...If the IRS calls BTC property, but FINCEN requires licensing for transmission, can both be held legally
I think maybe they can as courts love legal fictions, and may find that IRS & FINCEN has the power to make certain attribution of properties to BTC for the purposes of thier function under various acts.
Still it seem the two definitions are somewhat at logger heads with each other. It would be some serious grounds to raise in court a ruling that says BTC is property so I don't need a FINCEN license as I was disposing of it as property and taxed accordingly. OR turn around to the IRS and say I was using it as currency or similar under the FINCEN money transmitting rules so at that time, it was not used as property.
The issue is one of administrative law, and I'm not sure how to reconcile the different treatment by two executive branch agencies. Both the IRS and FinCEN's definitions were promulgated in the form of a guidance document, which has no binding legal effect. Guidance documents are neither rules (which would require the agencies to comport with the rule-making requirements enumerated in the Administrative Procedures Act, 5 U.S.C. §§ 551-559), nor are they adjudications the substance of which can be appealed and reviewed by federal courts.
I see two ways forward, one short term and one long term:
Short term way forward: The IRS guidance document requests "comments from the public regarding other types or aspects of virtual currency transactions that should be addressed in future guidance." You can mail your comments to:
Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2014-21)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
I think taxing virtual currencies as property ignores the fact that they are indeed designed to be used as a medium of exchange. The IRS's definition treatment as property (and taxing according to capital gains) means they perceive BTC as something that is purchased to appreciate in value. This perception is probably driven in part by how much BTC can fluctuate relative to fiat and the fact that some people are purchasing and selling for purely speculative purposes: the IRS wants to tax realized gains as income. The most significant problem with this guidance is that it discourages the use of BTC as a medium of exchange by imposing a substantial record keeping burden. It would be helpful if future guidance distinguished between the manner in which BTC was used, and in particular differentiate using BTC to buy and sell goods and services (BTC as a medium of exchange) from purchasing and selling BTC for the purpose of making money from speculation (BTC as a traded commodity).
Long term way forward: Petition various agencies to initiate the rule-making process for actual rules regarding the treatment of virtual currencies (
http://www.reginfo.gov/public/reginfo/Regmap/regmap.pdf). The most obvious candidates are the Department of Treasury, the IRS and/or FinCEN, but it would probably not be effective to simply ask these agencies for a rule. Rather, before petitioning for rule-making to be initiated, some groundwork is required: (1) what person or association of persons will petition for the rule; (2) clear statement of purpose of the proposed rule-making; (3) clear language of the proposed rule; (4) clear explanation of why the proposed rule would be in the public interest; (5) relevant information assembled in easily digestible form; and (6) a clear and compelling explanation of why the rule is necessary.
A decentralized way to move forward would be to announce that we need this information, and call upon the BTC community to start submitting it to a designated repository. A committee of curators of that repository could cull the best and most relevant information and assemble a draft proposal of the petition for rule-making. The proposal would be announced for additional comment period before the community approves the petition in its final form. The committee of curators would then submit the petition to the agency or agencies.
Thoughts?
