Bitcoin Is Property Not Currency

[Joshuar]

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

He's being charged with fraud, and distrubtion of drugs etc.

The fraud charge makes no sense, this Bitcoin isn't really regulated... , but the distrubtion of drugs makes sense since he owned a Drug market lol.

[rohnearner]

I hope you guys know it is only in USA

That is the reason about all the hype around it too..! USA is I guess one of the largest bitcoin market after China[correct me if i'm wrong] and there is a huge impact of  authorities stand on crypto no matter how much we deny that in this community.!

[dogechode]

Here is what I don't get. Someone said if you mine then you pay taxes based on the value of the coins at the time you mined them. That seems borderline impossible to calculate since there is no central body in charge of prices and they change rapidly. You could be mining doge and it could be worth 120 sat on mintpal and 115 sat on cryptsy at the same moment. Also, the value changes constantly even throughout one single day. Are you supposed to valuate each payment from the pool individually?

And, are they saying that if you mined and held the coins and they dropped in value you would owe taxes based on what they were worth when you mined them? So for example if you were mining doge when it was worth 300 sat, and you have held them, and end up selling them when they are worth 125 sat, then you owe taxes based on the 300 sat figure? That seems absurd...

[bitcoiner49er]

When does this take effect? What about those who already filed taxes?

[BadBear]

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?

I have an accountant who used to work for the IRS doing my taxes, and she said to use a FIFO type system. First in, first out. It's not as complicated as some of you are making it out to be.

That was before this ruling though, we haven't talked in depth about the tax situation since this, though she did give me a heads up on the IRS statement.

[gollum]

Thank you IRS!

That was the nail in the coffin for speculation in bitcoin.
Instead we can use colored bitcoins to issue USDollar IOUs, which implies a fixed price between the colored coin and USD, therefore no profit will be possible.
And no volatility will occur when the coin is pegged to US dollar.

This is good for commerce and consumers, and bad for speculators and hoarders of bitcoin.

[Polycoin]

Thank you IRS!

That was the nail in the coffin for speculation in bitcoin.
Instead we can use colored bitcoins to issue USDollar IOUs, which implies a fixed price between the colored coin and USD, therefore no profit will be possible.
And no volatility will occur when the coin is pegged to US dollar.

the U.S dollar is doomed to fail, having lost 97% of it's original value since 1913...No one should want to be pegged to the U.S Dollar.

[gollum]

Thank you IRS!

That was the nail in the coffin for speculation in bitcoin.
Instead we can use colored bitcoins to issue USDollar IOUs, which implies a fixed price between the colored coin and USD, therefore no profit will be possible.
And no volatility will occur when the coin is pegged to US dollar.

the U.S dollar is doomed to fail, having lost 97% of it's original value since 1913...No one should want to be pegged to the U.S Dollar.

Only a fool would keep money for 100 years, instead you use money to consume, or to invest in real estate, stocks and bonds.

[bbeagle]

Here is what I don't get. Someone said if you mine then you pay taxes based on the value of the coins at the time you mined them. That seems borderline impossible to calculate since there is no central body in charge of prices and they change rapidly. You could be mining doge and it could be worth 120 sat on mintpal and 115 sat on cryptsy at the same moment. Also, the value changes constantly even throughout one single day. Are you supposed to valuate each payment from the pool individually?

And, are they saying that if you mined and held the coins and they dropped in value you would owe taxes based on what they were worth when you mined them? So for example if you were mining doge when it was worth 300 sat, and you have held them, and end up selling them when they are worth 125 sat, then you owe taxes based on the 300 sat figure? That seems absurd...

Bitcoins are no different than any other commodity. You are 'given' 10 live chickens. Find a reasonable market value for the chickens. There are thousands of different farmers markets selling chickens in the world. Pick a reasonable middle.

If you find that each chicken is worth $5, then when you sell them at $2 each...

You owe ($5 x 10) $50 minus your loss of  ($3 x 10) $30 for the 'loss sale', so you have $20 in taxable income. This is the same as $2 x 10 = $20, the price you sold them for.

So in your version, where you mined them at 300 and sold them for 125, you'd just pay taxes on the price you sold them for - as long as this is in the SAME YEAR.

If you mined the bitcoins on Dec 31, 2014, and they were worth $5 each that day, you'd have a taxable income addition of ($5 x 10) = $50, then SOLD them on Jan 1, 2015 for $2 each, you'd report a LOSS of $30 that year.

Note that I keep saying 'taxable income'. This is NOT the actual tax you owe. It's all determined by how much money you made the year you file. Say you made $7,000 in bitcoins in 2014, but no other income. If you're single, your standard deduction in 2013 is $7,600, so all of it has been deducted, and you actual owe $0 in taxes. (You'll actually GET money from the US Government in this case, because your income is so small, but that's another story)

The tax code is complicated, but it only takes a few hours to understand the basics of it. And you should - it will help you the rest of your life.

[dogechode]

Here is what I don't get. Someone said if you mine then you pay taxes based on the value of the coins at the time you mined them. That seems borderline impossible to calculate since there is no central body in charge of prices and they change rapidly. You could be mining doge and it could be worth 120 sat on mintpal and 115 sat on cryptsy at the same moment. Also, the value changes constantly even throughout one single day. Are you supposed to valuate each payment from the pool individually?

And, are they saying that if you mined and held the coins and they dropped in value you would owe taxes based on what they were worth when you mined them? So for example if you were mining doge when it was worth 300 sat, and you have held them, and end up selling them when they are worth 125 sat, then you owe taxes based on the 300 sat figure? That seems absurd...

Bitcoins are no different than any other commodity. You are 'given' 10 live chickens. Find a reasonable market value for the chickens. There are thousands of different farmers markets selling chickens in the world. Pick a reasonable middle.

If you find that each chicken is worth $5, then when you sell them at $2 each...

You owe ($5 x 10) $50 minus your loss of  ($3 x 10) $30 for the 'loss sale', so you have $20 in taxable income. This is the same as $2 x 10 = $20, the price you sold them for.

So in your version, where you mined them at 300 and sold them for 125, you'd just pay taxes on the price you sold them for - as long as this is in the SAME YEAR.

If you mined the bitcoins on Dec 31, 2014, and they were worth $5 each that day, you'd have a taxable income addition of ($5 x 10) = $50, then SOLD them on Jan 1, 2015 for $2 each, you'd report a LOSS of $30 that year.

I don't think that is what they are saying though. If that is what they are saying then why bother telling us to base the value on what they were worth at the time they were mined? If what you are saying is accurate then there would be no point in worrying about what they were worth when MINED, only what they were worth when SOLD.

[amspir]

the U.S dollar is doomed to fail, having lost 97% of it's original value since 1913...No one should want to be pegged to the U.S Dollar.

That is the point of a centralized bank currency.  The intent by the government is to inflate its value at a rate that discourages holding on to it as an investment, and instead keeps circulating in the economy like a hot potato.

[EndTheFed321]

Question, How is the IRS going to go after all who are mining BTC and how will the IRS go after all of us who purchase goods with BTC. And how will the IRS go after the ones who gamble and receive earnings with BTC 

What if we all refuse to give any information to the IRS regarding our BTC trades?

I say we End The IRS and EndTheFed!!

[nitehawk]

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.

this is correct buy irs rulings are not law...

[JohnnyBTCSeed]

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.

One might argue that all of the bitcoins already exist, its just that you have to unlock them. Unlocking requires hardware, electricity, man hours which you should be able to write off. If you pay yourself the man hours to build and install and maintain the mining rig  those can prob also be taxed but then used to write off a loss? But I'm arguing here that bitcoins do exist before they are mined. They exist in the protocol. You can not simply pull something of value from thin air. The protocol pays it to you for solving it's algorithm.

[amspir]

Question, How is the IRS going to go after all who are mining BTC and how will the IRS go after all of us who purchase goods with BTC. And how will the IRS go after the ones who gamble and receive earnings with BTC 

What if we all refuse to give any information to the IRS regarding our BTC trades?

I say we End The IRS and EndTheFed!!

Your bank, seeing incoming USD coming from a foreign exchange, will report it to the IRS.  The IRS may come after you for the tax on all that income assuming you are some kind of drug dealer.  Tax court doesn't assume innocent till proven guilty.

It may be time for you to head for your bunker and declare yourself sovereign citizen.  The problem is that it will be really tough to deal in bitcoins without electricity or internet in your bunker.  Just saying...

[bitcoiner49er]

Are any of you that were mining in 2009/10 gonna go back and document all this for the IRS? I love how the IRS can just apply this to past, present and future. 

[Dissonance]

This does bring up a existential question on what property really means.  Afterall what does it mean to own a bitcoin?  In the technical sense it just means knowing the private key to a wallet that has bitcoins;  In the literally sense ownership means knowledge.  If I were to share my private key with 10 people are they now owners of that wallet or is the wallet still mine ?  What if I loose my private key and the bitcoins are lost forever do I still own that wallet , did I ever own that wallet ? I think bitcoin is going to force a fundamental chance on how property is viewed in the world.  Its certainly going to be interesting.

[counter]

If you ask me this is just an attempt to keep those that don't really understand what a bitcoin is away from gaining any interest.  Build a straw man argument of sorts and present it as fact and end all be all of the discussion.

[amspir]

This does bring up a existential question on what property really means.  Afterall what does it mean to own a bitcoin?  In the technical sense it just means knowing the private key to a wallet that has bitcoins;  In the literally sense ownership means knowledge.  If I were to share my private key with 10 people are they now owners of that wallet or is the wallet still mine ?  What if I loose my private key and the bitcoins are lost forever do I still own that wallet , did I ever own that wallet ? I think bitcoin is going to force a fundamental chance on how property is viewed in the world.  Its certainly going to be interesting.

Such an argument doesn't really mean anything for tax purposes.    The IRS wants you to pay tax on your earned income, i.e. you are a miner generating bitcoin - expenses, your are a merchant selling product for bitcoin - value of inventory and expenses, or you earn wages in bitcoin.    If you lose all your bitcoin after receiving it, a business might be able to deduct a catastrophic loss, but it just means you are out of luck.  The same rules apply to you if you are being paid in USD.

If you give it to someone as a gift, it is regarded as income when they receive it.  The same rule applies with cash, goods and services.

The treatment of capital gains is different, you pay a tax on the gain made from holding it.  If you buy bitcoin, then proceed to truly lose it, you will never be able to trade it for money or goods and services and realize a gain, thus never paying a capital gains tax.  The same rules apply when you buy something considered property by the IRS, i.e. you buy a house then sell it at a higher price in USD.  If the house burns down, hopefully you have insurance.

If you are holding bitcoin in a trust, then you probably want ask your tax lawyer how the capital gains are going to be handled.

US tax law never changed just because bitcoin was invented.  The IRS just clarified that you pay capital gains on bitcoin at a lower tax rate on the gains made by the price going up, rather than as regular income at a higher tax rate.

[Robert Paulson]

Question, How is the IRS going to go after all who are mining BTC and how will the IRS go after all of us who purchase goods with BTC. And how will the IRS go after the ones who gamble and receive earnings with BTC 

What if we all refuse to give any information to the IRS regarding our BTC trades?

I say we End The IRS and EndTheFed!!

they will make an example of a few people who will be audited comprehensively.
once you hear on the news some guy got 20 years in jail for tax fraud because he didn't report his bitcoin capital gains properly you will think twice before attempting this.
if you refuse to give the IRS any information they will throw you in jail obviously...