IRS says btc is property, what does this do to the taint issue?

[amspir]

Ok, so the IRS says bitcoin is property.

Does this legal definition carry over to declaring an amount of bitcoin as stolen property?

i.e., a merchant accepts btc as payment in good faith, but can be later shown to be in possession of stolen "property" and forced to return it?

Will we have to wait for a court ruling on such a matter to establish precedence?

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[Peter R]

If a merchant accepts gold coins as payment in good faith, and later it can be shown that 1% of the gold atoms in that coin were stolen, would he be forced to return the "illegal atoms"? 

Here is my parody thread:

https://bitcointalk.org/index.php?topic=521703.0

[BurtW]

It makes it even more important that you use coinjoin for all transactions.  If everyone does this it would taint ALL coins equally.

[amspir]

If a merchant accepts gold coins as payment in good faith, and later it can be shown that 1% of the gold atoms in that coin were stolen, would he be forced to return the "illegal atoms"? 

I get understand the parody, but what does actually happen currently?

For example, if a thief goes to the local bullion coin dealer and gets cash for some non-numismatic-grade golden eagles, and law enforcement traces the path -- is the coin dealer required to turn over the exact golden eagles to the original owner?

[DeathAndTaxes]

Nothing.

The IRS is saying THAT FOR THE SOLE PURPOSE OF DETERMINING TAXES OWED Bitcoin gains are treated as gains in property (aka capital gains).
A federal court also said THAT FOR THE SOLE PURPOSE OF DETERMINING IF A CONTRACT IS A SECURITY that Bitcoin is considered money.
FinCen has provided guidance THAT FOR THE SOLE PURPOSE OF DETERMINING THE APPLICABILITY OF THE BSA that entities which convert Bitcoins to "real" currency (and the reverse) are Money Transmitters (under federal law) but Bitcoins are not money.

These ruling don't have any relevance outside of their very limited scope (a good thing because they are in direct conflict with each other).

The applicability of US law when it comes to traced/recovered bitcoins that were stolen is as of yet undetermined in the US.  It will remain so until an old guy in a black robe makes a "wise decision".  Of course plenty of people can speculate one way or the other but until a judge rules on it, it is just that speculation.  Bitcoin isn't just cutting edge technology it is cutting edge in the legal arena as well.   

[amspir]

Nothing.

The IRS is saying THAT FOR THE SOLE PURPOSE OF DETERMINING TAXES OWED Bitcoin gains are treated as gains in property (aka capital gains).
A federal court also said THAT FOR THE SOLE PURPOSE OF DETERMINING IF A CONTRACT IS A SECURITY that Bitcoin is considered money.
FinCen has provided guidance THAT FOR THE SOLE PURPOSE OF DETERMINING THE APPLICABILITY OF THE BSA that entities which convert Bitcoins to "real" currency (and the reverse) are Money Transmitters (under federal law) but Bitcoins are not money.

These ruling don't have any relevance outside of their very limited scope (a good thing because they are in direct conflict with each other).

The applicability of US law when it comes to traced/recovered bitcoins that were stolen is as of yet undetermined in the US.  It will remain so until an old guy in a black robe makes a "wise decision".  Of course plenty of people can speculate one way or the other but until a judge rules on it, it is just that speculation.  Bitcoin isn't just cutting edge technology it is cutting edge in the legal arena as well.   

That's good to know.  Here's to hoping that the first big case regarding tainted bitcoins will be defended by an institution with an army of lawyers.

[DeathAndTaxes]

That's good to know.  Here's to hoping that the first big case regarding tainted bitcoins will be defended by an institution with an army of lawyers.

The best possible case would be someone who had airtight proof of owning bitcoins, that were later stolen.  The stolen bitcoins then ended up on silk road through no action or fault of the original owner and ended up in the bitcoins seized by the FBI.

It would be interesting because a judge ruling that bitcoins are property and not a bearer instrument, would likely rule that nemo dat quod non habet applies.  That would force the US treasury to return the stolen property.  Even if the DOJ (acting on behalf of the US Treasury) had already auctioned off the silkroad coins, the coins could be taken from the purchaser (and I am sure the US Treasury/DOJ will keep good records).

So you could actually see the US Treasury and DOJ filing briefs stating arguing that bitcoins are a bearer instrument and that nemo dat quod non habet does not apply.