow]

Do you see what you're up against?

Even though our system of taxation is based upon voluntary assessment and payment, not upon distraint (you might wish to Google that phrase) the IRS can usually find useful idiots like the two above who "know what the law means" to sell you out.

Just ask them the IRS definition of "income", chapter and verse, if you want to see how bright they are.

If you really believe that our system is based upon voluntary assessment and payment, try to refuse.  And when they drag you in front of a federal judge, try asking the court to cite the law that grants any of them the authority to do so.  Or the legal definition of "taxpayer" under the federal code.

There is more than one kind of "useful idiot" in this wide world, Mr. Silverman. 

[silverman]

No stopping some of these guys. jgarzik just sold out his two gurus! Chapter and verse, all three of you, or go away.

creighto: "If you really believe that our system is based upon voluntary assessment and payment, try to refuse.  And when they drag you in front of a federal judge, try asking the court to cite the law that grants any of them the authority to do so.  Or the legal definition of "taxpayer" under the federal code."

I actually do believe this Supreme Court decision, creighto. And further, I know how it can be properly plead, though I don't expect the average taxpayer to get much mileage from it. Because he self-identifies, doesn't he?

[MoonShadow]

No stopping some of these guys. jgarzik just sold out his two gurus! Chapter and verse, all three of you, or go away.

creighto: "If you really believe that our system is based upon voluntary assessment and payment, try to refuse.  And when they drag you in front of a federal judge, try asking the court to cite the law that grants any of them the authority to do so.  Or the legal definition of "taxpayer" under the federal code."

I actually do believe this Supreme Court decision, creighto. And further, I know how it can be properly plead, though I don't expect the average taxpayer to get much mileage from it. Because he self-identifies, doesn't he?

Which SCOTUS decision are you referring to?  One of the two times that SCOTUS has declared that the 14th(?) amendment didn't change the meaning of "taxpayer" to include wages earned within a resident's own state, that continue to be ignored, perhaps?  The citizen who prepares his taxes "self-identifies" by signing the tax return, but it's a fraud that the IRS pretends that this is the known intent.  Under the law as it is written, the citizen must agree that the taxes are owed, but there is little wiggle room without sending up red flags; which just gets you an appointment with the taxman against your will anyway.  So in practice, the voluntary part is bulllshit and everyone knows that.  If it wasn't, then "tax evasion" couldn't be a crime.  This is one reason that the extremely wealthy can sometimes pay less taxes than the middle class family of four, because the rich have a greater incentive to hire a full time professional to minimize their taxes.  I do the same thing, and have never owed on April 15th except when I tried to use one of those tax-prep programs.  I gladly continue to pay my CPA roughly 20% of the taxes that I don't end up paying by trying to figure it out on my own.

[silverman]

Which SCOTUS decision am I referring to?? How freaking lazy can you be? It's called Google. Use it.

Here's another clue: What does line 75 of your 1040 form say, and what does the "Sign Here" box declare, under penalties of perjury?

Can we rely on this document to establish your status as a taxpayer, and the amount that you owe?

Don't come back without an answer.

[MoonShadow]

Which SCOTUS decision am I referring to?? How freaking lazy can you be? It's called Google. Use it.

Here's another clue: What does line 75 of your 1040 form say, and what does the "Sign Here" box declare, under penalties of perjury?

Can we rely on this document to establish your status as a taxpayer, and the amount that you owe?

Don't come back without an answer.

Now that is just being rude.  I asked because your reference was vague, and now you're just another dick.

[Anonymous]

How is the tax man going to know what Ive been doing with bitcoin unless I tell them?

[Timo Y]

What if I'm operating entirely within the bitcoin economy? I earn ONLY bitcoins and buy things for bitcoins ONLY. I never touch any $.

In this case, I pay no taxes and the government knows nothing of my activities except that I'm "unemployed". Maybe I could take a part time job (putting me in a low tax bracket) just to keep the suspicion off.

What are the legal implications for this and what are the chances of getting caught?

Sooner or later you are going to want to use large scale infrastructure and the government can easily commandeer that if it wants to and run it as a state monopoly. In most countries, highways, railways, and airports are already a state monopoly. Electricity, water, fuel in some others.

If they can no longer make money from taxing income or sales ... worst comes to worst they can expropriate all land/real estate owners and demand "rent" from everybody, in Bitcoins if need be.

  

[asdf]

What if I'm operating entirely within the bitcoin economy? I earn ONLY bitcoins and buy things for bitcoins ONLY. I never touch any $.

In this case, I pay no taxes and the government knows nothing of my activities except that I'm "unemployed". Maybe I could take a part time job (putting me in a low tax bracket) just to keep the suspicion off.

What are the legal implications for this and what are the chances of getting caught?

Sooner or later you are going to want to use large scale infrastructure and the government can easily commandeer that if it wants to and run it as a state monopoly. In most countries, highways, railways, and airpots are already a state monopoly. Electricity, water, fuel in some others.

If they can no longer make money from taxing income or sales ... worst comes to worst they can expropriate all land/real estate owners and demand "rent" from everybody, in Bitcoins if need be.

I don't have a problem with the government owning natural monopolies, such as these (better than private sector). In fact I think that this should be the sole source of income for the government (maybe...). What I really hate is personal income tax and the way it gets wasted on inefficient govt. health and education, which would be better served by the private sector. I don't like redistribution of wealth. I see bitcoin as a way to bypass the tax/welfare system. Something that society badly needs.

From what I understand, bitcoin is legal, but you have to declare it as taxable income. This is fine because, as bitcoin grows, you'll see allot more underground/cash-style economies due to the untraceable nature of bitcoin transactions. Eventually, perhaps only big corporates will be paying taxes, because they are too big to go under the radar. As people realise their newfound economic freedom, they'll begin to see that they don't need the government to manage the economy or the currency or any industry and the role of government will naturally be reduced to military, police, courts; where it belongs.

I'm really excited by this. :-)

[FreeMoney]

If a monopoly is natural then you don't need to enforce it. If you pretend or incorrectly think something is a natural monopoly when it isn't then you will have to keep others out of that business with guns.

Any natural monopoly will arise naturally. If some industry that you think should have a monopoly provider ends up having competition then you should be surprised, not violent.

[Anonymous]

If a monopoly is natural then you don't need to enforce it. If you pretend or incorrectly think something is a natural monopoly when it isn't then you will have to keep others out of that business with guns.

Any natural monopoly will arise naturally. If some industry that you think should have a monopoly provider ends up having competition then you should be surprised, not violent.

The trouble is they only have violence to back them up. Any other way of doing things is completely alien. The other issue is that people let them get away with it.

[caveden]

I don't have a problem with the government owning natural monopolies

There is no such a thing as "natural monopoly".

All "network services" can be provided freely. You can, for example, create "neighborhood institutions" (don't know the best English word for it) which would own the local networks, and then contract the "backbone" from a free provider.
By network services I mean all these services that are normally called natural monopoly, such as transport network, water, electricity, telephony, sewer and so on.

[asdf]

I don't have a problem with the government owning natural monopolies

There is no such a thing as "natural monopoly".

All "network services" can be provided freely. You can, for example, create "neighborhood institutions" (don't know the best English word for it) which would own the local networks, and then contract the "backbone" from a free provider.
By network services I mean all these services that are normally called natural monopoly, such as transport network, water, electricity, telephony, sewer and so on.

How are these not natural monopolies? if you own the sewer system, then who's going to compete with you?

What is a "neighborhood institution"? sounds like a local government... ;-)

[Babylon]

What if I'm operating entirely within the bitcoin economy? I earn ONLY bitcoins and buy things for bitcoins ONLY. I never touch any $.

In this case, I pay no taxes and the government knows nothing of my activities except that I'm "unemployed". Maybe I could take a part time job (putting me in a low tax bracket) just to keep the suspicion off.

What are the legal implications for this and what are the chances of getting caught?

About exactly the same as using all paper money.  I don't know exact statistics, I do know that I know at least a dozen people who operate this way and none have been caught, so the chances (based purely on a very limited sample) should be less than 10 percent.