On the IRS guidance: Am I wrong in understanding the IRS guidance as their interpretation of existing laws? No laws were actually changed, correct? To me it seems the guidance was fair: presently bitcoin is more like property than like currency; if you disagree I believe the courts would have the final say.
Correct. However, the courts will only have a say if you treat it as something else, AND it causes you to figure a lower tax, AND the IRS rejects your treatment. Treatment as 'property' is generally going to be more favorable for the taxpayer than treatment as currency.
This guidance is in greater disparity with people who were/are holding that their Bitcoins are NEITHER their Property, NOR currency.
In other words: Folks who pose that Bitcoins are the same as game currency (Such as World of Warcraft Gold), that, there is therefore no taxable value from obtaining bitcoins through mining, playing video games, or whatever, since this digital association of hypothetical future value to be spendable by a private key (Something you know, not something you have), according to consensus of the Bitcoin network is not a "Thing".
That is... the person who mines a Bitcoin doesn't become an "owner" of anything, or obtain any 'lawful exclusive right' to anything of value.
Thus no taxable value for bitcoins obtained in trade.
Such treatment would result in taxable income only when Bitcoins are "exchanged" for property assets with real value, or services/goods are obtained.
Much in the same way that earning Warcraft gold while playing World of Warcraft is not taxable, but any sale of Gold for cash is taxable.
But the bigger point I want to make is that as bitcoin grows, it may naturally evolve to become more like currency than like property, and at this point would not the IRS guidance less accurately reflect the existing law
If you want to be safe, you should probably use the least tax-preferential treatment, as it is the Revenue Code that you need to follow. The IRS is just providing a service to assist taxpayers by providing guidance on their intended interpretation of the law.
The IRS have the right to change their mind, at any time with regards to their guidance, if they see it maximizes tax revenue, they may do so by updating guidance or rejecting the standard guidance on a case-by-case basis.
Also, following the IRS guidance doesn't absolve you for underpayment --- if it turns out their guidance was wrong, and some less-tax-preferential treatment was correct: the taxpayer may be subject to paying more including underpayment penalties.
The same theme applies to the guidance on mining. From my discussions with various community members, I think the general feeling is that hashers are paid for the services they provide to a mining pool whereas miners create bitcoins based on their own initiatives and the acceptance of their efforts by their peers.
No... with A mining pool it is still their own initiative.
Mining pools are essentially informal revenue-sharing arrangements; where people conducting mining combine their computational power, so they collectively have a better chance of finding a block ----- when one of the miners in the pool does find a valid block, the reward revenue is redistributed among the active miners' peers based on a formula they agreed upon, which included each miner providing numerous "intermediary" hashes that met a slightly lower difficulty bar, in order to prove that they were actively mining.
If this is income, and potential self-employment income, then... of course... the same is true of solo-mining.
