White House Petition to AMEND IRS NOTICE 2014-2 Taxing virtual currency/Bitcoin

[pungopete468]

I can see the timing of the tax evaluation being challenged too.

The publication mentions that the coins will be evaluated as ordinary income at the time they are received. If your mined coins are never received then is there no taxable income?

The Bitcoin protocol defines the ownership of coins by the owner of the private key. When your coins are not in your wallet; they are not your coins... Gox being one example among many.

So when is a Bitcoin actually owned? If you follow the blockchain then there is a clear event that identifies ownership.

[1714139095]

1714139095

[J_Dubbs]

i laugh at the panicking people that have not fully understood the ruling or the method of tracking/auditing. nor spoke to a accountant about it, but they simply start a petition to change something they dont understand.

Well my problem is that my accountant actually said a lot of very reassuring things, except they appear to be directly contradicted by the IRS publication even though he's read it.  I don't really feel like getting audited.

I met with a CPA today and he seemed to advise we only record income on spent BTC. For example, I buy mining gear with BTC, so the act of exchanging BTC for dollars or a good that are "real" is when we will record as income. This means the non-exchanged BTC only has a cost basis at where it was mined. Some of his advice seemed to contradict the IRS Q&A publication, but when I pressed on those he made the point that if I'm holding and not exchanging that it doesn't need to be reported as there's no taxable event. What he was advising sounded a lot like what I was hoping for, or what I thought would make more sense, but I do know the official guidance seems to state things differently. We both agreed it seems silly to report income on a virtual thing that is highly speculative. I mean, if you get $90k in mining payouts but at the year end some big news makes BTC worthless or illegal then you would owe taxes on that income but never saw and dollars, services, or physical goods from purchases because it was never exchanged and ended up worthless. He did say their guidance seems unclear enough that we come up with a method and stick with it until/unless they clarify. Lastly, a bit of confusion how to report some of the expenses, but I need to send him my spreadsheets, more to come...

Your CPA is an idiot and so you are if you use him.

IRS ruling clearly indicates there are 2 possible ways of acquiring btc:

1) Mining:  a taxable event that will be in your gross income based on fair market value of the mined coins. There will be another taxable event when you sell those coins, thus fall into capital gain.
2) Buying: there willl be a taxable event when you sell btc.

Eat shit buddy, why exactly do you think you can call people "idiots"? How much different you must sound face to face, serious keyboard bully syndrome you've got on this thread. I've been usefully adding to these topics for several days, and I promised I would share back what my CPA advises. He's got 20+ years and this was at a glance his first impression. Seriously, in all seriousness go fuck yourself.


Edit: I'm looking through your post history and it seems you have developed a habit of calling people idiots on here. I can't find one post of yours that doesn't have an insulting tone. Hope you understand what happens next...

[cryptoanarchist]

Who cares wtf the I.R.S. does.

Not a single Satoshi I own is traceable to me as a individual.
Anybody could own my BTC, there is no way for the I.R.S. to prove otherwise.

Bitcoin was designed in a way that you should all be able to safely ignore the I.R.S. on this issue.
In reality most of BTC value is attributed to that fact, silkroad is what gave BTC value, gambling sites also helped.

I dare you to do what you said if you live in U.S.

Unless your total btc holding is worth couple thousands USD.

I already have. Furthermore, I've stated as much on here for years that the IRS is never getting my cryptocoins - so they can even look at this forum for proof that I don't care what they say.

The IRS means nothing to me. They owe ME money, not the other way around.

[crazynoggin]

I find it interesting that Bitcoin could even be considered property and not a currency. It has all the qualities of a currency.

[bananas]

miners had to pay it already, if they were not paying they can keep doing the same "crime", there is no difference now or before

[amspir]

I find it interesting that Bitcoin could even be considered property and not a currency. It has all the qualities of a currency.

If the IRS considered it currency, your gains would be considered regular income, as is the case with a foreign currency.   By treating it as property, you get a preferential tax treatment for long term gains.

[J_Dubbs]

I find it interesting that Bitcoin could even be considered property and not a currency. It has all the qualities of a currency.

The CPA I met with seemed to understand the guidance, and he agreed we need to show something, but I almost think he envisions it being revised at some point. At the end of the day I'm taking his advice, he's not done evaluating it yet, but we will set a strategy that applies the guidance in a way that makes sense for me and stick with it until told otherwise.

What should be understood is this method they have outlined where payouts are recorded as income, and equipment will sit as expenses due to life that doesn't justify depreciation, we will very likely end up with an operating loss. Go ahead and calculate 2014 out so far to see how it looks. Due to the steady decline in price the revenues recorded do not come close to covering the equipment costs made months ago. Stay with me, this has a purpose... The problem is if your "business" generates a loss for three out of five years the IRS will consider it a hobby, and at that point you need to pay taxes on all the income and can only claim expenses greater than some percentage of your gross income- I forget the number but it was high. Basically once the IRS sees your activity as a "hobby" you end up with the worst of both worlds; paying taxes without the ability to write off expenses. So much of the annual profitability depends on market forces, it's just so speculative that there really is no certainty of profit in mining, and if 2014 doesn't turn around most miners will be reporting a loss next year, do that too many times and then you need to actually prove to them it is a business and not a hobby. And if you come out the gate saying it's just a hobby then be prepared to pay out the ass without the ability to claim expenses. This is tricky stuff and the important thing is having a system that makes sense and can be explained, remembering what you do this year sets the precedent for how you handle accounting in the years to come.

I'll be cleaning up some spreadsheets and will report back if my CPA says anything new.

[pungopete468]

I find it interesting that Bitcoin could even be considered property and not a currency. It has all the qualities of a currency.

If the IRS considered it currency, your gains would be considered regular income, as is the case with a foreign currency.   By treating it as property, you get a preferential tax treatment for long term gains.

This is true.

Imagine you mine 1 XBT when the value is $500. The IRS expects you to report that as income on either your W-2 or 1099 depending on how you normally file your taxes.

Then you hold the coin for over a year and decide to sell the coin. The value of that XBT is double what it was when you mined it. You now have $1,000 value of which you paid taxes on $500. The IRS wants you to pay $500 in capital gains on the difference.

The long term capital gains tax rate is currently 20%. Regular income tax brackets are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. In this scenario you are likely going to pay less in taxes than you would if you paid regular income taxes on your sale amount. If you make more than $36,000 per year your regular income tax rate is greater than the long term rate on capital gains.

So what if you transfer your coins into your personal wallet on a day where the market has flash crashed? Will you be able to claim the daily value of that day for the purpose of determining your regular income tax liability?

[seriouscoin]

i laugh at the panicking people that have not fully understood the ruling or the method of tracking/auditing. nor spoke to a accountant about it, but they simply start a petition to change something they dont understand.

Well my problem is that my accountant actually said a lot of very reassuring things, except they appear to be directly contradicted by the IRS publication even though he's read it.  I don't really feel like getting audited.

I met with a CPA today and he seemed to advise we only record income on spent BTC. For example, I buy mining gear with BTC, so the act of exchanging BTC for dollars or a good that are "real" is when we will record as income. This means the non-exchanged BTC only has a cost basis at where it was mined. Some of his advice seemed to contradict the IRS Q&A publication, but when I pressed on those he made the point that if I'm holding and not exchanging that it doesn't need to be reported as there's no taxable event. What he was advising sounded a lot like what I was hoping for, or what I thought would make more sense, but I do know the official guidance seems to state things differently. We both agreed it seems silly to report income on a virtual thing that is highly speculative. I mean, if you get $90k in mining payouts but at the year end some big news makes BTC worthless or illegal then you would owe taxes on that income but never saw and dollars, services, or physical goods from purchases because it was never exchanged and ended up worthless. He did say their guidance seems unclear enough that we come up with a method and stick with it until/unless they clarify. Lastly, a bit of confusion how to report some of the expenses, but I need to send him my spreadsheets, more to come...

Your CPA is an idiot and so you are if you use him.

IRS ruling clearly indicates there are 2 possible ways of acquiring btc:

1) Mining:  a taxable event that will be in your gross income based on fair market value of the mined coins. There will be another taxable event when you sell those coins, thus fall into capital gain.
2) Buying: there willl be a taxable event when you sell btc.

Eat shit buddy, why exactly do you think you can call people "idiots"? How much different you must sound face to face, serious keyboard bully syndrome you've got on this thread. I've been usefully adding to these topics for several days, and I promised I would share back what my CPA advises. He's got 20+ years and this was at a glance his first impression. Seriously, in all seriousness go fuck yourself.


Edit: I'm looking through your post history and it seems you have developed a habit of calling people idiots on here. I can't find one post of yours that doesn't have an insulting tone. Hope you understand what happens next...

Let me explain like you're a five years old.

It does not matter what your CPA's OPINION is, or what he and you think makes sense.

IRS ruling cant be any clearer. 20 yrs or 1 yr experience does not mean jack if your CPA doesnt understand the wording. In fact, if he has 20yrs experience and suggest something contradicts the ruling then my statement of him being an idiot is even more concrete.

As for calling u an idiot, it depends on your action. If you choose to follow an idiot's advise, you're not smarter than him are you?

I'm an hard ass on anyone who misleads ppl by posting opinions on public forums as facts.

[btcpay86]

Everyone should sign the petition and spread the links.  The IRS's recent ruling on how it will tax Bitcoin and crypto currencies are going to directly effect us all but especially negative is the requirement for miners.

http://www.cryptocoinsnews.com/2014/03/29/white-house-petition-amend-irs-notice-2014-2-taxing-virtual-currencybitcoin/

It is good for Bitcoin, but maybe will be more troublesome in operation.

[J_Dubbs]

i laugh at the panicking people that have not fully understood the ruling or the method of tracking/auditing. nor spoke to a accountant about it, but they simply start a petition to change something they dont understand.

Well my problem is that my accountant actually said a lot of very reassuring things, except they appear to be directly contradicted by the IRS publication even though he's read it.  I don't really feel like getting audited.

I met with a CPA today and he seemed to advise we only record income on spent BTC. For example, I buy mining gear with BTC, so the act of exchanging BTC for dollars or a good that are "real" is when we will record as income. This means the non-exchanged BTC only has a cost basis at where it was mined. Some of his advice seemed to contradict the IRS Q&A publication, but when I pressed on those he made the point that if I'm holding and not exchanging that it doesn't need to be reported as there's no taxable event. What he was advising sounded a lot like what I was hoping for, or what I thought would make more sense, but I do know the official guidance seems to state things differently. We both agreed it seems silly to report income on a virtual thing that is highly speculative. I mean, if you get $90k in mining payouts but at the year end some big news makes BTC worthless or illegal then you would owe taxes on that income but never saw and dollars, services, or physical goods from purchases because it was never exchanged and ended up worthless. He did say their guidance seems unclear enough that we come up with a method and stick with it until/unless they clarify. Lastly, a bit of confusion how to report some of the expenses, but I need to send him my spreadsheets, more to come...

Your CPA is an idiot and so you are if you use him.

IRS ruling clearly indicates there are 2 possible ways of acquiring btc:

1) Mining:  a taxable event that will be in your gross income based on fair market value of the mined coins. There will be another taxable event when you sell those coins, thus fall into capital gain.
2) Buying: there willl be a taxable event when you sell btc.

Eat shit buddy, why exactly do you think you can call people "idiots"? How much different you must sound face to face, serious keyboard bully syndrome you've got on this thread. I've been usefully adding to these topics for several days, and I promised I would share back what my CPA advises. He's got 20+ years and this was at a glance his first impression. Seriously, in all seriousness go fuck yourself.


Edit: I'm looking through your post history and it seems you have developed a habit of calling people idiots on here. I can't find one post of yours that doesn't have an insulting tone. Hope you understand what happens next...

Let me explain like you're a five years old.

It does not matter what your CPA's OPINION is, or what he and you think makes sense.

IRS ruling cant be any clearer. 20 yrs or 1 yr experience does not mean jack if your CPA doesnt understand the wording. In fact, if he has 20yrs experience and suggest something contradicts the ruling then my statement of him being an idiot is even more concrete.

As for calling u an idiot, it depends on your action. If you choose to follow an idiot's advise, you're not smarter than him are you?

I'm an hard ass on anyone who misleads ppl by posting opinions on public forums as facts.

You are irrelevant and sad, shame on you. I posted what my CPA said, that doesn't mean he's right or wrong, it's just me passing on the info. It's ironic we clash because you are pretending to do what I've been doing, except you are trashy about it. You have a whole history of posting like a jerk, small guy syndrome or what? What's your bitch? Seriously not feeding the troll anymore.

[smoothie]

I guess this is worth trying.

Not sure what will come of it. Petitions are not the way to affect change.

[J_Dubbs]

I guess this is worth trying.

Not sure what will come of it. Petitions are not the way to affect change.

My prediction is more people will file it "wrong" or not at all than those that do it correctly, many will just be honest mistakes. I think the IRS rushed it big time and they are likely to revise. The system in place is very last minute and doesn't play well with the business/hobby rules. If the equipment needed to mine had a longer useful life it might be different, but one-time equipment expense will almost always lead to a loss if BTC moves sideways or goes down... Just don't think the guidance is sustainable. I believe my CPA said my record keeping and aggressive sales of inefficient equipment make it a good candidate for being run as a business, but we need to be careful about reporting losses too many years or the IRS may force me into categorizing as a hobby, which crushes the ability to report expenses against the activity's income.

[ManeBjorn]

You are correct on that point for sure.  It will drag Bitcoin a bit more into the mainstream.  I just hope it can be made a less nightmarish mess of paperwork than it is set to be now.

Everyone should sign the petition and spread the links.  The IRS's recent ruling on how it will tax Bitcoin and crypto currencies are going to directly effect us all but especially negative is the requirement for miners.

http://www.cryptocoinsnews.com/2014/03/29/white-house-petition-amend-irs-notice-2014-2-taxing-virtual-currencybitcoin/

It is good for Bitcoin, but maybe will be more troublesome in operation.

[ManeBjorn]

It is a good way to bring attention to the issue though.  Once it has then real progress can be made as the community as a whole can get behind it.

I guess this is worth trying.

Not sure what will come of it. Petitions are not the way to affect change.

[J_Dubbs]

Interesting article here: http://www.coindesk.com/irs-bitcoin-tax-guidelines-mean/

Excerpts:

"Dave Carlson, a US entrepreneur who runs a mining operation that earned almost $8m a month in revenue when bitcoin was at its peak, says that this could spell trouble for miners. 'The implications of the new IRS  tax guidance will be a major factor for those US miners who didn’t anticipate it and are already on the edge of profit.  A capital gains tax on all coins mined could drive mining revenue below cost of power for many, forcing them to shut down,' he says. ”Pool operators will have to issue 1099s to all their US contributors, which will drive pool fees higher."

Above is somewhat a different angle on what my concern is. I'm mostly concerned with the projected losses for 2014, having no clue if BTC is headed higher or lower my profit or loss is entirely related to the market price of BTC, and showing a big loss has risks that I'd rather avoid.



"At least one miner has a strategy to get around the taxing of bitcoin when mined, though. Yana Kesler, a certified public accountant from Philadelphia, purchased a $7,200 mining rig last year, and had it hosted in Europe. 'When you mine yourself you are the producer. When you ask someone else to mine for you, that’s your investment,' Kesler says. She calculates the basis value of her coins as zero, but says that she does declare capital gains when she sells the coins."

This is similar to what my CPA had mentioned, I think... But as I said before we aren't done figuring it all out, but I did mention the pool I mine through is in Europe, which might have something to do with this approach. The rules establish a playing field, but there might be creative ways to handle some finer points related to expenses and revenue recognition without going out of bounds. The IRS guidance makes a lot of sense for solo-mining operations, but for a guy mining out of his apartment with a pool it seems a bit like a broken set of rules.

[ManeBjorn]

Excellent find.
Thanks for the info.
It really is a moving target right now as to what it the right or wrong way to go.
Once added benefit would be huge farms may shut down or move for a while spreading the wealth to the smaller miners who do not get much as they cannot compete with the large farms.

Interesting article here: http://www.coindesk.com/irs-bitcoin-tax-guidelines-mean/

Excerpts:

"Dave Carlson, a US entrepreneur who runs a mining operation that earned almost $8m a month in revenue when bitcoin was at its peak, says that this could spell trouble for miners. 'The implications of the new IRS  tax guidance will be a major factor for those US miners who didn’t anticipate it and are already on the edge of profit.  A capital gains tax on all coins mined could drive mining revenue below cost of power for many, forcing them to shut down,' he says. ”Pool operators will have to issue 1099s to all their US contributors, which will drive pool fees higher."

Above is somewhat a different angle on what my concern is. I'm mostly concerned with the projected losses for 2014, having no clue if BTC is headed higher or lower my profit or loss is entirely related to the market price of BTC, and showing a big loss has risks that I'd rather avoid.



"At least one miner has a strategy to get around the taxing of bitcoin when mined, though. Yana Kesler, a certified public accountant from Philadelphia, purchased a $7,200 mining rig last year, and had it hosted in Europe. 'When you mine yourself you are the producer. When you ask someone else to mine for you, that’s your investment,' Kesler says. She calculates the basis value of her coins as zero, but says that she does declare capital gains when she sells the coins."

This is similar to what my CPA had mentioned, I think... But as I said before we aren't done figuring it all out, but I did mention the pool I mine through is in Europe, which might have something to do with this approach. The rules establish a playing field, but there might be creative ways to handle some finer points related to expenses and revenue recognition without going out of bounds. The IRS guidance makes a lot of sense for solo-mining operations, but for a guy mining out of his apartment with a pool it seems a bit like a broken set of rules.

[pungopete468]

So if I owned 100,000 gold coins in a video game, must I pay capital gains when the game company raises the price?

[amspir]

So if I owned 100,000 gold coins in a video game, must I pay capital gains when the game company raises the price?

It would be taxed at higher regular income rates, if there were a market for your 100,000 gold coins -- that is, if you can sell them.

[J_Dubbs]

So if I owned 100,000 gold coins in a video game, must I pay capital gains when the game company raises the price?

It would be taxed at higher regular income rates, if there were a market for your 100,000 gold coins -- that is, if you can sell them.

*or spend them. The thing that is a burden for me is I buy mining equipment with BTC that I mine. So even though I'm recycling BTC revenues back into my business I am expected to record the pool payout as income and then the equipment purchase as a realized gain or loss event, but I'm never actually exchanging it for cash. I guess if an ASIC chip had other purposes I'd feel a little better about the system, but it does have the feeling like they are trying to discourage the holding and spending of the mined coins by adding complexity/busy-work to it. From a bookkeeping perspective it's a pain in the ass, and there will probably be significant added costs passing along the spreadsheets to a CPA for eval and filing.