Bitcoin Is Property Not Currency

[smooth]

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??

They are essentially saying that mining is more like receiving in trade than creating it yourself.

It's a rule they made, in some sense doesn't have to be logical (as long as they can defend it in court), but if you want a logical basis for it, that's it right there.

[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??

They are essentially saying that mining is more like receiving in trade than creating it yourself.

It's a rule they made, in some sense doesn't have to be logical (as long as they can defend it in court), but if you want a logical basis for it, that's it right there.

You could argue that any product you produce or manufacture, digital or hard goods, has value... Whether you are making copies of a script or software package, selling music CDs, DVDs of movies you produce, or you make widgets that have real value in the marketplace... Unless you sell them, there is no taxable event. Mining is a process in which something is made.  The bitcoin does not exist before you mine it. The block ledger is not prewritten. If it was, their ruling would apply as it would be a transfer of something that is already in existence.

But Bitcoins don't exist before they are mined. Not in any way shape or form. Otherwise people would make them before the block got that far ahead.  They are manufactured through a process. After which, they are a product. Shelve them.

[LostDutchman]

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??

They are essentially saying that mining is more like receiving in trade than creating it yourself.

It's a rule they made, in some sense doesn't have to be logical (as long as they can defend it in court), but if you want a logical basis for it, that's it right there.

You could argue that any product you produce or manufacture, digital or hard goods, has value... Whether you are making copies of a script or software package, selling music CDs, DVDs of movies you produce, or you make widgets that have real value in the marketplace... Unless you sell them, there is no taxable event. Mining is a process in which something is made.  The bitcoin does not exist before you mine it. The block ledger is not prewritten. If it was, their ruling would apply as it would be a transfer of something that is already in existence.

But Bitcoins don't exist before they are mined. Not in any way shape or form. Otherwise people would make them before the block got that far ahead.  They are manufactured through a process. After which, they are a product. Shelve them.

Fine and good.

I trust that you will be the one to argue this before a court?

right

My $.02.

[smooth]

You could argue that any product you produce or manufacture, digital or hard goods, has value... Whether you are making copies of a script or software package, selling music CDs, DVDs of movies you produce, or you make widgets that have real value in the marketplace... Unless you sell them, there is no taxable event. Mining is a process in which something is made.  The bitcoin does not exist before you mine it. The block ledger is not prewritten. If it was, their ruling would apply as it would be a transfer of something that is already in existence.

But Bitcoins don't exist before they are mined. Not in any way shape or form. Otherwise people would make them before the block got that far ahead.  They are manufactured through a process. After which, they are a product. Shelve them.

Except there is a "transaction" that mines the block. That transaction has counterparties (the rest of the network). If you manufacture a CD and put it on a shelf, it is true you don't pay taxes on it. But if you sell that CD to a warehouse and the warehouse puts it on a shelf, you do pay taxes on it.  Think of the blockchain as a warehouse.

Again, this is not the only rule they could have written (and not the rule I would have written) and there are ways of looking at it that make sense and other ways of looking at it that don't. That likely could be said for any rule.

[Stratobitz]

No. But someone certainly will. All the way up to the Supreme Court I would bet.

[LostDutchman]

You could argue that any product you produce or manufacture, digital or hard goods, has value... Whether you are making copies of a script or software package, selling music CDs, DVDs of movies you produce, or you make widgets that have real value in the marketplace... Unless you sell them, there is no taxable event. Mining is a process in which something is made.  The bitcoin does not exist before you mine it. The block ledger is not prewritten. If it was, their ruling would apply as it would be a transfer of something that is already in existence.

But Bitcoins don't exist before they are mined. Not in any way shape or form. Otherwise people would make them before the block got that far ahead.  They are manufactured through a process. After which, they are a product. Shelve them.

Except there is a "transaction" that mines the block. That transaction has counterparties (the rest of the network). If you manufacture a CD and put it on a shelf, it is true you don't pay taxes on it. But if you sell that CD to a warehouse and the warehouse puts it on a shelf, you do pay taxes on it.  Think of the blockchain as a warehouse.

Again, this is not the only rule they could have written (and not the rule I would have written) and there are ways of looking at it that make sense and other ways of looking at it that don't. That likely could be said for any rule.

I take it you have never heard of inventory tax?

My $.02.

[amspir]

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?

Those amounts are regular income taxed at regular income rates.  Your mining pool, if complying with US law, is required to report these transactions to the IRS if they exceed $600 during the year.

The profits that you gain by holding onto them are taxed at a lower capital gain rate.   Your exchange, if complying with US law, will have to report the sale of your of your bitcoin if it exceeds $600 during the year.

If the IRS audits you, you will have to come up with documentation that explains the reported transactions.

[LostDutchman]

No. But someone certainly will. All the way up to the Supreme Court I would bet.

And you will be right there, carrying a placard outside, right?

My $.02.

[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.

Wrong.

Read the ruling.

My $.02.

http://www.forbes.com/sites/kellyphillipserb/2014/03/25/irs-says-bitcoin-other-convertible-virtual-currency-to-be-taxed-like-stock/
For those buying and selling Bitcoin as an investment, calculating gains and losses are figured the same as buying and selling stock. The basis, the holding period and even the triggering event (the sale of the asset) are all very clear.

I have stocks and I don't pay any tax on them until I sell those stocks.  My understanding is that it works the same way with conversion of btc to fiat.  This is what I assumed before this IRS guidance even.  But maybe I'm misunderstanding.

[Stratobitz]

You could argue that any product you produce or manufacture, digital or hard goods, has value... Whether you are making copies of a script or software package, selling music CDs, DVDs of movies you produce, or you make widgets that have real value in the marketplace... Unless you sell them, there is no taxable event. Mining is a process in which something is made.  The bitcoin does not exist before you mine it. The block ledger is not prewritten. If it was, their ruling would apply as it would be a transfer of something that is already in existence.

But Bitcoins don't exist before they are mined. Not in any way shape or form. Otherwise people would make them before the block got that far ahead.  They are manufactured through a process. After which, they are a product. Shelve them.

Except there is a "transaction" that mines the block. That transaction has counterparties (the rest of the network). If you manufacture a CD and put it on a shelf, it is true you don't pay taxes on it. But if you sell that CD to a warehouse and the warehouse puts it on a shelf, you do pay taxes on it.  Think of the blockchain as a warehouse.

Again, this is not the only rule they could have written (and not the rule I would have written) and there are ways of looking at it that make sense and other ways of looking at it that don't. That likely could be said for any rule.

Using your view that the block chain is a warehouse isn't accurate, because the coins don't exist, anywhere, until the next block is found. A warehouse would have to have inventory. The people make the bitcoins, out of thin air using hardware software, manpower, and energy.  If people stopped altogether, there would be no more btc created. Sounds like manufacturing to me.

[Stratobitz]

No. But someone certainly will. All the way up to the Supreme Court I would bet.

And you will be right there, carrying a placard outside, right?

My $.02.

No.  Nice eyepatch btw.

[iambk]

Those amounts are regular income taxed at regular income rates.  Your mining pool, if complying with US law, is required to report these transactions to the IRS if they exceed $600 during the year.

I don't know anything about the current mining pools, but it sounds like mining pools may now have incentive to distance themselves from the US so that they don't need to bother with US law.  I really don't know how the whole thing is setup though.  Regardless, it'll be interesting to see.

[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.

http://www.forbes.com/sites/kellyphillipserb/2014/03/25/irs-says-bitcoin-other-convertible-virtual-currency-to-be-taxed-like-stock/
For those buying and selling Bitcoin as an investment, calculating gains and losses are figured the same as buying and selling stock. The basis, the holding period and even the triggering event (the sale of the asset) are all very clear.

I have stocks and I don't pay any tax on them until I sell those stocks.  My understanding is that it works the same way with conversion of btc to fiat.  This is what I assumed before this IRS guidance even.  But maybe I'm misunderstanding.

"Q-

8: Does a taxpayer who “mines” virtual currency (for example, uses computer
resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? A-8:
 
Yes, when a taxpayer successfully “mines” virtual currency, the fair market value

of the virtual currency as of the date of receipt is includible in gross income. See Publication 525,
Taxable and Nontaxable Income
, for more information on taxable income."

Not me, THEM!

Have a nice day!

My $.02.


 

[sykal]

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?

Those amounts are regular income taxed at regular income rates.  Your mining pool, if complying with US law, is required to report these transactions to the IRS if they exceed $600 during the year.

The profits that you gain on holding onto them are taxed at a lower capital gain rate.   Your exchange, if complying with US law, will have to report the sale of your of your bitcoin if it exceeds $600 during the year.

If the IRS audits you, you will have to come up with documentation that explains the reported transactions.

That doesn't really tackle my point regarding that you don't know what your gains are, because you don't know which coins you are exactly selling. If they are all fractional-mined at different values, you are getting profits or losses depending on WHEN they were mined. There is no way to track that information.

This isn't like stocks where you get a nice report from your broker for the exact shares you owned, and which block you sold at EOY.

[LostDutchman]

No. But someone certainly will. All the way up to the Supreme Court I would bet.

And you will be right there, carrying a placard outside, right?

My $.02.

No.  Nice eyepatch btw.

Thanks!

Just funnin' ya on the replies!

We are all awash in new regs and trying to stay afloat!

My $.02.

[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.

Wrong.

Read the ruling.

My $.02.

http://www.forbes.com/sites/kellyphillipserb/2014/03/25/irs-says-bitcoin-other-convertible-virtual-currency-to-be-taxed-like-stock/
For those buying and selling Bitcoin as an investment, calculating gains and losses are figured the same as buying and selling stock. The basis, the holding period and even the triggering event (the sale of the asset) are all very clear.

I have stocks and I don't pay any tax on them until I sell those stocks.  My understanding is that it works the same way with conversion of btc to fiat.  This is what I assumed before this IRS guidance even.  But maybe I'm misunderstanding.

"Q-

8: Does a taxpayer who “mines” virtual currency (for example, uses computer
resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? A-8:
 
Yes, when a taxpayer successfully “mines” virtual currency, the fair market value

of the virtual currency as of the date of receipt is includible in gross income. See Publication 525,
Taxable and Nontaxable Income
, for more information on taxable income."

Not me, THEM!

Have a nice day!

My $.02.

You're right when mining things are different.  Maybe I didn't specify that clearly.  I was only speaking to people that purchased BTC as an investment.

[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.

http://www.forbes.com/sites/kellyphillipserb/2014/03/25/irs-says-bitcoin-other-convertible-virtual-currency-to-be-taxed-like-stock/
For those buying and selling Bitcoin as an investment, calculating gains and losses are figured the same as buying and selling stock. The basis, the holding period and even the triggering event (the sale of the asset) are all very clear.

I have stocks and I don't pay any tax on them until I sell those stocks.  My understanding is that it works the same way with conversion of btc to fiat.  This is what I assumed before this IRS guidance even.  But maybe I'm misunderstanding.

"Q-

8: Does a taxpayer who “mines” virtual currency (for example, uses computer
resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? A-8:
 
Yes, when a taxpayer successfully “mines” virtual currency, the fair market value

of the virtual currency as of the date of receipt is includible in gross income. See Publication 525,
Taxable and Nontaxable Income
, for more information on taxable income."

Not me, THEM!

Have a nice day!

My $.02.

You're right when mining things are different.  Maybe I didn't specify that clearly.  I was only speaking to people that purchased BTC as an investment.

Cool!

I may have misunderstood you as wel.

We all have a lot of homework to do!

My $.02.

[corebob]

I can't stop wondering why they didn't do this to the USD while there was still time

[amspir]

That doesn't really tackle my point regarding that you don't know what your gains are, because you don't know which coins you are exactly selling. If they are all fractional-mined at different values, you are getting profits or losses depending on WHEN they were mined. There is no way to track that information.

It would be pretty easy to write a script, using the blockchain API to iterate all the mining receive transactions during the tax year on the receiving address(es) and to get a historical exchange values from the same API.  The databases exist for free of charge, and you most likely have a computer that could run such a script.

[iambk]

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?

Those amounts are regular income taxed at regular income rates.  Your mining pool, if complying with US law, is required to report these transactions to the IRS if they exceed $600 during the year.

The profits that you gain on holding onto them are taxed at a lower capital gain rate.   Your exchange, if complying with US law, will have to report the sale of your of your bitcoin if it exceeds $600 during the year.

If the IRS audits you, you will have to come up with documentation that explains the reported transactions.

That doesn't really tackle my point regarding that you don't know what your gains are, because you don't know which coins you are exactly selling. If they are all fractional-mined at different values, you are getting profits or losses depending on WHEN they were mined. There is no way to track that information.

This isn't like stocks where you get a nice report from your broker for the exact shares you owned, and which block you sold at EOY.

Years ago we didn't have tax programs that downloaded all of that data directly from our brokers.

A capital gain is a capital gain.  I don't think the IRS much cares if it is a pain in the ass for you to calculate.