When does Bitcoin become your property?

[pungopete468]

I've been contemplating the capital gains tax on Bitcoin.

The Bitcoin protocol is a trustless system; so Bitcoins exist in the blockchain as a stake of irrefutable ownership. It's been said, "If you don't own the private keys to the wallet containing Bitcoins, you don't own Bitcoins."

For capital gains tax, ownership is everything. When a coin is created it is certainly owned; but not necessarily by you...

The coins can be transferred from a pool to an exchange, sold for USD, then repurchased. The USD could be considered regular income as the Bitcoins weren't owned by you, as if you were a worker mining gold for a gold mining business getting paid in USD. The coins you purchase with USD won't be considered a capital gain until you sell them.

EDIT:

Bitcoin mining is not taxed on capital gains. The above approach is meaningless as Bitcoin mining is taxed as ordinary income immediately. The tax implications are more favorable for those who mine and hold.

[greenlion]

The IRS won't take too kindly to playing games with words like this.

[bountygiver]

You can also avoid converting bitcoin to USD through exchanges that needs your passport (more risk) to avoid all the taxes as they'll have no way to associate that bitcoin address with you.

[Beliathon]

"If you don't own the private keys to the wallet containing Bitcoins, you don't own Bitcoins."

Put your BTC in brain wallet. Tell IRS "I don't have the private keys to that address".

Impossible for them to legally prove you are the owner of those BTC.


You pay no taxes.

[pungopete468]

http://www.irs.gov/pub/irs-drop/n-14-21.pdf

So I was basing my entire point on capital gains... I was incorrect.

Mining is taxed as income. It makes no difference.

[nitehawk]

they still have to prove how much you actually mined..

[hjdt4fd1]

You can also avoid converting bitcoin to USD through exchanges that needs your passport (more risk) to avoid all the taxes as they'll have no way to associate that bitcoin address with you.

You're right, there is no way the IRS will bitcoin address with your link.

[waldox]

when the irs can prove that you hold the private keys to a block of bitcoins

[which2say]

You can also avoid converting bitcoin to USD through exchanges that needs your passport (more risk) to avoid all the taxes as they'll have no way to associate that bitcoin address with you.

You're right, there is no way the IRS will bitcoin address with your link.

In this regard the IRS taxes may encounter many problems, they can be resolved?

[devt]

"If you don't own the private keys to the wallet containing Bitcoins, you don't own Bitcoins."

Put your BTC in brain wallet. Tell IRS "I don't have the private keys to that address".

Impossible for them to legally prove you are the owner of those BTC.


You pay no taxes.

You pay no taxes as long as you don't use it to buy something, which is the same as not having any BTC.

[btcpay86]

"If you don't own the private keys to the wallet containing Bitcoins, you don't own Bitcoins."

Put your BTC in brain wallet. Tell IRS "I don't have the private keys to that address".

Impossible for them to legally prove you are the owner of those BTC.


You pay no taxes.

    you are clever.

[b¡tco¡n]

"If you don't own the private keys to the wallet containing Bitcoins, you don't own Bitcoins."

Put your BTC in brain wallet. Tell IRS "I don't have the private keys to that address".

Impossible for them to legally prove you are the owner of those BTC.


You pay no taxes.

With brain wallet you risk brute force attack or with a suitably hard private key you risk forgetting it. Don't use brainwallets. An encrypted wallet with plausible deniability e.g. truecrypt is probably good enough.

[Searing]

"If you don't own the private keys to the wallet containing Bitcoins, you don't own Bitcoins."

Put your BTC in brain wallet. Tell IRS "I don't have the private keys to that address".

Impossible for them to legally prove you are the owner of those BTC.


You pay no taxes.

You pay no taxes as long as you don't use it to buy something, which is the same as not having any BTC.

nope imho according the initial guidelines of the IRS you 'mined' 4000 coins in 2009 at 2c each (or give them to your girlfriend of whatever..cash them out etc) you owe if you sold at 600 bucks 599.98 usd for each coin and it is retroactive to all coins and the value is at the time your bartered/gave away or sold them" ie 25% income tax on this 'gross income" and of course if you then sell them after 'mining them' whatever the coin makes (if held more then 1yr) would be charged 20% on any increase in value ..'capital gains tax"

i never thought bitcoin would have the same problems as a 'stripper' you make 500 bucks a nite you are supposed to give the IRS its 25% cut of the tips....you buy property with the income from stripping in 'las vegas" (the 75% remaining) and the property goes up 300 percent in a decade...you then pay 20% capital gains on the profits you held it

damn hard to be a currency under those conditions..



hard to enforce (everyone owning coin will say i did not mine it in 2009 i bought it..will be the mantra)..there we're years of no exchanges at that part of bitcoin history) assuming you would figure out what you paid on the handshake no idea etc back in the face to face days

and if you got a coin for 2c and it is now sold for 600 bucks the IRS will go huh? and probably audit you anyway!

so the btc in wallets "from back in the day" will be 'er no mr irs man....i purchased it..far  sighted individual that i am...what is this mining you speak of?"

(assuming you let them know the blockchain address is yours and/or you did not have a fun holiday using BTC in Sweden or Canada etc

this has to be tweaked imho or btc can't be used easily as a currency and who will want to hold the btc 'property' if/when you can' t use it like currency in usa and/or being a miner would just be silly)

of course if you were a big money and big govt are in a handshake wink/wink use big money to stop btc
well ....er let me grab my 'tin foil hat"...you could have not wrote the words the IRS hath spoken  in a manner
more needed for this 'supposed' plot

right now it is major FUD and this double tap is unenforceable imho...but it is still a mess (sigh...frigging primates")



my 2c worth

Searing

[JoeyD]

I also have trouble understanding how bitcoins can be seen as property.

I understand people feeling possessive about the access key they've found and the influence those keys have on the network. I also can somewhat understand that people are willing to try to convince (with money) others to transfer some of that influence. But no single person "owns" Bitcoin(and as a result bitcoins) and if one single person did, that would mean Bitcoin has become worthless.

My guess is the IRS couldn't be bothered and picked one of the most used metaphors, probably the bitcoins are like gold one, and then thought: Ok gold, check, that was easy, next.

My guess is that the emphasis on using metaphors has come to bite the US-bitcoiners in the arse.

[cr1776]

From an IRS perspective, they would say the answer is B. From a reality perspective, A.

[Agent99]

I voted for the second option. Explain me, why is the first one right?

[whtchocla7e]

You don't own the keys to a wallet... Nobody owns anything.

We control the Bitcoins that we have access to. All is good and well until someone else gains access to the same Bitcoins.

If you can't sleep well at night having this knowledge, Bitcoin is not for you.

[ryanmnercer]

"If you don't own the private keys to the wallet containing Bitcoins, you don't own Bitcoins."

Put your BTC in brain wallet. Tell IRS "I don't have the private keys to that address".

Impossible for them to legally prove you are the owner of those BTC.


You pay no taxes.

Do you plant to ever convert your coin to money or buy physical goods? If so good luck with that. The IRS can come into your house and ask for proof of purchase for EVERYTHING, the more things you can't link back to bank account/credit card purchases the more likely they'll come after you for tax evasion and maybe even trigger a money laundering investigation.

Pay your taxes like an adult.

[bgibso01]

The IRS guidance really isn't much of a surprise.  The only thing I currently do different now is I consider the mined coins to have no basis.  So they just lower my average cost of coins purchased.  Then when I buy stuff with coins, I use the average cost as the basis of what I've purchased.  I show as income the sale of the coin at average cost, and depending upon what I purchase (whether deductible or not deductible) as to what the new basis of the item might be.  Example:  I purchase an antminer, then my basis in the antminer is the same as the basis in coin spent. Income and asset.  If I purchase a cup of coffee with btc, then I only have income in the amount of avg value of coin surrendered. Obviously if I sell coin for fiat, then I have reportable capital gain.

I'm hoping the IRS with come around to this approach because it will cut down on significant paperwork.  The only downside for them would be the deferring of income until the coins are converted.

Just my 2 cents anyway definitely not considered tax advice 

[lppeu]

The IRS won't take too kindly to playing games with words like this.

You are right.If you do belong to tax evasion.