Anyone know what happened to knightmb and his 371,000 BTC?

[jimbobway]

Good news for me anyway  , they sold me the project for $5k to recover some of their cost. I now technically own the wallet files and other software I was working on with them at the time. For legal reasons I can't blurt out who the investors were or the banks, companies, etc. they were representing basically (unless I won't to land in court forever), but I think I made a wise investment. It's still going to take a while to get my wife on board as she still doesn't understand the whole BTC concept, but everyone here knows and I know what it means. She was really skeptical about my purchase this week.

I'll probably take some of the backup advise here too, why have a few backup copies when you can have many on different media types spread around everywhere (all encrypted of course this time).

Thanks for the advise everyone!

Michael Brown (knightmb), you have not told the full story here, and this is not the first time you have screwed an employer. If you do not do the right thing now, this will come back to haunt you.

You are also in over your head. Has it occurred to you that you owe $850,000 of federal income tax on this "deal"? Fortunately for you, we do not have state tax in Tennessee, but you will still owe business taxes, and you haven't even applied for the right licenses.

You have one chance to do the right thing here. You know what it is.

Beacon, is a newbie with one post.  Could be fake.  Beacon, do you know the full story?  Sounds like knightmb just pulled off a Louisiana Purchase.  The U.S. did it to France and I don't see what knightmb did wrong...unless there is more to the story...

[SgtSpike]

For your own sake knightmb, I hope you spent roughly triple that on iron-tight mutual indemnifications. If not, here is my advice (I'm not a lawyer, btw):

1. Get a lawyer, right now
2. On review, figure out if you need to get a settlement in place which covers all mutual indemnifications.
3. Get those things locked down. You will likely have to pay some of your $3m USD in earnings to get that sorted.

When you have a technical partner knowingly buying assets from non-technical partners for pennies on the dollar, there may well be significant repercussions. And, as someone here mentioned, it's also just kind of shitty.

Food for thought.

For those mentioning taxes -- unless he's selling his BTC, he likely doesn't have a requirement to mark his BTC to market; this is no doubt a gray area in the tax law right now. I wouldn't say he owes right now unless he's liquidating.

Good point on the knowingly buying assets without revealing information.  I believe there are laws against doing this, which would mean that knightmb is kind of screwed if/when the other company partners find out.

[FreeMoney]

This is amazing. It's probably best your wife doesn't get it or she might insist on getting some of those paper dollars.

I can't believe you didn't even give them their 12k back! Maybe you can't offer too much without making them suspicious? How did you ever talk these people into putting up money for something they had no interest in?

[jimbobway]

For your own sake knightmb, I hope you spent roughly triple that on iron-tight mutual indemnifications. If not, here is my advice (I'm not a lawyer, btw):

1. Get a lawyer, right now
2. On review, figure out if you need to get a settlement in place which covers all mutual indemnifications.
3. Get those things locked down. You will likely have to pay some of your $3m USD in earnings to get that sorted.

When you have a technical partner knowingly buying assets from non-technical partners for pennies on the dollar, there may well be significant repercussions. And, as someone here mentioned, it's also just kind of shitty.

Food for thought.

For those mentioning taxes -- unless he's selling his BTC, he likely doesn't have a requirement to mark his BTC to market; this is no doubt a gray area in the tax law right now. I wouldn't say he owes right now unless he's liquidating.

Good point on the knowingly buying assets without revealing information.  I believe there are laws against doing this, which would mean that knightmb is kind of screwed if/when the other company partners find out.

Bitcoins were also worth a lot less in Feb when knightmb did the deal.  I hope everything works out for everyone.

[FreeMoney]

Good news for me anyway  , they sold me the project for $5k to recover some of their cost. I now technically own the wallet files and other software I was working on with them at the time. For legal reasons I can't blurt out who the investors were or the banks, companies, etc. they were representing basically (unless I won't to land in court forever), but I think I made a wise investment. It's still going to take a while to get my wife on board as she still doesn't understand the whole BTC concept, but everyone here knows and I know what it means. She was really skeptical about my purchase this week.

I'll probably take some of the backup advise here too, why have a few backup copies when you can have many on different media types spread around everywhere (all encrypted of course this time).

Thanks for the advise everyone!

Michael Brown (knightmb), you have not told the full story here, and this is not the first time you have screwed an employer. If you do not do the right thing now, this will come back to haunt you.

You are also in over your head. Has it occurred to you that you owe $850,000 of federal income tax on this "deal"? Fortunately for you, we do not have state tax in Tennessee, but you will still owe business taxes, and you haven't even applied for the right licenses.

You have one chance to do the right thing here. You know what it is.

Since you're here, want to tell us the full story?

[Drifter]

[FreeMoney]

Bitcoins were also worth a lot less in Feb when knightmb did the deal.  I hope everything works out for everyone.

That's not the impression I get. I think this deal just happened.

[benjamindees]

Since you're here, want to tell us the full story?

I'll just point out that Beacon has said nothing so far that isn't publicly available info.

[unk]

without commenting on this particular case, much of what people are saying about united states taxes in bitcoin-forum discussions is wrong.

in the united states, you owe income taxes on property you acquire from any source (except gifts and a small number of other exclusions). you don't get to wait until you convert it into cash. people who say that are confusing capital-gain-realization rules for income rules.

for example, if you find treasure in your backyard, you have taxable income. if you mine gold, you have taxable income, unless there are special mining laws that tax it differently. if you install linux for someone and they pay you in sdram, you have taxable income. taxes are computed at the fair market value (in dollars) at the time you acquire the property. you don't have to sell it in any of these cases to have federal income tax.

see http://www.irs.gov/publications/p17/ch12.html

states in the us often have transfer taxes for business sales, and the transfer taxes may depend on the fair market value of the assets.

update: to be clear, i'm not commenting on this case or saying that anyone said anything wrong here. i just wanted to provide general information to correct what i've perceived as a general mistake in forum discussions. if i had to guess about this particular case, i'd think it's possible someone does owe taxes on the mining 'income' regardless of sale, based on the value when it was mined. i don't know if it's the buyer or the seller of the business, and i agree that it's all probably a grey area.

[FreeMoney]

Since you're here, want to tell us the full story?

I'll just point out that Beacon has said nothing so far that isn't publicly available info.

Clearly not. But maybe he will.

[SgtSpike]

without commenting on this particular case, much of what people are saying about united states taxes in bitcoin-forum discussions is wrong.

in the united states, you owe income taxes on property you acquire from any source (except gifts and a small number of other exclusions). you don't get to wait until you convert it into cash. people who say that are confusing capital-gain-realization rules for income rules.

for example, if you find treasure in your backyard, you have taxable income. if you mine gold, you have taxable income, unless there are special mining laws that tax it differently. if you install linux for someone and they pay you in sdram, you have taxable income. taxes are computed at the fair market value (in dollars) at the time you acquire the property. you don't have to sell it in any of these cases to have federal income tax.

see http://www.irs.gov/publications/p17/ch12.html

states in the us often have transfer taxes for business sales, and the transfer taxes may depend on the fair market value of the assets.

I think you're confusing income taxes from gain of assets in the course of doing business vs the purchasing of a business (which is what, I believe, knightmb did).

http://www.unclefed.com/AuthorsRow/Daily/fwdbuybusiness.html

While there is no federal tax on the purchase of a business, states and localities may impose transfer taxes. Check it out before you make the deal, especially if real estate is part of the deal.

[m4rkiz]

Good point on the knowingly buying assets without revealing information.  I believe there are laws against doing this, which would mean that knightmb is kind of screwed if/when the other company partners find out.

i really doubt that - basing on his story he did not used any kind of 'insider trading', all information about btc to usd rate are easily accessible

[jimbobway]

without commenting on this particular case, much of what people are saying about united states taxes in bitcoin-forum discussions is wrong.

in the united states, you owe income taxes on property you acquire from any source (except gifts and a small number of other exclusions). you don't get to wait until you convert it into cash. people who say that are confusing capital-gain-realization rules for income rules.

for example, if you find treasure in your backyard, you have taxable income. if you mine gold, you have taxable income, unless there are special mining laws that tax it differently. if you install linux for someone and they pay you in sdram, you have taxable income. taxes are computed at the fair market value (in dollars) at the time you acquire the property. you don't have to sell it in any of these cases to have federal income tax.

see http://www.irs.gov/publications/p17/ch12.html

states in the us often have transfer taxes for business sales, and the transfer taxes may depend on the fair market value of the assets.

I think you're confusing the acquisition of assets vs the purchasing of a business (which is what, I believe, knightmb did).

http://www.unclefed.com/AuthorsRow/Daily/fwdbuybusiness.html

While there is no federal tax on the purchase of a business, states and localities may impose transfer taxes. Check it out before you make the deal, especially if real estate is part of the deal.

Either way, both parties seem to be acknowledging that bitcoins is, indeed, real.  At least there is a positive in all of this. :-P

[benjamindees]

Either way, both parties seem to be acknowledging that bitcoins is, indeed, real.  At least there is a positive in all of this. :-P

Oh, it's even better than that.  The party that acknowledged the reality of Bitcoins seems to have made out like a bandit.  While the party that had every opportunity to do so, and didn't, ends up looking like fools.

And that's exactly the way capitalism is supposed to work.  Risk brings reward.  All trades are not equal trades.  Information is not universal.  Stupidity is punished.  No one bails out the losers.

[rezin777]

without commenting on this particular case, much of what people are saying about united states taxes in bitcoin-forum discussions is wrong.

in the united states, you owe income taxes on property you acquire from any source (except gifts and a small number of other exclusions). you don't get to wait until you convert it into cash. people who say that are confusing capital-gain-realization rules for income rules.

for example, if you find treasure in your backyard, you have taxable income. if you mine gold, you have taxable income, unless there are special mining laws that tax it differently. if you install linux for someone and they pay you in sdram, you have taxable income. taxes are computed at the fair market value (in dollars) at the time you acquire the property. you don't have to sell it in any of these cases to have federal income tax.

see http://www.irs.gov/publications/p17/ch12.html

states in the us often have transfer taxes for business sales, and the transfer taxes may depend on the fair market value of the assets.

update: to be clear, i'm not commenting on this case or saying that anyone said anything wrong here. i just wanted to provide general information to correct what i've perceived as a general mistake in forum discussions. if i had to guess about this particular case, i'd think it's possible someone does owe taxes on the mining 'income' regardless of sale, based on the value when it was mined. i don't know if it's the buyer or the seller of the business, and i agree that it's all probably a grey area.

Aside from the case, I'm curious.

Do I owe taxes on the things I create? For example. I buy a saw (pay tax on that), and buy some wood (pay tax on that). I use the tool and the material to create a chair. Do I owe tax on the chair, or only if I sell the chair?

How would my example compare to mining Bitcoins? I buy hardware (pay tax on that), and internet service (pay tax on that). I download an open source program (no tax?). I use my hardware, internet connection, and the program to find the next block in the chain and I reward myself 50 BTC for doing it. Do I owe taxes on the BTC, or only if I sell them?

Do BTC equate to the chair or have I made some error?

[vess]

Regarding taxes,

A simple purchase is never taxable for the purchaser unless there are specific asset-transfer taxes (think registration for a car) in the US, or any state in the US. Period, end of story.

BitCoins paid for services rendered or goods are certainly taxable, and they would likely be marked to market at end of year, or at time of exercise to USD on recommendation from a CPA.

BitCoins 'mined' with your computer are a little harder, and I don't think there's good indication here as to what they are, or if they should be taxed yet -- do you have to pay taxes on a piece of art you made, and haven't sold yet? (The answer is no, even if your paintings are worth millions). In any event, I think it unlikely that BTC mined will be reported and taxable in the near future for a combination of reporting and other reasons.

----- Now, for a more personal perspective ----

Regarding "this is how capitalism works", unless you're a sort of weird objectivist type who's come to love robber barons, anytime a business party knowingly misrepresents the value of something and makes significant gains, there may well be civil or criminal liability. Capitalism involves helping people transfer assets around for cash, build jobs and wealth, and keeping people from getting screwed doing so.

I don't know if KnightMB misrepresented, nor do I know if his agreements are solid, but I do know if he wrote a note that said "Hey, I'll take those computers and hard drives off your hands for $5k" and they said "OK," he will CERTAINLY be getting a nastygram one day, and his counsel is going to recommend settling, not fighting.

On the other hand, if he wrote up a proper asset purchase including everything, hardware and data, and made no warranties, and they also acknowledged they were getting out and signed proper indemnifications, seller beware. That's an all's fair in business sort of moment, and they should have looked more closely at what they were doing.

Of course, if this was a bunch of grandmas that KnightMB pitched originally, that will play differently than if it were some forex trading hedge fund managers; lots depends on the context. I don't think we've heard the last of this story, or the facts of it yet.

[unk]

@rezin777: very nice questions, in my opinion.

manufacturers may have income as a result of manufacture. for example, see

http://www.irs.gov/businesses/small/industries/article/0,,id=100355,00.html

which says 'To figure taxable income, you must value your inventory at the beginning and end of each tax year'.

inventory rules are complicated, however, and involve many line-drawing problems. but it's very possible for a business to be required to include goods purchased below market in 'inventory' at fair market value before sale. for example, the same document i linked above directs taxpayers to include in taxable inventory all 'purchased merchandise if title has passed to you, even if the merchandise is in transit or you do not have physical possession for another reason'.

in general, there isn't a tax difference between 'making' and 'mining'. making gold from atomic processes (or more realistically at today's level of technology, making a diamond from conventional industrial processes for planned sale) would almost definitely have the same tax treatment as mining it, unless there are specific statutes that differentiate the two. what may be leading to an intuition that 'making' something isn't taxable is that if you just make something for yourself, not for sale or for its financial value, then it is likely not taxable.

but of course, i'm not commenting on this case or giving tax advice!

@vess, it is not correct to say 'a simple purchase is never taxable for the purchaser' under federal law in the united states. that is usually true, but there are many situations that require marking to market even if there is a purchase but no sale. it's 'for most ordinary taxpayers, trading most securities', not 'period, end of story'. i agree with you about what 'capitalism' is, however. it's hard to find people who actually engage in business in the modern world who have the extreme 'robber baron' view of nondisclosure norms. nor would those norms be economically productive in most situations.

[vess]

@unk, agreed.

I would expect professional miners to pay inventory taxes, although probably not hobbyists, (again, the line is tough here) hobbyists I would expect to pay income tax on sale.

[rezin777]

but of course, i'm not commenting on this case or giving tax advice!

Understood.  

Thanks for the reply. I look forward to seeing exactly how it all plays out.  

[twobitcoins]

BitCoins 'mined' with your computer are a little harder, and I don't think there's good indication here as to what they are, or if they should be taxed yet -- do you have to pay taxes on a piece of art you made, and haven't sold yet? (The answer is no, even if your paintings are worth millions). In any event, I think it unlikely that BTC mined will be reported and taxable in the near future for a combination of reporting and other reasons.

This is a complicated question.  Assuming we're talking about someone who mines bitcoins directly (no pools, mining contracts, etc.), mined bitcoins come from two sources: the block reward (currently 50 BTC) and transaction fees.

Transaction fees seem very much like payment for the service of including the transaction in a block.  As such, they would be taxable.

The block reward is trickier.  Are they like a manufactured product, in which case they would not be taxable until sold?  It's not so clear.  There are a finite number of them, and they are granted to you for following a set of rules enforced by everyone else in the network.  I think the case could be made that the block reward is also a form of payment for the service of generating a block, though it is not clear exactly who the payment is from.

Pooled mining seems like offering computing services to the pool operator in exchange for payment in bitcoins, and thus may be taxable as well.

I'd be careful about assuming that no taxes are due when mining bitcoins that have not yet been sold.