Bitcoin Is Property Not Currency

[LostDutchman]

It's all very simple. The value of any property you receive is taxed. It could be labeled as a 'gift' from someone else, or gotten through some other means.

A solo miner isn't given those bitcoins - he creates them, analogous to a painter creating a painting.  Again, the painter isn't taxed on her creation until (if) she sells it.

Setting aside the consistency or fairness of this ruling, let's consider practicality. Does a miner mining for a pool "receive" those bitcoins when they're credited to his account at the pool, or when he transfers them to another wallet?  If the latter, he can avoid taxes year after year until he withdraws them?  If the former, note that many pools continuously credit accounts based on each block of work received.  This means the potential for many thousands of transactions per day, each of which conceivably needs an individual fair market value.  Not to mention the complete lack of historical data for either of these figures.

I think you'd better read the ruling.

http://www.scribd.com/doc/214527517/US-IRS-Bitcoin-Guidance

Don't cut off the head of the messenger, please.

My $.02.

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[smooth]

And if it is the private keys, what if they have been destroyed because all I have now is a brain wallet?

IP can have value even if it is just in your head.

I would argue the private key (or some other bit of information that can be used to render the private key) is the asset with value, but that's just me, I'm not the IRS.

[iambk]

On the other hand, the day the IRS can tell me how much wealth I have in my (vastly larger quantity) brain wallet is the day I pay taxes on my true wealth.

Spoiler: This day will never come.

Unless you mined those coins in your brain wallet yourself, the IRS doesn't really care what you have in it until you convert it back to fiat.  That's when you calculate your capital gains.

[marcus_of_augustus]

So exactly which part of the system is "property"? Did the gurus at the IRS define that precisely?

Is it the private keys, or the blockchain entry, both, either, niether or something else entirely?

And if it is the private keys, what if they have been destroyed because all I have now is a brain wallet?

I just do not see how they could successfully legally define any part of the system as "property", in the usual context of "property law". Awaiting the court cases with popcorn ready.

Well, they just freakin' did it, so you are going to take them to court over the matter, right?

That's what I thought.

Thank you for your input.

My $.02.

Only idiots tax-slave prisoners of USA need to engage in such 'rebelliousness' ...  

It is amazing, the tax-slaves have just been handed a 28% juice bill for bitcoin wealth creation that had absolutely nothing to do with the government, yet they stand over like mafioso with their greasy palms out.... and the idiots are celebrating like the prisoners just who got a Johnny Cash concert ..

[marcus_of_augustus]

I just do not see how they could successfully legally define any part of the system as "property", in the usual context of "property law". Awaiting the court cases with popcorn ready.

The ruling is very narrow in scope and only applies to tax law.   Bitcoin earned is taxed at the current value when you receive them as normal income.  The profit from Bitcoin that you hold onto will be taxed at lower capital gains rates when you trade them or sell them later.

So when you say "hold onto" bitcoins ... what exactly are you referring to? The private keys, or a password to a Coinbase account, (or god forbid Goxx account), or something else?

It is just not clear what it means to be in possession of the thing you are referring to ...

[smooth]

A solo miner isn't given those bitcoins - he creates them, analogous to a painter creating a painting.  Again, the painter isn't taxed on her creation until (if) she sells it.

Eh, maybe. You can't really mine a block without the whole network cooperating with you. There is more to it than a painting.

Analogies work, but only to a point.

We all know that bitcoin is somewhat different than anything that came before. Likewise with the tax rules.

The same tax rules I would have written had they asked me (fat chance)? Probably not. Totally misguided and absurd (as one might reasonably imagine they could have been)? No.

[smooth]

So when you say "hold onto" bitcoins ... what exactly are you referring to? The private keys, or a password to a Coinbase account, (or god forbid Goxx account), or something else?

It makes little difference. If coinbase holds it and you have a claim against coinbase to give it to you, then your claim constitutes an asset.

[amspir]

So when you say "hold onto" bitcoins ... what exactly are you referring to? The private keys, or a password to a Coinbase account, (or god forbid Goxx account), or something else?

It is just not clear what it means to be in possession of the thing you are referring to ...

An IRS-tax-compliant entity has to reports trades of "property" worth more than $600 in a year under threat of penalty (this is how they enforce tax compliance on a bartering system)

Your tax accounting should match up to these reports if you get audited.

[Peter R]

The handling of mined coins seems inconsistent and problematic.  A painter is not taxed the value of her painting as she paints. She's taxed when she sells her creation.  A closer analogy is a team of software engineers creating a game. They're not taxed as they code; they're taxed on the income from the sale of the game.

If a famous painter hires a team of brush-strokers to do the tedious work, these bush-strokers are employees and would be effectively "taxed as the paint."  Similarly, most software engineers are effectively "taxed as they code" via income tax withholding.  

Independent innovators--be it engineers or artists--pursuing their own ideas would be taxed if these ideas eventually generate a financial reward.

In my opinion, the logical ruling would be that hashers are liable for taxes incurred as they are awarded payment, while miners are liable for taxes should they realize a financial reward.  But I think the guidance was fair, as expecting the IRS to understand the subtly between hashers and miners would be expecting a lot at this stage.

[LostDutchman]

On the other hand, the day the IRS can tell me how much wealth I have in my (vastly larger quantity) brain wallet is the day I pay taxes on my true wealth.

Spoiler: This day will never come.

Unless you mined those coins in your brain wallet yourself, the IRS doesn't really care what you have in it until you convert it back to fiat.  That's when you calculate your capital gains.

Wrong.

Read the ruling.

My $.02.

[marcus_of_augustus]

So when you say "hold onto" bitcoins ... what exactly are you referring to? The private keys, or a password to a Coinbase account, (or god forbid Goxx account), or something else?

It is just not clear what it means to be in possession of the thing you are referring to ...

An IRS-tax-compliant entity has to reports trades of "property" worth more than $600 in a year under threat of penalty (this is how they enforce tax compliance on a bartering system)

Your tax accounting should match up to these reports if you get audited.

Seems like lots of the 'Newbies' are suddenly well-schooled in the practices, jargon and expectations of the IRS ... almost like some positive educational messaging campaigns I've seen before.

[LostDutchman]

The handling of mined coins seems inconsistent and problematic.  A painter is not taxed the value of her painting as she paints. She's taxed when she sells her creation.  A closer analogy is a team of software engineers creating a game. They're not taxed as they code; they're taxed on the income from the sale of the game.

If a famous painter hires a team of brush-strokers to do the tedious work, these bush-strokers are employees and would be effectively "taxed as the paint."  Similarly, most software engineers are effectively "taxed as they code" via income tax withholding.  

Independent innovators--be it engineers or artists--pursuing their own ideas would be taxed if these ideas eventually generate a financial reward.

In my opinion, the logical ruling would be that hashers are liable for taxes incurred as they are awarded payment, while miners are liable for taxes should they realize a financial reward.  But I think the guidance was fair, as expecting the IRS to understand the subtly between hashers and miners would be expecting a lot at this stage.

I'm not sure I understand the difference!

Please enlighten us!

Thanks in advance!

My $.02.

[Peter R]

The handling of mined coins seems inconsistent and problematic.  A painter is not taxed the value of her painting as she paints. She's taxed when she sells her creation.  A closer analogy is a team of software engineers creating a game. They're not taxed as they code; they're taxed on the income from the sale of the game.

If a famous painter hires a team of brush-strokers to do the tedious work, these bush-strokers are employees and would be effectively "taxed as the paint."  Similarly, most software engineers are effectively "taxed as they code" via income tax withholding.  

Independent innovators--be it engineers or artists--pursuing their own ideas would be taxed if these ideas eventually generate a financial reward.

In my opinion, the logical ruling would be that hashers are liable for taxes incurred as they are awarded payment, while miners are liable for taxes should they realize a financial reward.  But I think the guidance was fair, as expecting the IRS to understand the subtly between hashers and miners would be expecting a lot at this stage.

I'm not sure I understand the difference!

Please enlighten us!

Hashers simply supply computing power to a mining pool--they essentially rent their equipment to the pool to earn income.  Hashers join pools because they want low volatility and no responsibility outside their "hashing" duty.  They are the very definition of employees earning income.  

Miners run a full node and represent independent sovereigns in the bitcoin network.  They may innovate with code changes, decide which transactions to include in their blocks, organize defences against network attacks, and establish ethical policy regarding double-spending, blockchain forking, etc.  It is from the behaviour of the many bitcoin nodes and miners that the character and properties of the bitcoin network emerges.  

Hashers hash for the income.  Miners mine for many reasons.  

[lyth0s]

So exactly which part of the system is "property"? Did the gurus at the IRS define that precisely?

Is it the private keys, or the blockchain entry, both, either, niether or something else entirely?

And if it is the private keys, what if they have been destroyed because all I have now is a brain wallet?

I just do not see how they could successfully legally define any part of the system as "property", in the usual context of "property law". Awaiting the court cases with popcorn ready.

Well, they just freakin' did it, so you are going to take them to court over the matter, right?

That's what I thought.

Thank you for your input.

My $.02.

Maybe he won't directly, but others may.

[sykal]

this is all great and fine with everyones examples of 1 BTC...but what about the other 99% of us who mine like .1/.2/.3  btc/day for example.

We're now supposed to keep track on every fraction of BTC we receive as well as the current price we receive that at? that's almost impossible.

[amspir]

this is all great and fine with everyones examples of 1 BTC...but what about the other 99% of us who mine like .1/.2/.3  btc/day for example.

We're now supposed to keep track on every fraction of BTC we receive as well as the current price we receive that at? that's almost impossible.

Look at your receiving address(es) that you use for mining on blockchain.info.   It will show all of the time and amounts of received btc.   I'm pretty sure that the blockchain.info api has a function to show what it was worth at the time of the transaction, since my android blockchain wallet will tell me the "now" and "then" values in USD on each transaction.

Not impossible if you have a computer connected to the internet and your receiving address(es).

[sykal]

this is all great and fine with everyones examples of 1 BTC...but what about the other 99% of us who mine like .1/.2/.3  btc/day for example.

We're now supposed to keep track on every fraction of BTC we receive as well as the current price we receive that at? that's almost impossible.

Look at your receiving address(es) that you use for mining on blockchain.info.   It will show all of the time and amounts of received btc.   I'm pretty sure that the blockchain.info api has a function to show what it was worth at the time of the transaction, since my android blockchain wallet will tell me the "now" and "then" values in USD on each transaction.

Not impossible if you have a computer connected to the internet and your receiving address(es).

So what happens when you sell? You have accumulated coins over the months, but how do you know which particular coins you are selling? Maybe you're selling 5% of the coins you mined at $600, 2% of the coins mined at $630, 6% of the coins you mined at $510

Do you see where I'm going with this?

[Beliathon]

On the other hand, the day the IRS can tell me how much wealth I have in my (vastly larger quantity) brain wallet is the day I pay taxes on my true wealth.

Spoiler: This day will never come.

Unless you mined those coins in your brain wallet yourself, the IRS doesn't really care what you have in it until you convert it back to fiat.  That's when you calculate your capital gains.

Tell you a secret...

By the time I would actually need to convert my brain wallet wealth back to fiat, there will be no fiat left to convert back to.

The IRS will soon be as irrelevant as Blockbuster Video, and there is nothing anyone can do to change that.

[Stratobitz]

If they are going to treat it as property, how would mined coins by a company set up as a corporation be treated?  My impression is that per the IRS's position, bitcoins mined would be the same as a the creation of a product you create/produce for sale but does not sell. It becomes on the shelf inventory, and there is no taxable event until it sells. This applies to all companies that make products through a process, hard materials or digital.  If you own a software application, or a script (plugin) you developed, and sell it for $50 per copy, and make 1000 copies on CDROM, you don't owe the IRS taxes on the copies until they sell. It's all 1s and 0s, so what difference is there between using computers to create scripts or plugins or software, or bitcoins? All property right? You just have to view it from a manufacturing standpoint.  And the fact that they have ruled it is property, the manufacturing stance would in my opinion apply. Manufacturing being the creation of something tangible "property" from the use of labor, machines, raw materials, and energy resources.  So you mine the coins, put them on paper wallets as inventory to sell. But hold them... For sale at a later date, which would be taxable.  You'd have to set up an s-corp to do this, or is my thinking way off??

[LostDutchman]

On the other hand, the day the IRS can tell me how much wealth I have in my (vastly larger quantity) brain wallet is the day I pay taxes on my true wealth.

Spoiler: This day will never come.

Unless you mined those coins in your brain wallet yourself, the IRS doesn't really care what you have in it until you convert it back to fiat.  That's when you calculate your capital gains.

Tell you a secret...

By the time I would actually need to convert my brain wallet wealth back to fiat, there will be no fiat left to convert back to.

The IRS will soon be as irrelevant as Blockbuster Video, and there is nothing anyone can do to change that.

You think so, eh?

Ima write down that one!

LOL!

My $.02.