Bitcoin Is Property Not Currency

[zolace]

Ok for one thing, this is just going to open more illegal businesses and people are gonna find a way to avoid taxes, What stop an american from say Im in Europe and I have USD cash.  people can even exchange cash even right from home.  This is honestly really silly, they inventing a new term for bitcoin when it was already established by us to be a currency.

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[chuckscap]

There is no reasonable way to track this.

Nonsense. All transactions ore visible on the blockchain. Just choose between LIFO and FIFO accounting models, then get to finding the dates of each of your transactions.

How does the IRS establish ownership of the Wallets ?  If I transfer BTC from one Wallet to another (both mine) does that reset the ownership clock?  How about online wallets and third party providers that pool their btc?

If you move your money from one bank account to another it's still your money.   If you're asking can they track it and can you evade paying taxes, probably not a good question to ask or something to even think about doing.   We're all too pretty to go to jail...

[don giovanni]

Get receipts for your face to face transactions. Problem solved. I really think you are making this out to be much more difficult than it needs to be.

Receipts are proof of nothing though, i could fabricate them all day, are simple unprovable records all auditors are looking for, or do they require proof, and if so what proof could you possibly give them that you sold your tv for $200 and not $800, or that you sold your tv and not an ounce of weed?

[don giovanni]

Get receipts for your face to face transactions. Problem solved. I really think you are making this out to be much more difficult than it needs to be.

Receipts are proof of nothing though, i could fabricate them all day, are simple unprovable records all auditors are looking for, or do they require proof, and if so what proof could you possibly give them that you sold your tv for $200 and not $800, or that you sold your tv and not an ounce of weed?

http://www.billofsale-form.com/blank-bill-of-sale/

Does someone hold your hand when you pee?

When you have a garage sale, do you hand all your customers a legal document asking for their name and home address?

[MegaHustlr]

This could be a good thing ya know?

[don giovanni]

The bigger problem (in my opinion) is that even if people WANT to comply, it may be difficult or impossible to do so.

I agree, this is a big problem, but the real problem here is that reporting any transaction where both parties havent identified themselves and are being monitored by a 3rd party may open onself up to being charged with tax evasion.

[Peter R]

The bigger problem (in my opinion) is that even if people WANT to comply, it may be difficult or impossible to do so.

I agree, this is a big problem, but the real problem here is that reporting any transaction where both parties havent identified themselves and are being monitored by a 3rd party may open onself up to being charged with tax evasion.

It will soon be very easy to ensure that you are fully compliant if you choose to.  Check out ZGL wallets for one idea: https://bitcointalk.org/index.php?topic=531135.0

[bbeagle]

Receipts are proof of nothing though, i could fabricate them all day, are simple unprovable records all auditors are looking for, or do they require proof, and if so what proof could you possibly give them that you sold your tv for $200 and not $800, or that you sold your tv and not an ounce of weed?

If the IRS thinks all your receipts look legit, they won't investigate further. But if anything looks suspicious, they will investigate a few items and see if your story is true.

For example, if you write on your taxes that you gave $1,000 in charity to your church (a tax write-off)... if the IRS audits you, they will ask you for your receipts. You tell them you gave cash, you have none. They will then ask for the name of your church. They'll follow up to see if you go there regularly. If the pastor knows you, they might think your donations are legit. They won't trace further than this, they'll trust you.

However, if they ask your friends about your church, and they say you don't go, and the pastor never heard of you.... well the IRS will get upset, and charge you with fraud and fine you.  They will then investigate deeper everything on your taxes, and audit you for previous years, and also audit you repeatedly in the future. YOU have to prove that you gave $1,000 in charity to your church, not the other way around. If the IRS is just suspicious, that's enough for them to charge you.

(If you wrote that you gave $50 to your church, however, they won't even think of pursuing it, so how MUCH money matters a lot)

[twiifm]

Receipts are proof of nothing though, i could fabricate them all day, are simple unprovable records all auditors are looking for, or do they require proof, and if so what proof could you possibly give them that you sold your tv for $200 and not $800, or that you sold your tv and not an ounce of weed?

If the IRS thinks all your receipts look legit, they won't investigate further. But if anything looks suspicious, they will investigate a few items and see if your story is true.

For example, if you write on your taxes that you gave $1,000 in charity to your church (a tax write-off)... if the IRS audits you, they will ask you for your receipts. You tell them you gave cash, you have none. They will then ask for the name of your church. They'll follow up to see if you go there regularly. If the pastor knows you, they might think your donations are legit. They won't trace further than this, they'll trust you.

However, if they ask your friends about your church, and they say you don't go, and the pastor never heard of you.... well the IRS will get upset, and charge you with fraud and fine you.  They will then investigate deeper everything on your taxes, and audit you for previous years, and also audit you repeatedly in the future. YOU have to prove that you gave $1,000 in charity to your church, not the other way around. If the IRS is just suspicious, that's enough for them to charge you.

(If you wrote that you gave $50 to your church, however, they won't even think of pursuing it, so how MUCH money matters a lot)

I've been audited before.  Its mainly an interview.  My accountant made a numerical typo on some line item that didn't add up.

I had a book full of receipts and they just flipped through it for 5 mins.  All they wanted to check is if the it is truly a typo or intentional fraud.  (the difference was like a missing zero)

Then they just adjust your taxes based on the correction.

BTW this was a business audit not personal

[don giovanni]

Receipts are proof of nothing though, i could fabricate them all day, are simple unprovable records all auditors are looking for, or do they require proof, and if so what proof could you possibly give them that you sold your tv for $200 and not $800, or that you sold your tv and not an ounce of weed?

If the IRS thinks all your receipts look legit, they won't investigate further. But if anything looks suspicious, they will investigate a few items and see if your story is true.

For example, if you write on your taxes that you gave $1,000 in charity to your church (a tax write-off)... if the IRS audits you, they will ask you for your receipts. You tell them you gave cash, you have none. They will then ask for the name of your church. They'll follow up to see if you go there regularly. If the pastor knows you, they might think your donations are legit. They won't trace further than this, they'll trust you.

However, if they ask your friends about your church, and they say you don't go, and the pastor never heard of you.... well the IRS will get upset, and charge you with fraud and fine you.  They will then investigate deeper everything on your taxes, and audit you for previous years, and also audit you repeatedly in the future. YOU have to prove that you gave $1,000 in charity to your church, not the other way around. If the IRS is just suspicious, that's enough for them to charge you.

(If you wrote that you gave $50 to your church, however, they won't even think of pursuing it, so how MUCH money matters a lot)

Thanks for the explaination. The point really wasnt about how much you can get away with or how to dodge an audit, its about how you can follow the rules and what impact they have on our daily activities. In your example you gave the name of a church, that is simple to investigate, but if i tell them i sold my coin to an anonymous person over the internet who made a cash deposit and they ask for proof of that, then what do i tell them? I can give them the amount i sold for (hey there it is in my bank account), the amount of coin, the price per coin, the difference in value from when i obtained it, etc.... but i can never give them proof that the coin was in fact mine and that im not just pointing to some arbritrary address on the blockchain. They suspect that i was selling coin for a favorable longterm capital gains rate and not the newer coin i just purchased recently, i can only point to the address i have given them, then what happens?

I think people are vastly downplaying the impact this has on off-exchange and off-blockchain transactions, this could very well make anyone who doesnt register themself on an exchange be charged with some very serious crimes.

[bbeagle]

In your example you gave the name of a church, that is simple to investigate, but if i tell them i sold my coin to an anonymous person over the internet who made a cash deposit and they ask for proof of that, then what do i tell them? I can give them the amount i sold for (hey there it is in my bank account), the amount of coin, the price per coin, the difference in value from when i obtained it, etc.... but i can never give them proof that the coin was in fact mine and that im not just pointing to some arbritrary address on the blockchain. They suspect that i was selling coin for a favorable longterm capital gains rate and not the newer coin i just purchased recently, i can only point to the address i have given them, then what happens?

I think you're overthinking it.

You write on your taxes that you had a deposit into your bank account of $1,216. Your bank statement confirms this number. You pay taxes on the $1,216. The IRS is happy - they don't care WHAT you sold.

If you're paying taxes something else, like $716 when the deposit shows $1,216, then you need to come up with why you are leaving out $500. The IRS then cares a little more. You show a bank statement where you have a withdrawal/check for $500 earlier in the year. The IRS might just say 'ok' right there and go no further.

They could ask what you bought. You say 1 btc. They might be ok right there.

If the IRS is suspicious, they might ask who did you buy it from. If you don't know, but you can show that when you bought the $500 btc earlier in the year, that was the going rate for 1 btc, then later about $1200 was the going rate for 1 btc, they will probably accept that. I doubt they will ever care about a 'blockchain' or anything like that.

Does it sound like a reasonable explanation? That's all they really care about. They don't understand all the details about bitcoins and they really don't care. They'll probably have 1 expert on bitcoins where they'll email your explanation to, and the expert will either say it sounds legit or not. Just like if you sold a painting for $40,000 - not everyone is an expert, so they will have an IRS agent who is, who will know if it's legit or not.

Unless, of course, you're cashing in millions of dollars of btc. At this point, you better have all the documentation they want, or they won't allow you to 'write-off' the initial cost of the btc.

Example: You sell your btc for $10,000,000. You claim you bought them for $2,000,000. You 'write off' the $2,000,000 and don't pay taxes on that.... you only pay taxes on $8,000,000. If the IRS doesn't believe your story and you can't prove you bought $2,000,000 in btc, then you will owe taxes on the whole $10,000,000, not just $8,000,000.

[LostDutchman]

This could be a good thing ya know?

Oh, well, please tell us just how!

My $.02.

[amspir]

If the IRS is suspicious, they might ask who did you buy it from. If you don't know, but you can show that when you bought the $500 btc earlier in the year, that was the going rate for 1 btc, then later about $1200 was the going rate for 1 btc, they will probably accept that. I doubt they will ever care about a 'blockchain' or anything like that.

It will take cases brought to court to answer the question, but I think IRS auditors will accept a record of a transaction on the block chain as a valid receipt.   Paper receipts are easily counterfeited.  A knowledgeable IRS auditor will realize that a confirmed blockchain transaction is a much harder receipt than a paper receipt.  They may want confirmation from the receiving party before fully validating it, but they definitely won't be asking the coffee shop.

[jbreher]

This could be a good thing ya know?

Oh, well, please tell us just how!

Because the blow from the IRS -- which we all knew was coming sometime -- has now been dealt. What's more, the only more advantageous ruling they might possibly have rendered (at least in regards to users, rather than miners) would have been to rule it legal tender -- and we all know that was an infinitesimal possibility.

So now that the blow has been dealt, we might shake out a few weak hands. If the price drops to some level (let's be (anti)generous and say 50%), that is the point at which it will restart its steady climb in adoption - probably at about the same slope as before. We will have absorbed the blow, and they have no further blow to deal.

As for the mining ruling, yeah, that kinda sucks. IANAL, nor an accountant, but I do not see the logic in their ruling. I keep thinking about the contrast to mining physical gold, and the fact that inventories of such are not taxable until sold.

Here's the funny thing though. Rulings are merely administrative interpretations of the Regulations as encoded in the CFR. The Regulations, in turn, are the Commissioner's best effort at interpreting the Statutes as encoded within the USC. The USC is the best effort attempt at harmonizing all the bills that the Legislature passes. IOW, Rulings are not Law. They are three indirections removed from Law.

Further, Rulings are not binding - not even upon Inspectors, Auditors, nor the US Tax Court. And the US Tax Court is not really a court, as it is not a body according to Article III of the Constitution. US Tax Court is really an administrative tribunal. All decisions of the US Tax Court are appeal-able to a real Article III Federal Court.

I guess the last three paragraphs are just a long-winded way of saying that I expect the mining ruling to be overturned.

But don't listen to me - I'm just some random schmuck on the Interwebs.

[Peter R]

Here's the funny thing though. Rulings are merely administrative interpretations of the Regulations as encoded in the CFR. The Regulations, in turn, are the Commissioner's best effort at interpreting the Statutes as encoded within the USC. The USC is the best effort attempt at harmonizing all the bills that the Legislature passes. IOW, Rulings are not Law. They are three indirections removed from Law.

Further, Rulings are not binding - not even upon Inspectors, Auditors, nor the US Tax Court. And the US Tax Court is not really a court, as it is not a body according to Article III of the Constitution. US Tax Court is really an administrative tribunal. All decisions of the US Tax Court are appeal-able to a real Article III Federal Court.

I guess the last three paragraphs are just a long-winded way of saying that I expect the mining ruling to be overturned.

+1

I am surprised at the misunderstanding in the bitcoin community about how our legal and tax systems work.  Like you implied, the IRS does not write laws.  What they issued was their interpretation of the laws, given their understanding of bitcoin.  

For example, if you believe that miners are not required to recognize coins as income at the moment of mining, then you can simply do nothing if you choose.  I don't see how it is feasible for anyone to know that you did mine coins, nor do I think anyone really cares, but in the event that you were called to task somehow you could argue your rationale in court.

My interpretation of the laws is that "hashers" are required to recognize mined coins as income at the time of mining, and miners when a "gain" has been realized.  

Of course the IRS cares about tax collection, however, and if you have a yellow Lamborghini and a villa in Napa and report a $35,000 salary and zero capital gains, then this may be a problem.  

This is not legal advice.  IANAL.

[coinyear]

This could be a good thing ya know?

I really do not know, in where?

[Searing]

Here's the funny thing though. Rulings are merely administrative interpretations of the Regulations as encoded in the CFR. The Regulations, in turn, are the Commissioner's best effort at interpreting the Statutes as encoded within the USC. The USC is the best effort attempt at harmonizing all the bills that the Legislature passes. IOW, Rulings are not Law. They are three indirections removed from Law.

Further, Rulings are not binding - not even upon Inspectors, Auditors, nor the US Tax Court. And the US Tax Court is not really a court, as it is not a body according to Article III of the Constitution. US Tax Court is really an administrative tribunal. All decisions of the US Tax Court are appeal-able to a real Article III Federal Court.

I guess the last three paragraphs are just a long-winded way of saying that I expect the mining ruling to be overturned.

+1

 

My interpretation of the laws is that "hashers" are required to recognize mined coins as income at the time of mining, and miners when a "gain" has been realized.  
 

again I'm likely wrong...but if the above means that if i mine whatever coin alt-coin bitcoin or whatever keep track of my 'gross income from mining" likely daily
or perhaps just when my pool dumps it on the blockchain address.....I'm golden?"

it is the holding and the coin in question going up in value 20% the following week the way bitcoin may or may not do... that you have to pay capital gains on from the above on top of the 'gross income" according to the IRS on that bump up in value as well..of the above scenario? .(do i have this correct?) if my coin from the pool dumps at a regular basis to my blockchain ie a record of the transaction i can show IRS in USA>....and i cash out at that point i have a date/time stamp of its worth on blockchain and a date time stamp of its $$ value as I cash it out same day say.....gross income from mining is met and no capital gains because i sold it for what it was worth when i mined it....ie directly......ie values match?


so if you treat the whole mining thing like a direct 'cash flow' kinda thing ...capital gains should not apply?

again probably wrong or being mr. obvious but all this makes my head hurt..use simple words I'm dense.

also IRS rule is unenforceable in current form IMHO..but just saying is that how it works more or less above?

Searing

[twiifm]

Capital gains are long term.   Its a preferential rate.   Short term gains are treated as ordinary income

If you mine as a business.   It depends on how you set up your business.   Sole proprietor,  Corp,  S Corp,  LLC.   They all have different tax rules.

Ask your accountant for tax advice.   Theyll be more equipped to answer your question than a message  board

[marcus_of_augustus]

Federal Judge Rules Bitcoin is a currency ...

http://techcrunch.com/2013/08/07/bitcoin-clampdown-continues-as-federal-judge-says-its-a-currency/

A federal judge in Texas has declared that Bitcoin is a currency and should therefore be regulated just like U.S. dollars

The only limitation of Bitcoin is that it is limited to those places that accept it as currency. However, it can also be exchanged for conventional currencies, such as the U.S. dollar, Euro, Yen, and Yuan. Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an investment of money.

This a Federal court ruling. Schizophrenic tax-evading Judges?

[dogechode]

Why do I get the feeling this is going to turn into an ObamaCare-like issue where individual states will battle it out with the federal ruling for years to come...