Is the IRS ruling final? Where is the legal / technical analysis?

[drew959]

Hi everyone

A few questions regarding the IRS ruling.

1. Is is final? i.e., when they ask for comments/questions does that mean they are seeking feedback on their initial view?

2. Where is the technical analysis to support the position that it is property and not a currency? The paper itself is cursory and contains almost no legal analysis to support the conclusion.

3. Can US taxpayers take a position it is currency and fight it out in the courts? i.e., I would think the IRS is not the arbiter of whether virtual currencies are property or not. It is a legal question rather than a decision to be made by the IRS?

I am a tax professional (outside the US) and would be very willing to assist in making submissions regarding this. The ruling is obviously not a good outcome and without seeing any legal analysis seems contrived to argue this is "property".

[BayAreaCoins]

We would pay more taxes if it was considered a currency.  No need to help welfare/social security any more than necessary.

[acoindr]

Here is a relevant quote from Business Insider:

http://www.businessinsider.com/irs-bitcoin-is-property-not-currency-full-release-2014-3

"Users will have to track their transactions and determine the amount of their taxable gain each time," he told BI in an email. "It's quite a burden. The rules on taxing foreign currency provide an exception for 'personal transactions' for that very reason. It would be great to have that exception (or something similar) apply to bitcoins as well."

But Cross adds the IRS' guidance may not stand forever. The Treasury Department should now begin developing formal regulations tailored to digital currencies.

"That typically begins with a request for public comments, which was included in the notice," he said. "Tax professionals can then identify issues and advocate possible solutions.  So between now and the issuance of actual regulations (which takes years), there's ample opportunity to shape the tax treatment."

[Searing]

Hi everyone

A few questions regarding the IRS ruling.

1. Is is final? i.e., when they ask for comments/questions does that mean they are seeking feedback on their initial view?

2. Where is the technical analysis to support the position that it is property and not a currency? The paper itself is cursory and contains almost no legal analysis to support the conclusion.

3. Can US taxpayers take a position it is currency and fight it out in the courts? i.e., I would think the IRS is not the arbiter of whether virtual currencies are property or not. It is a legal question rather than a decision to be made by the IRS?

I am a tax professional (outside the US) and would be very willing to assist in making submissions regarding this. The ruling is obviously not a good outcome and without seeing any legal analysis seems contrived to argue this is "property".

'


yep i was told it was ....so.....me i only have 16k gross profit from btc from last year on 1 blockchain that is linked to bitstamp and coindesk and also
them nice forms i signed when i sent knc $$$ wire xfer over 10k saying i was not doing so for tax evading purpposes etc (i remember that line) of
course since cancelled the knc orders...but still one heck of a paper trail with the 2 fails at 1 bank the 1st time around

so yeah paying the tax folks in usa i am.....should never have registered stuff with bitstamp they also said when i registered it was to conform with
usa banking laws....so the fact i've thrown around 20-30k of bank wire xfers to knc (and since refunded this year) and the above

i'd be easy pickings imho for the IRS

yep...paying my taxes...but supposedly with equip etc home business etc i'll break even

with only mining and holding of all the btc coin i've ever made on one linked blockchain....and the wire xfers etc...i'd be dead meat in an audit

for the 25% taxes at worse on a 16k profit? i'll expense it out put it on taxes

got too much other real $$$ I could lose (or jail time) by playing the opposite

also imho this won't be fixed till after fall 2014 elections in the usa....the gov't is split on how to treat bitcoins

again imho



Searing

[joecooin]

I don't know what planet you live on but here on Earth (in the Solar System, Milky Way, uptown Virgo Supercluster) there is no such thing as a final rule made by governments.

Governments here always change the rules by which to play whenever they feel like. That is an integral part of their nature and that's why it is not reasonable to worry about their rulings too much.

Joe

[LostDutchman]

I don't know what planet you live on but here on Earth (in the Solar System, Milky Way, uptown Virgo Supercluster) there is no such thing as a final rule made by governments.

Governments here always change the rules by which to play whenever they feel like. That is an integral part of their nature and that's why it is not reasonable to worry about their rulings too much.

Joe

How true!

Thank you for your insightful and well-thought-out post!

My $.02.

[Beliathon]

Final yes. Also powerless and impossible to effectively enforce.

[LostDutchman]

Final yes. Also powerless and impossible to effectively enforce.

Enforcement lies at the bank account level.

My $.02.

[franky1]

things to remember

when a friend gives you $10, no one claims it on their tax return.
when a friend gives you a coffee or a sandwich, no one claims it on their tax return.

point being, dont sweat the small stuff.

as for purchasing large products. (over $600 threshold) then read the IRS details about how to log it. or go speak to an accountant. i have read many threads where people are going nuts worrying about logging the little things like buying a starbucks coffee, which i find very amusing whilst face palming them

oh and another point. you dont pay tax until the point you have FIAT in your hand. so dont think that if bitcoin rose from $450 to $470 in one day that you need to send a payment to IRS at every price movement, simply because your holding coin instead of spending..
point being... its not a gain or loss until its FIAT!!

[ManeBjorn]

There is a petition to get the attention of the White House to get it looked at.  As it stands now miners will likely pay over 40% of mining rewards unless it's fixed.
http://www.cryptocoinsnews.com/news/white-house-petition-amend-irs-notice-2014-2-taxing-virtual-currencybitcoin/2014/03/29

[franky1]

There is a petition to get the attention of the White House to get it looked at.  As it stands now miners will likely pay over 40% of mining rewards unless it's fixed.
http://www.cryptocoinsnews.com/news/white-house-petition-amend-irs-notice-2014-2-taxing-virtual-currencybitcoin/2014/03/29

the guy that first promoted the petition and wrote it out. is not a tax expert and from reading what he wrote, he probably has never made a self assessment tax return in his life. there are flaws to his petition and congress would simply laugh at it, and put the petition in the round filing container.. known as a bin.

if there is to be a petition. then whomever wants to do it. should research the IRS wording, check  with an accountant and get someone with good understanding to write a proper petition..

the current petition seems to be just cries and whimpers about hypotheticals. and not intellectual facts. anyone that owns a business or has been self employed, doing their own tax returns can plainly she the lack of experience the petition writer has. i think that he is just trying to get 15 minutes of fame, where nothing gets changed..

[ManeBjorn]

True, yet so far the person who started the petition is the only one who has made and effort.
Your mining earnings are going to be taxed as currency and property both and the tracking is burdensome to say the least.

There is a petition to get the attention of the White House to get it looked at.  As it stands now miners will likely pay over 40% of mining rewards unless it's fixed.
http://www.cryptocoinsnews.com/news/white-house-petition-amend-irs-notice-2014-2-taxing-virtual-currencybitcoin/2014/03/29

the guy that first promoted the petition and wrote it out. is not a tax expert and from reading what he wrote, he probably has never made a self assessment tax return in his life. there are flaws to his petition and congress would simply laugh at it, and put the petition in the round filing container.. known as a bin.

if there is to be a petition. then whomever wants to do it. should research the IRS wording, check  with an accountant and get someone with good understanding to write a proper petition..

the current petition seems to be just cries and whimpers about hypotheticals. and not intellectual facts. anyone that owns a business or has been self employed, doing their own tax returns can plainly she the lack of experience the petition writer has. i think that he is just trying to get 15 minutes of fame, where nothing gets changed..

[CannabisCoinDev]

When you trade a piece of 'personal property' for another, like say you traded a skateboard for a bike, would you ever document it or ask the other person for their soc#?  In IRS eyes its not MONEY!  Just a tactical way of them saying we 'can' tax it.  But can they enforce it?

[franky1]

True, yet so far the person who started the petition is the only one who has made and effort.
Your mining earnings are going to be taxed as currency and property both and the tracking is burdensome to say the least.

wrong. and try not to quote or use media as yor source.. as they are proven to mislead..
instead fond the source
https://bitcointalk.org/index.php?topic=555188.0
https://petitions.whitehouse.gov/petition/amend-irs-notice-2014-2taxing-virtual-currencybitcoin-property-stifles-new-technologycreates/z7WtKZGY

here is a quote that made me laugh

The guidance states that digital currencies are to be treated as property. Thus Capitals Gains must be paid on every transaction.

... every transaction.... lol serious failings..misunderstandings and .. well just wrong..

you Don't pay tax:
when bitcoin prices change.
when you swap bitcoin for an altcoin.
swapped for other property.

you do pay tax when you receive FIAT.

EG miner gets 1btc when the price is $460(a). the price rises whilst hoarding coins to $500(b) he then trades it for an equal value of litecoins(c). he hoards the litecoins and the price of litecoins rises(d). he sells the litecoins for bitcoins(e). after a while he then buys a laptop using the bitcoins(f) and then sells the laptop for $1200 fiat(g).

no one would pay tax at each point (a through f) only at (g) would someone show they have received $1200 which was worth $460 months prior.
simple maths G minus A = gain

its the same as you getting a computer from your work and they let you keep it to sell.. you dont pay tax when they give you the laptop initially, you dont pay tax while using the laptop as it depreciates in value.. you only pay tax when you sell it.

imagine if people stupidly paid tax at point (b), where the price rose purely due to hoarding.
day one pay tax on $40 gain
day two request refund on a price crash
day three pay tax on a rise.
and so on.

i can give you other examples.. but instead, go speak to an accountant

When you trade a piece of 'personal property' for another, like say you traded a skateboard for a bike, would you ever document it or ask the other person for their soc#?  In IRS eyes its not MONEY!  Just a tactical way of them saying we 'can' tax it.  But can they enforce it?

+1 also to note the skateboard for bike would be considered a fair value swap. meaning no gain or loss.. but (if you were that anal about tax returns) if you sold the bike for $$$$$ later on, then you would show the original price you paid for skateboard and minus that number against the $$$$ you sold the bike.. not worrying about fair market value of the bike or skateboard when swapping in the middle. just the beginning and end numbers are important.

(please note i have excluded some loopholes and tax exemptions so dont knit pick the small stuff below certain thresholds)

[dave3]

oh and another point. you dont pay tax until the point you have FIAT in your hand. so dont think that if bitcoin rose from $450 to $470 in one day that you need to send a payment to IRS at every price movement, simply because your holding coin instead of spending..
point being... its not a gain or loss until its FIAT!!

For miners, the bitcoins mined are now taxed as income using the market price at the time of mining as the basis.  Even if you never sell the bitcoins.

[colinistheman]

oh and another point. you dont pay tax until the point you have FIAT in your hand. so dont think that if bitcoin rose from $450 to $470 in one day that you need to send a payment to IRS at every price movement, simply because your holding coin instead of spending..
point being... its not a gain or loss until its FIAT!!

For miners, the bitcoins mined are now taxed as income using the market price at the time of mining as the basis.  Even if you never sell the bitcoins.

^ this is the only part that seems frightening. And retarded. It's paying tax on speculation unless you cash out immediately.

So let's say you mine some bitcoins. You are supposed to pay tax the day it was mined and then if you cash out in the future you are supposed to pay tax again on the gains? Insanity?

[franky1]

For miners, the bitcoins mined are now taxed as income using the market price at the time of mining as the basis.  Even if you never sell the bitcoins.

wow.. i see you havnt spoken to an accountant.

you pay tax when you get your FIAT for that coin.. you work out the gain/profit or loss by looking at the fiat value of the bitcoin when mined and the fiat you receive when selling.

imagine you mined 1 bitcoin and you paid tax on todays valuation of $450. the tax is paid. what about when the price moves tomorrow. do you pay tax again on a rise. and ask for a refund on a drop. NO no no

now then. when you mine a bitcoin you wait until you have sold the bitcoin for coldhard fiat in your bank, then you look at the price value at the time of the fiat sale and you calculate that against the initial price at the time of mining..

you dont have to keep a log of every $ movement whilst hoarding,  because the maths of adding and subtracting every movement would end up with the same total as just taking the numbers at the start and the end..

i seriously dont know why people are too lazy to speak to an accountant. but then think they have to do lots of work suddenly, when its not needed.

the mind boggles

[jc01480]

All you need is for one federal judge to overrule this "opinion" and a legal precedent will be set that others will look toward for guidance.  They can make anything a rule.  But a good legal argument will turn that rule into a useless unenforceable document. Problem is, getting a solid enough legal argument.  Property definition is a beginning.  At least they recognize the existence.  Now, the burden is shifted into making Bitcoin a legal tender.  This is the conundrum (and raising the bar from property considerably).  This is a hell of a start if you ask my slightly informed opinion.

[franky1]

Now, the burden is shifted into making Bitcoin a legal tender.  

why would anyone consider making bitcoin legal tender as being a good thing??!

legal tender means government controlled, managed, and empowered currency.. bitcoin will and should never be a government currency.

governments can only tax people on the FIAT people receive because FIAT is the governments copyrighted product.
the amount of tax to be taken is based on fiat prices of when the property first became owned by you. calculated against the fiat received at the sell.

what happens inbetween is irrelevant and out of governments jurisdiction.

if you think its a good idea to hand control of bitcoin to government.. atleast let them have grumpycoin instead (randomly picked useless altcoin).

[LostDutchman]

I think that morepeople should actually READ the most recent IRS ruling because there is a lot of misunderstanding!

Go here:

http://www.irs.gov/pub/irs-drop/n-14-21.pdf?utm_source=3.31.2014+Tax+Alert&utm_campaign=3.31.14+Tax+Alert&utm_medium=email

A few relavant quotes from the document:

"Q-1: How is virtual currency
treated for federal tax purposes?

A-1:
For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.

Q-2: Is virtual currency treated as currency for purposes of determining whether
a transaction results in foreign currency gain or loss under U.S. federal tax laws?

A-2:
No. Under currently applicable law, virtual currency is not
treated as currency that could generate foreign currency gain or
loss for U.S. federal tax purposes.

Q-3: Must a taxpayer who receives
virtual currency as payment for goods or
services include in computing gross income
the fair market value of the virtual currency?

A-3:
Yes. A taxpayer who receives virtual
currency as payment for goods or services
must, in computing gross income, include the fair market value of
the virtual currency measured in U.S. dollars, as of the date that the virtual currency was received."

"Q-8: Does a taxpayer who “mines” virt
ual currency (for example, uses computer
resources to validate Bitcoin transactions
and maintain the public Bitcoin
transaction ledger) realize gross income
upon receipt of the virtual currency
resulting from those activities?

A-8:
Yes, when a taxpayer successfully “mines”
virtual currency, the fair market value
of the virtual currency as of
the date of receipt is includible in gross income. See
Publication 525,
Taxable and Nontaxable Income
, for more information on taxable
income.

Q-9: Is an individual wh
o “mines” virtual currency as
a trade or business subject
to self-employment tax on the income derived from those activities?

A-9:
If a taxpayer’s “mining” of
virtual currency constitutes a trade or business, and the
“mining” activity is not underta
ken by the taxpayer as an employee, the net earnings
from self-employment (generally, gross in
come derived from carrying on a trade or
business less allowable deductions) resulting from those activities constitute self-
employment income and are subject to the
self-employment tax."

Not at all the way things are being discussed.

This is a barrel of snakes and really endangers a lot of people.

My $.02.