Did the IRS make a big Loophole mistake? WHOOPS!!!!

[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??

[1714905051]

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[Foxpup]

Your thinking is way off. The IRS has (correctly) determined that bitcoins are not manufactured goods, instead mining is a service, for which miners are paid an income. You contribute your computing power to secure the network, you get paid bitcoins in exchange for your contribution, and those bitcoins are taxable income. It's so simple only a tax denier could dispute it.

[Stratobitz]

Paid?  I though it was our computers that actually made them, solved the problem, created the bitcoins.  The block chain does nothing but verify that the work you did adds up. Your computer was the device, single handedly, that created the block of coins. I don't see a payment.

[Stratobitz]

Your thinking is way off. The IRS has (correctly) determined that bitcoins are not manufactured goods, instead mining is a service, for which miners are paid an income. You contribute your computing power to secure the network, you get paid bitcoins in exchange for your contribution, and those bitcoins are taxable income. It's so simple only a tax denier could dispute it.

And considering its decentralized, who pays when you mine?  If you were the ONLY miner, say on an altcoin with zero other miners, you would create coins. Who pays then?

[Peter R]

Your thinking is way off. The IRS has (correctly) determined that bitcoins are not manufactured goods, instead mining is a service, for which miners are paid an income. You contribute your computing power to secure the network, you get paid bitcoins in exchange for your contribution, and those bitcoins are taxable income. It's so simple only a tax denier could dispute it.

Hashers provide a service and receive payment from the pool operator.  

Miners create a coinbase transaction and their peers may or may not accept it as valid.  

[Stratobitz]

Your thinking is way off. The IRS has (correctly) determined that bitcoins are not manufactured goods, instead mining is a service, for which miners are paid an income. You contribute your computing power to secure the network, you get paid bitcoins in exchange for your contribution, and those bitcoins are taxable income. It's so simple only a tax denier could dispute it.

Hashers provide a service and receive payment from the pool operator.  

Miners create a coinbase transaction and their peers may or may not accept it as valid.  

And for solo miners?

[smooth]

Their position, essentially, is that even as a solo miner you are providing a service to the network and being paid in kind. As with any other payment in kind (unless some exception applies), that is revenue at fair market value.

This is essentially correct in reality, though I'm not ready to credit the IRS with fully understanding bitcoin. The only reason you are allowed to stick that coinbase transaction in there giving yourself 25 coins out of thin air, is that the rest of the network has agreed your services in securing the blockchain are worth that much.

[Stratobitz]

Their position, essentially, is that even as a solo miner you are providing a service to the network and being paid in kind. As with any other payment in kind (unless some exception applies), that is revenue at fair market value.

This is essentially correct in reality, though I'm not ready to credit the IRS with fully understanding bitcoin. The only reason you are allowed to stick that coinbase transaction in there giving yourself 25 coins out of thin air, is that the rest of the network has agreed your services in securing the blockchain are worth that much.

Key words being "essentially correct in reality".  I'm sure lawyers will be arguing reality in court someday.

[Klestin]

Solo miners are miners. P2Pool miners are miners.

Traditional pool miners sell hash rate to a pool operator who then pays them in return.

This is exactly as I see it. Now if only you and I were in charge of these things.  It would be nice to get an official interpretation on this in support of the position on P2Pools.  The tax reporting burden of operating traditional pools might then encourage more pool operators to move to P2Pool, which would be great for mitigating 51% attack fear mongering.

[MegaHustlr]

What is the IRS?

[mycoin25]

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??

If they are going to treat it as property, how taxes will be irs difficulties!

[hjdt4fd1]

If the IRS intends to treat it as a property, that the IRS will face many problems, how to solve these problems is a problem.

[berliston]

What is the IRS?

I have the same question ! Could anybody describe it?

[gustav]

Your thinking is way off. The IRS has (correctly) determined that bitcoins are not manufactured goods, instead mining is a service, for which miners are paid an income. You contribute your computing power to secure the network, you get paid bitcoins in exchange for your contribution, and those bitcoins are taxable income. It's so simple only a tax denier could dispute it.

according to this bitcoin is officially legal tender/real money in the US. Then you should be able to get insurance on it among other things. They will not want that in the end of the day. Then the question arises: can the government tax the creation of foreign money? I think they can't tax creation of foreign money.

With the whole thing also comes the question: where exactly is that 'money' located? Anyone?
Also: can it be loacted in multiple places? What taxes apply then? It is not even physical. How you want to tax something non-physical? Can you tax an idea or a string of numbers in my head? I don't think you can tax my thoughts.
How you gonna tax something that you are not sure of where it is?
Also there is no way to proof who controls what coins as long as they were not exchanged for fiat. So we really have a bunch of problems here when it comes to applying all their wishes to reality.

also: when you rent ghs in a foreign country the creation of the coins is for sure not in your country. How tax that?

My opinion: you can realy only tax it when it is exchanged for money or other goods/services - not before that - because you can't say where it is at (first of many problematic points that arise with that).

get ready for some bizzarre court-action coming years

funny how it is not a ponzisheme anymore and all of a sudden seems to have intrinsic value since it is classified as 'income' - is it really not a wothless ponzi? How to proof one way or the other? I predict they have to retreat to tax it only when exchanged for fiat. The other viewpoint is not sustainable.
As long as they lack a clear definition of what exactly they talk about they can't hold it up at court ... but then again i don't know how much of a fascist regime america is these days.
edit: was reading around a bit and they obviously are employing doublestandards openly which is outside of the rule of law for sure.

[hilariousandco]

What is the IRS?

I have the same question ! Could anybody describe it?

The Internal Revenue Service. Ie the people who tax you.

[murraypaul]

Your thinking is way off. The IRS has (correctly) determined that bitcoins are not manufactured goods, instead mining is a service, for which miners are paid an income. You contribute your computing power to secure the network, you get paid bitcoins in exchange for your contribution, and those bitcoins are taxable income. It's so simple only a tax denier could dispute it.

according to this bitcoin is officially legal tender/real money in the US.

No it isn't.
People seem to have a very vague understanding of what the phrase 'legal tender' means.
It doesn't mean something is or is not money, or currency, or legal.
It means something that when accepted as payment of debt must be accepted as extinguishing the debt. That is it.
Cheques are not legal tender, credit and debt cards are not legal tender, PayPal is not legal tender.
That doesn't mean you can't use them to buy things.