Bitcoin Is Property Not Currency - page 11.

amspir

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Quote from: marcus_of_augustus on March 25, 2014, 10:08:03 PM

So when you say "hold onto" bitcoins ... what exactly are you referring to? The private keys, or a password to a Coinbase account, (or god forbid Goxx account), or something else?

It is just not clear what it means to be in possession of the thing you are referring to ...

An IRS-tax-compliant entity has to reports trades of "property" worth more than $600 in a year under threat of penalty (this is how they enforce tax compliance on a bartering system)

Your tax accounting should match up to these reports if you get audited.

smooth

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Quote from: marcus_of_augustus on March 25, 2014, 10:08:03 PM

So when you say "hold onto" bitcoins ... what exactly are you referring to? The private keys, or a password to a Coinbase account, (or god forbid Goxx account), or something else?

It makes little difference. If coinbase holds it and you have a claim against coinbase to give it to you, then your claim constitutes an asset.

smooth

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Quote from: Klestin on March 25, 2014, 10:00:36 PM

A solo miner isn't given those bitcoins - he creates them, analogous to a painter creating a painting. Again, the painter isn't taxed on her creation until (if) she sells it.

Eh, maybe. You can't really mine a block without the whole network cooperating with you. There is more to it than a painting.

Analogies work, but only to a point.

We all know that bitcoin is somewhat different than anything that came before. Likewise with the tax rules.

The same tax rules I would have written had they asked me (fat chance)? Probably not. Totally misguided and absurd (as one might reasonably imagine they could have been)? No.

marcus_of_augustus

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Eadem mutata resurgo

Quote from: amspir on March 25, 2014, 10:00:46 PM

Quote from: marcus_of_augustus on March 25, 2014, 09:54:46 PM

I just do not see how they could successfully legally define any part of the system as "property", in the usual context of "property law". Awaiting the court cases with popcorn ready.

The ruling is very narrow in scope and only applies to tax law. Bitcoin earned is taxed at the current value when you receive them as normal income. The profit from Bitcoin that you hold onto will be taxed at lower capital gains rates when you trade them or sell them later.

So when you say "hold onto" bitcoins ... what exactly are you referring to? The private keys, or a password to a Coinbase account, (or god forbid Goxx account), or something else?

It is just not clear what it means to be in possession of the thing you are referring to ...

marcus_of_augustus

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Eadem mutata resurgo

Quote from: LostDutchman on March 25, 2014, 09:58:38 PM

Quote from: marcus_of_augustus on March 25, 2014, 09:54:46 PM

So exactly which part of the system is "property"? Did the gurus at the IRS define that precisely?

Is it the private keys, or the blockchain entry, both, either, niether or something else entirely?

And if it is the private keys, what if they have been destroyed because all I have now is a brain wallet?

I just do not see how they could successfully legally define any part of the system as "property", in the usual context of "property law". Awaiting the court cases with popcorn ready.

Well, they just freakin' did it, so you are going to take them to court over the matter, right?

That's what I thought.

Thank you for your input.

My $.02.

Wink

Only idiots tax-slave prisoners of USA need to engage in such 'rebelliousness' ... Wink

It is amazing, the tax-slaves have just been handed a 28% juice bill for bitcoin wealth creation that had absolutely nothing to do with the government, yet they stand over like mafioso with their greasy palms out.... and the idiots are celebrating like the prisoners just who got a Johnny Cash concert ..

iambk

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Quote from: Beliathon on March 25, 2014, 09:56:52 PM

On the other hand, the day the IRS can tell me how much wealth I have in my (vastly larger quantity) brain wallet is the day I pay taxes on my true wealth.

Spoiler: This day will never come.

Unless you mined those coins in your brain wallet yourself, the IRS doesn't really care what you have in it until you convert it back to fiat. That's when you calculate your capital gains.

smooth

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Quote from: marcus_of_augustus on March 25, 2014, 09:54:46 PM

And if it is the private keys, what if they have been destroyed because all I have now is a brain wallet?

IP can have value even if it is just in your head.

I would argue the private key (or some other bit of information that can be used to render the private key) is the asset with value, but that's just me, I'm not the IRS.

LostDutchman

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Quote from: Klestin on March 25, 2014, 10:00:36 PM

Quote from: bbeagle on March 25, 2014, 09:46:28 PM

It's all very simple. The value of any property you receive is taxed. It could be labeled as a 'gift' from someone else, or gotten through some other means.

A solo miner isn't given those bitcoins - he creates them, analogous to a painter creating a painting. Again, the painter isn't taxed on her creation until (if) she sells it.

Setting aside the consistency or fairness of this ruling, let's consider practicality. Does a miner mining for a pool "receive" those bitcoins when they're credited to his account at the pool, or when he transfers them to another wallet? If the latter, he can avoid taxes year after year until he withdraws them? If the former, note that many pools continuously credit accounts based on each block of work received. This means the potential for many thousands of transactions per day, each of which conceivably needs an individual fair market value. Not to mention the complete lack of historical data for either of these figures.

I think you'd better read the ruling.

http://www.scribd.com/doc/214527517/US-IRS-Bitcoin-Guidance

Don't cut off the head of the messenger, please.

My $.02.

Wink

amspir

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Quote from: marcus_of_augustus on March 25, 2014, 09:54:46 PM

I just do not see how they could successfully legally define any part of the system as "property", in the usual context of "property law". Awaiting the court cases with popcorn ready.

The ruling is very narrow in scope and only applies to tax law. Bitcoin earned is taxed at the current value when you receive them as normal income. The profit from Bitcoin that you hold onto will be taxed at lower capital gains rates when you trade them or sell them later.

Klestin

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Quote from: bbeagle on March 25, 2014, 09:46:28 PM

It's all very simple. The value of any property you receive is taxed. It could be labeled as a 'gift' from someone else, or gotten through some other means.

A solo miner isn't given those bitcoins - he creates them, analogous to a painter creating a painting. Again, the painter isn't taxed on her creation until (if) she sells it.

Setting aside the consistency or fairness of this ruling, let's consider practicality. Does a miner mining for a pool "receive" those bitcoins when they're credited to his account at the pool, or when he transfers them to another wallet? If the latter, he can avoid taxes year after year until he withdraws them? If the former, note that many pools continuously credit accounts based on each block of work received. This means the potential for many thousands of transactions per day, each of which conceivably needs an individual fair market value. Not to mention the complete lack of historical data for either of these figures.

Beliathon

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https://youtu.be/PZm8TTLR2NU

Quote from: LostDutchman on March 25, 2014, 09:58:38 PM

Well, they just freakin' did it, so you are going to take them to court over the matter, right?

Smart players will simply ignore the laws, as the technology already transcends the government's ability to enforce them, for anyone who knows what they're doing.

Just like we did with copyright laws. You have law-breakers to thank for your $10 / month Netflix account instead of $5 per DVD movie rentals.

Calling it now, within 5 years the IRS will have launched a propaganda campaign extolling the virtues of paying taxes and begging everyone to "chip in and do their part".

This is going to be hilarious to watch.

*popcorn*

“Disobedience, in the eyes of any one who has read history, is [hu]man's original virtue. It is through disobedience that progress has been made, through disobedience and through rebellion.”
-Oscar Wilde

LostDutchman

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Quote from: marcus_of_augustus on March 25, 2014, 09:54:46 PM

So exactly which part of the system is "property"? Did the gurus at the IRS define that precisely?

Is it the private keys, or the blockchain entry, both, either, niether or something else entirely?

And if it is the private keys, what if they have been destroyed because all I have now is a brain wallet?

I just do not see how they could successfully legally define any part of the system as "property", in the usual context of "property law". Awaiting the court cases with popcorn ready.

Well, they just freakin' did it, so you are going to take them to court over the matter, right?

That's what I thought.

Thank you for your input.

My $.02.

Wink

Beliathon

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Activity: 784

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https://youtu.be/PZm8TTLR2NU

I have about 15 BTC in my Coinbase.com account, which is linked to my bank account. On this amount, I will pay taxes - it would be foolish to try to hide that money from the IRS.

On the other hand, the day the IRS can tell me how much wealth I have in my (vastly larger quantity) brain wallet is the day I pay taxes on my true wealth.

Spoiler: This day will never come.

This comes down to the (un)enforceability of the tax laws on a pseudonymous currency.

Cryptocurrency and torrent technology have a great deal in common... think about it.

No more money for unjustified, pre-emptive wars of aggressive for corporate profit margins. Cut the bastards off.

marcus_of_augustus

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Eadem mutata resurgo

So exactly which part of the system is "property"? Did the gurus at the IRS define that precisely?

Is it the private keys, or the blockchain entry, both, either, niether or something else entirely?

And if it is the private keys, what if they have been destroyed because all I have now is a brain wallet?

I just do not see how they could successfully legally define any part of the system as "property", in the usual context of "property law". Awaiting the court cases with popcorn ready.

bbeagle

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Quote from: Klestin on March 25, 2014, 08:56:12 PM

I don't see that it's quite as clear cut as you indicate. For instance, the pool I use has a 0% fee, and so is pretty much an agreement between users to split the value of mined coins equally according to work done. I can't really think of an exact analog in the pre-bitcoin world.

It's all very simple. The value of any property you receive is taxed. It could be labeled as a 'gift' from someone else, or gotten through some other means. Doesn't matter. For example, if you receive 2 btc somehow (and a value that day of $600 per btc), you have received $1200. This $1200 is your earnings for the year. You can then deduct what you have spent (in power, etc.) to get that money. Whatever you end up with, say $700 is taxable.

If you ignore to do this, fine. No problem - unless you're audited, then they'll research your activities and you'll be liable for that amount (or more if they calculate more) plus penalties.

It's always safer to figure it out conservatively, and then if you get an audit, you don't have to worry about anything. In general, in an audit, if the US government feels you knew the law and tried to apply it properly (even if you were off by 10%), they're okay with it. If they feel you tried to cheat them, only then will they try to nail your ass to the wall.

smoothie

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LEALANA Bitcoin Grim Reaper

Quote from: up2urheadlights on March 25, 2014, 07:23:35 PM

Quote from: flounderella on March 25, 2014, 06:57:42 PM

Quote from: Peter R on March 25, 2014, 06:36:18 PM

Quote from: flounderella on March 25, 2014, 06:29:39 PM

All I'm thankful for is I didn't preorder those 1TH+ miners... with the difficulty this high and now daily mining being taxable as ordinary income (and not when btc are sold/exchanged) and with cost of hardware and power, there's no ROI left. IRS has essentially gifted mining to the Chinese.

The only way you'd owe taxes is if you were making income by mining (by definition!).

From what I understood, that's only if you file "self-employment", then you can include expenses like hardware and power and then it will all net out plus some writedowns ... if not, then its just ordinary income (although obviously a monetary loss with costs and taxes included)

The real reason this is bad is for miners is that it could greatly increase the risk. The IRS just said you are taxed at the rate when you receive the coin. What happens if the coin loses value from the point when it's mined to the point when you sell it?

Lets say I mine 1 btc on a pool and the pool sends me the BTC. I have a record of the transaction being sent to my wallet. I can then look up the value on bitstamp at the time I received the BTC, lets say it's worth $580. The IRS says I'm taxed on the $580 as "income" minus any expenses such as cost of miner and electricity. Now I wait 6 months and the coin I mined is only worth $200 and I sell. The question becomes, have I just realized a $380 capital loss to adjust income? This is the big question I have from reading the IRS FAQ.

It would be so much simpler if mining income was calculated when you actually sell the bitcoin. It's the same way for individuals that mine gold, the only difference here is that bitcoin has a public ledger and gold does not.

I suspect you would just offset your capital gains with capital losses for the year.

amspir

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Quote from: 5thStreetResearch on March 25, 2014, 03:28:26 PM

This is not good

All it means is that a compliant taxpayer pays at a lower capital gains tax rate when a profit due to the price going up is realized. If it had been decided the other way, then a compliant taxpayer would have to pay on the gains at the normal income tax rate, which for most people is higher.

If you are a tax evader, it doesn't make a difference, other than your lawyer might be able to present a lower tax liability when you are brought to IRS court.

seriouscoin

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Quote from: DeathAndTaxes on March 25, 2014, 07:52:41 PM

Quote from: Klestin on March 25, 2014, 07:46:47 PM

The problematic part has been touched on above, but to add to that, if the miner is taxed at the time of mining, how is the sale handled when they sell the coins? What basis is used? I suppose the FMV at the time of mining, but of course there will be no receipt. Normally, basis is what you paid for the item, which in this case would be 0. If it were 0, that would result in double taxation of the same income.

The basis would be the valuation used for the gross income that you declared. I showed an example above. It would never be zero. I agree the IRS is being inconsistent here but there would be no double taxation.

What happens to a mining business that have shared holders outside of US?

The IRS just make it way too complicated for miners. Why do they have do to tax for miners if they already have tax event at buy&sell ?

Klestin

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Quote from: smooth on March 25, 2014, 08:49:24 PM

Only if you actually have some participation in operating the pool, as opposed to merely using it. It seems possible there might be public a pool organized as a coop where the miners could vote on decisions about running the pool, etc. but I'm not aware of one. But in general that's not how pools work, aside from private pools organized by a small group of miners, and those could fit your description. The pool is a separate business and you are contracting with it.

I don't see that it's quite as clear cut as you indicate. For instance, the pool I use has a 0% fee, and so is pretty much an agreement between users to split the value of mined coins equally according to work done. I can't really think of an exact analog in the pre-bitcoin world.

MarketNeutral

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They're still stuck on defining their terms, but at least it gives the CPAs and attorneys something to play with.

Topic: Bitcoin Is Property Not Currency - page 11. (Read 14732 times)