By currency i meant "legal tender" as described in 31 USC § 5103. Found some basic info on the law you referenced here:
http://www.investopedia.com/terms/s/section-988.asp
and here:
http://www.law.cornell.edu/uscode/text/26/988
I still don't see how how any agency can declare a bitcoin transaction a "foreign currency transaction." How do you call something a foreign currency if no other country has declared it to be a currency? It get's even more ridiculous/confusing because a Federal judge in Texas somehow declared bitcoin to be a currency (http://ia800904.us.archive.org/35/items/gov.uscourts.txed.146063/gov.uscourts.txed.146063.23.0.pdf). Perhaps the judge considered bitcoin to be a currency per the structure of the financial product that the defendant was selling. At the same time, IRS 527 groups treat bitcoins as they do an asset like a ream of paper or a pack of pencils.
Topic: Investors may not want bitcoin to be a real currency (Read 971 times)
Hello Sean and Coin Pac.....
Put your legal or CPA guys on this. The treatment of bitcoin as a 'currency' can be done by the IRS without it being a 'currency' for other areas of the law. There is no definition of ‘currency’ in the tax code I could find. There is a definition of a "non-functional currency" and it can include bank issued notes..... (you'll find it in the tax code at § 988( c)(1)(C)(ii)).
If it is determined by the IRS to be 'currency,' or that it is going to be taxed like a currency, then I suspect that will stand and it will be treated like any other foreign currency. That going to be terribly complex. But if they call it a duck, it's a duck.
Bottom line, CinFEN could call it a currency, CFTC could call it a commodity and SEC could call it a security...... but...... the IRS could still tax it as a currency..... and they don't even have to call it a currency...... just declare that it will be taxed as a currency. I found the testimony at the Senate hearings last month very interesting as CinFEN danced around the issue of what bitcoin is.
It is a game changer, however, and they just don't know how yet. Of course, we don't either. Taxes are no joke, and penalties are high. It's quite sad that they have not given us some announcement or even a safe harbor to deal with for this year......
Put your legal or CPA guys on this. The treatment of bitcoin as a 'currency' can be done by the IRS without it being a 'currency' for other areas of the law. There is no definition of ‘currency’ in the tax code I could find. There is a definition of a "non-functional currency" and it can include bank issued notes..... (you'll find it in the tax code at § 988( c)(1)(C)(ii)).
If it is determined by the IRS to be 'currency,' or that it is going to be taxed like a currency, then I suspect that will stand and it will be treated like any other foreign currency. That going to be terribly complex. But if they call it a duck, it's a duck.
Bottom line, CinFEN could call it a currency, CFTC could call it a commodity and SEC could call it a security...... but...... the IRS could still tax it as a currency..... and they don't even have to call it a currency...... just declare that it will be taxed as a currency. I found the testimony at the Senate hearings last month very interesting as CinFEN danced around the issue of what bitcoin is.
It is a game changer, however, and they just don't know how yet. Of course, we don't either. Taxes are no joke, and penalties are high. It's quite sad that they have not given us some announcement or even a safe harbor to deal with for this year......
I don't believe that a bitcoin can be ruled "currency" through some kind of administrative action here in the United States. We have laws that were legislated by the congress that specifically identify what our currency actually is. I know Coin PAC has taken a keen interest in H.R. 77 which was introduced in January of 2013. The bill had specific language in it that would have prevented the Federal government from taxing the exchange of coins (minted in the U.S. or any foreign country). Though it did not specifically mentioned bitcoin, a simple amendment to the bill would have probably been a good thing for bitcoin and other forms of virtual currency.
This bill is certainly evidence that any change in what "legal tender" is must involve the legislature. The IRS cannot just declare something "legal tender." My point is - if you're hoping that bitcoin receives a similar treatment in the U.S. as it did in Norway, you're in good hands. The only way to NOT do what Norway did is for the Congress to introduce, pass, and send a bill to the President's desk for signature.
This bill is certainly evidence that any change in what "legal tender" is must involve the legislature. The IRS cannot just declare something "legal tender." My point is - if you're hoping that bitcoin receives a similar treatment in the U.S. as it did in Norway, you're in good hands. The only way to NOT do what Norway did is for the Congress to introduce, pass, and send a bill to the President's desk for signature.
the preferential capital gains rates and the active currency trader loophole, are sweet heart tax deals politicians give to "constituents" aka donors aka money masters. I highly doubt the bitcoin crowd will ever have the ear of anyone on the House Ways and Means Committee and therefore I would expect the worst tax treatment for bitcoin taxation.
Investors may not want bitcoin to be a real currency
Treating the virtual currency like a dollar would raise taxes on profits
By Jonnelle Marte, MarketWatch
Tax pros generally agree any income achieved by selling bitcoins must be taxed. “Bitcoin is subject to income and capital gains taxes like anything else,” says Stephen Pair, co-founder and chief technology officer of BitPay, a payment services provider that specializes in virtual currencies. The exact way they are handled, however, could have very different tax implications.
In Norway, for example, the tax authority there declared Monday that bitcoins aren’t a real currency but that they would be taxed as an asset and charged capital gains tax. No such clarity has been offered in the U.S., where lawmakers are trying to figure out the best way to track bitcoins, but some tax experts are saying that when such guidance is finally issued here, an outcome similar to the ruling in Norway—where the virtual currency won’t be treated as a currency at all—could be better for bitcoin users. That’s because if bitcoins were to be recognized as a currency, users would be limited by tax rules requiring any gains generated by holding physical currency to be taxed as ordinary income, says Robert A. Green, an accountant in New York, whose firm GreenTraderTax, specializes in advising traders. If bitcoins were treated as a real currency, gains would have to be taxed at regular income tax rates, which could get as high as 39.6% for the wealthiest bitcoin users, he says. In contrast, if bitcoins are treated as an asset—similar to the way they will be treated in Norway—they could potentially be taxed at the much lower long-term capital gains rate of 20% for investors in the top tax bracket, says Green. (That is, if investors hold their bitcoins for more than 12 months before selling them. Any bitcoins sold in less than 12 months would be taxed as ordinary income in that scenario.)
Foreign exchange traders are able to work around the higher taxes when it comes to legitimate currencies by buying and selling foreign currency contracts, which allow them to bet on the direction of a currency, without holding the physical currency, says Green. If bitcoins were to be recognized as a legitimate currency, bitcoin investors would have no such way to opt out of the requirements that gains be treated as ordinary income since such contracts don’t currently exist for the virtual currency. Of course, if bitcoins were legitimized, banks could also adapt by creating contracts to allow investors to make bets on the currency without actually having to buy bitcoins, says Green. Some investment banks are already trying to create a marketplace that would make it easier for bitcoins to be converted into other currencies, he says.
While investors wait for official word on exactly how bitcoins should be treated, some bitcoin holders might want to report them as a capital asset, says Bob Meighan, an accountant with TurboTax. In that scenario, income generated from selling them would be treated as either long-term or short-term gains depending on how long investors held the coins. The downside to the approach: losses would be limited to $3,000 a year and other losses may have to be carried over to future tax years. Of course, “the loss question has generally not come often since bitcoins have been appreciating,” says Meighan.
http://www.marketwatch.com/story/investors-may-not-want-bitcoin-to-be-a-real-currency-2013-12-17?siteid=rss&rss=1
Treating the virtual currency like a dollar would raise taxes on profits
By Jonnelle Marte, MarketWatch
Tax pros generally agree any income achieved by selling bitcoins must be taxed. “Bitcoin is subject to income and capital gains taxes like anything else,” says Stephen Pair, co-founder and chief technology officer of BitPay, a payment services provider that specializes in virtual currencies. The exact way they are handled, however, could have very different tax implications.
In Norway, for example, the tax authority there declared Monday that bitcoins aren’t a real currency but that they would be taxed as an asset and charged capital gains tax. No such clarity has been offered in the U.S., where lawmakers are trying to figure out the best way to track bitcoins, but some tax experts are saying that when such guidance is finally issued here, an outcome similar to the ruling in Norway—where the virtual currency won’t be treated as a currency at all—could be better for bitcoin users. That’s because if bitcoins were to be recognized as a currency, users would be limited by tax rules requiring any gains generated by holding physical currency to be taxed as ordinary income, says Robert A. Green, an accountant in New York, whose firm GreenTraderTax, specializes in advising traders. If bitcoins were treated as a real currency, gains would have to be taxed at regular income tax rates, which could get as high as 39.6% for the wealthiest bitcoin users, he says. In contrast, if bitcoins are treated as an asset—similar to the way they will be treated in Norway—they could potentially be taxed at the much lower long-term capital gains rate of 20% for investors in the top tax bracket, says Green. (That is, if investors hold their bitcoins for more than 12 months before selling them. Any bitcoins sold in less than 12 months would be taxed as ordinary income in that scenario.)
Foreign exchange traders are able to work around the higher taxes when it comes to legitimate currencies by buying and selling foreign currency contracts, which allow them to bet on the direction of a currency, without holding the physical currency, says Green. If bitcoins were to be recognized as a legitimate currency, bitcoin investors would have no such way to opt out of the requirements that gains be treated as ordinary income since such contracts don’t currently exist for the virtual currency. Of course, if bitcoins were legitimized, banks could also adapt by creating contracts to allow investors to make bets on the currency without actually having to buy bitcoins, says Green. Some investment banks are already trying to create a marketplace that would make it easier for bitcoins to be converted into other currencies, he says.
While investors wait for official word on exactly how bitcoins should be treated, some bitcoin holders might want to report them as a capital asset, says Bob Meighan, an accountant with TurboTax. In that scenario, income generated from selling them would be treated as either long-term or short-term gains depending on how long investors held the coins. The downside to the approach: losses would be limited to $3,000 a year and other losses may have to be carried over to future tax years. Of course, “the loss question has generally not come often since bitcoins have been appreciating,” says Meighan.
http://www.marketwatch.com/story/investors-may-not-want-bitcoin-to-be-a-real-currency-2013-12-17?siteid=rss&rss=1
Jump to: