Bitcoin Is Property Not Currency

[marcus_of_augustus]

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.

So you have appointed yourself as a proxy for the IRS to implicitly threaten court action, on behalf of the IRS, for anybody who wants to argue a contrary stance in a public forum?

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[marcus_of_augustus]

And another thing ... can all the people (IRS agents) who are fond of saying things like "if you don't count your coins carefully the men with guns are going throw you in jail where you'll get ass-raped!!", FUD, etc, etc just leave all the scary govt. rhetoric at the door?

We're all just trying to figure out a way to live peaceably and all these threats and innuendo is polluting the discussion, thnx.

[amspir]

And another thing ... can all the people (IRS agents) who are fond of saying things like "if you don't count your coins carefully the men with guns are going throw you in jail where you'll get ass-raped!!", FUD, etc, etc just leave all the scary govt. rhetoric at the door?

We're all just trying to figure out a way to live peaceably and all these threats and innuendo is polluting the discussion, thnx.

If you are referring to my comments, I'm just saying -- the methods that the IRS may use to have your taxes paid.  I'm not threatening anyone, I'm just saying what I believe is true from my own experience.

If you work as a contractor, and the the person that pays you files a 1099 documenting your gross income and you don't document it on your own tax return, they will come after you.   I have had this personally happen to me and was held liable by the IRS and had to pay the tax with penalties.  It never got to the point where IRS-CID agents came to my door with guns, but they do exist.

If you want to pretend that the IRS doesn't pay attention to all the 1099's that get filed, go for it.

[DeathAndTaxes]

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.

please re-read my posts regarding the question remaining, how do you know which cashed out BTC, are from which exact mined BTC.
It helps zero to know, you received x btc at x price.

You need to know, that xyz bitcoin was recieved at xx price, and those same xyz bitcoin fraction was sold at yy price.

That is a non-issue.  Most (as in 99.99999999999999999999999%) of stock trades are exactly the same way.

You buy 100 shares of Apple, then 20, then 50, then 30.  Later you sell 60 which 60 are sold.  Broker report simply shows bought and sold, they don't give you assigned share numbers.

If you can't track individual shares (which you actually could with Bitcoin using coin control) it is FIFO. The IRS is fine with that as long as it is consistent.  So in the Apple example above the 60 shares would come from the 20 share buy and 40 of the 50 share buy. 

[DeathAndTaxes]

With BTC there isn't a broker so I assume you simply need to document your decision but I'm not a tax lawyer so I'm not really sure.

The blockchain is the most perfect broker record you could hope for.

With coin control you could sell exactly the coins you wanted to at exact the basis you wanted to at any time. 

[Peter R]

With BTC there isn't a broker so I assume you simply need to document your decision but I'm not a tax lawyer so I'm not really sure.

The blockchain is the most perfect broker record you could hope for.

With coin control you could sell exactly the coins you wanted to at exact the basis you wanted to at any time.  

D&T: what do you think about the legal implications of my zero-gain/loss-for-tax-purposes wallet idea.  It uses coin control to select a suitable linear combination of coins such that each and every day-to-day purchase you make has a gain/loss for tax purposes of identically zero.  

https://bitcointalk.org/index.php?topic=531135.0

[smooth]

With BTC there isn't a broker so I assume you simply need to document your decision but I'm not a tax lawyer so I'm not really sure.

The blockchain is the most perfect broker record you could hope for.

With coin control you could sell exactly the coins you wanted to at exact the basis you wanted to at any time.  

D&T: what do you think about the legal implications of my zero-gain/loss-for-tax-purposes wallet idea.  It uses coin control to select a suitable linear combination of coins such that each and every day-to-day purchase you make has a gain/loss for tax purposes of identically zero.  

https://bitcointalk.org/index.php?topic=531135.0

Mutual funds do this sort of thing already. Should be fine, assuming the IRS continues to use the same gain and loss rules as securities trading.

[seriouscoin]

With BTC there isn't a broker so I assume you simply need to document your decision but I'm not a tax lawyer so I'm not really sure.

The blockchain is the most perfect broker record you could hope for.

With coin control you could sell exactly the coins you wanted to at exact the basis you wanted to at any time.  

How? as far as i know you can choose wallet to spend but btc are stored in transactions.

I can have bunch of tx in that wallet, but i cant pick the a specific one, correct?

I think you would need a custom wallet client to do this. Unless you can show one thats already done.

[seriouscoin]

With BTC there isn't a broker so I assume you simply need to document your decision but I'm not a tax lawyer so I'm not really sure.

The blockchain is the most perfect broker record you could hope for.

With coin control you could sell exactly the coins you wanted to at exact the basis you wanted to at any time. 

How? as far as i know you can choose wallet to spend but btc are stored in transactions.

I can have bunch of tx in that wallet, but i cant pick the a specific one, correct?

You can if your wallet software supports coin control.

Is it the same coin control from Armory? Because it only let me choose which address to spend from. Not tx....

Please share if i miss something

[seriouscoin]

With BTC there isn't a broker so I assume you simply need to document your decision but I'm not a tax lawyer so I'm not really sure.

The blockchain is the most perfect broker record you could hope for.

With coin control you could sell exactly the coins you wanted to at exact the basis you wanted to at any time.  

How? as far as i know you can choose wallet to spend but btc are stored in transactions.

I can have bunch of tx in that wallet, but i cant pick the a specific one, correct?

You can if your wallet software supports coin control.

Is it the same coin control from Armory? Because it only let me choose which address to spend from. Not tx....

Please share if i miss something

I don't know, I haven't used it. Of course, there is always Armory!

So you're telling me the new coin control feature from Bitcoin Core let you choose specific tx output to spend?

Armory coin control only let you pick address, which contains bunch of tx.

[smooth]

With BTC there isn't a broker so I assume you simply need to document your decision but I'm not a tax lawyer so I'm not really sure.

The blockchain is the most perfect broker record you could hope for.

With coin control you could sell exactly the coins you wanted to at exact the basis you wanted to at any time. 

How? as far as i know you can choose wallet to spend but btc are stored in transactions.

I can have bunch of tx in that wallet, but i cant pick the a specific one, correct?

You can if your wallet software supports coin control.

Is it the same coin control from Armory? Because it only let me choose which address to spend from. Not tx....

Please share if i miss something

Sounds perfect as long as you don't reuse addresses.

[seriouscoin]

With BTC there isn't a broker so I assume you simply need to document your decision but I'm not a tax lawyer so I'm not really sure.

The blockchain is the most perfect broker record you could hope for.

With coin control you could sell exactly the coins you wanted to at exact the basis you wanted to at any time. 

How? as far as i know you can choose wallet to spend but btc are stored in transactions.

I can have bunch of tx in that wallet, but i cant pick the a specific one, correct?

You can if your wallet software supports coin control.

Is it the same coin control from Armory? Because it only let me choose which address to spend from. Not tx....

Please share if i miss something

Sounds perfect as long as you don't reuse addresses.

No sounds terrible if you understand bitcoins are just tx outputs. Address was used to make it easy for traditional money management.

[h3m96]

I agree with Dissonance and Holliday....   I saw the NYT article last night and have been reading posts here.  It is shocking what some people have said haha.  But yeah I have no problem paying taxes on money I earn mining.  I can easily export my wallet right there from inside the wallet into a CSV file so I don't see the problem with tracking dates.  And I think it's also good for Bitcoin.  I have been worried my credit union will eventually say, what are all these deposits?  We've all been wondering that I'm sure and I am glad it's going to be implemented into the ecosystem and I can mine for a living now and relax

[nitehawk]

so i'm curious if bitcoins a property.. why is the owner of silkroad being charged for transmitting money without a license??

[amspir]

so i'm curious if bitcoins a property.. why is the owner of silkroad being charged for transmitting money without a license??

My guess is that it has to do with vendors on silkroad that would mail you cash for bitcoin.

[nitehawk]

but then they would be the ones committing the crime.. . how am i going to be charged for someone else sending me money.. i cant control what other people do with there cash

[bbeagle]

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?

Even though YOU might keep the coins you mined in different wallets, the IRS doesn't know any difference - or care. YOU are paying taxes, and they're all YOURS.

Example:
Mint 1 btc on April 1 - going rate $600 = $600
Mint 5 btc on May 1 - going rate $700 = $3500
Mint 5 btc on June 1 - going rate $500 = $2500

On August 1 you sell 20% of each.... the IRS doesn't care which 'wallet' they came from - they're ALL yours.
The IRS simply takes the August 1 selling rate, say $1000, and .2 + 1 + 1 = 2.2 x 1000 = $2,200 cashed in value.

The IRS uses a first-in-first-out to determine the profit you made. The IRS calculates that out of 2.2, the 1 came from April 1 btc, and 1.2 came from May 1 btc. Therefore the cashed in value of $2200 is subtracted from $600 and $700 x 1.2 = $840. $600 + $840 = $1440.

$2200 - $1440 = 760 - your profit.

Despite you keeping your coins in different wallets, you still have 11 - 2.2 = 8.8 btc left. That's all the IRS cares about.

Earnings = 600 + 3500 + 2500 = 6600
Profit = 760
Total Taxable = $7360

Accountants have been doing this for years. It's no different with bitcoins.

[whtchocla7e]

so i'm curious if bitcoins a property.. why is the owner of silkroad being charged for transmitting money without a license??

law doesn't work backwards.

[Searing]

I agree with Dissonance and Holliday....   I saw the NYT article last night and have been reading posts here.  It is shocking what some people have said haha.  But yeah I have no problem paying taxes on money I earn mining.  I can easily export my wallet right there from inside the wallet into a CSV file so I don't see the problem with tracking dates.  And I think it's also good for Bitcoin.  I have been worried my credit union will eventually say, what are all these deposits?  We've all been wondering that I'm sure and I am glad it's going to be implemented into the ecosystem and I can mine for a living now and relax

by tracking dates i assume  you mean when I shoot my "pool wallet" to my blockchain address? then i'm 'paid' and use those dates?

it would be impossible to keep track of how much .00859000 btc or whatever day by day in the pool wallet imho

so if in a 3 month period..i have 15 payments to my block chain...dated and timed ....from that you can figure your tax rate

and just to end this (mr. obvious) you don't have to pay any taxes (capital gains) if you don't sell the coins?


trying to get a  handle on this i'm a bit dense

Searing

[BitOnyx]

I hope you guys know it is only in USA