Topic: IRS Imposes Burdensome Tax on Multi-Billion Dollar Loyalty, Timeshare Points (Read 1348 times)

A currency can be a legal currency without being legal tender.  It's legal to transact in Euros even though they are not legal tender in the US (you can't pay your taxes with them).  

This is an important thread.  If the bitcoin community wants to get this ruling overturned, we need allies.  Frequent flyers, loyalty reward points, significantly expand the impact/pain of this ruling.  Get those communities pissed off too, and maybe you'll be getting somewhere.  When the airlines and credit card companies have to deal with this too, there might be a shot at getting it fixed.

Started a thread on flyertalk
http://www.flyertalk.com/forum/travel-news/1564007-irss-ruling-bitcoin-may-mean-capital-gains-points.html

Very good question

Right now we're involved in a sort of "money" game. In that game it's now the state vs. the people. Since money can theoretically be anything how it's defined is of importance, given the influence on people's lives and respective positions.

This is where legal tender laws come in. In order to protect the interests of ordinary people the U.S. Constitution, supposedly the highest law in the land, specifically states only gold and silver coin can be legal tender. Given that, anything else is not legally "money". There was a time when there were thousands of privately issued currencies in the U.S., similar to today's gift certificates, points etc. These currencies could be traded, but this was viewed as barter since they were generally only redeemable for goods from the issuer, not gold and silver.

Now to your question. The U.S. government is in the peculiar predicament of trying to appear legitimate while propping up a system clearly deemed illegitimate in the words of its own law -- dollars, or Federal Reserve Notes, are now as redeemable for gold as toilet tissue.

Bitcoin enters the picture and adds an interesting dynamic to the game. Due to its decentralized nature the government can't simply use force to shut it down. Instead, governments must take a legal position on it. This is where we are today.

The Fincen guidance states:


One of the attributes of "real" currency is being legal tender in some jurisdiction. Since Bitcoin, points, even video game currency, operate like a currency in some in environments, but are not legal tender anywhere, they are all in the same category: virtual currency.

So the guidance the IRS and FinCEN issues can't apply to Bitcoin only and nothing else. It must apply equally to other instruments behaving the same way, meaning the money transmission regulations and now tax guidance apply.

I can see how this statement would be applied to bitcoin and other virtual currencies, but wouldn't you think they would use some of the other examples to clarify what else they consider "convertible virtual currency" by saying "Points, Frequent Flyer and/or Rewards programs?"  I'm probably expecting too much.

In my head I want to think that this broad of a definition could also mean that buying of stamps, trading cards, comic books or other items that could be sold later would also fall under that umbrella, but then again they don't fit the "acts as a substitute for real currency" piece?  Is it also because you buy the things I mention above, but the other you receive additional to some other transaction?

Honestly looking for clarification on this.  I don't deal in the Points/Rewards game at all but know others who do.

...wondering how long before in-game currencies for games like Eve and World of Warcraft get the same treatment.


edit:  removed the unnecessary quote to save space

According to FinCEN Bitcoin and other virtual currency such as loyalty program rewards or timeshare points become convertible virtual currency as follows:


http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html



In other words, any time a person or organization issues a token of value, such as scrip, loyalty program rewards, points, gift certificates, etc. the federal government views this as "virtual" currency to be treated as property both subject to currency regulation, but contradicting capital gains taxes as a capital asset in the hands of the taxpayer.

Loyalty programs have become popular worldwide, with programs such as frequent flyer miles and other points of value being exchanged on websites like Points.com. Since airfare price can vary depending on factors such as energy costs or travel season taxpayers redeeming airfare points should now document capital gains and losses per the new IRS guidance.

Timeshare points work in similar fashion. Briefly, a timeshare is a kind of property which works on a points system. Owners in the system acquire points automatically over time which can be exchanged for hotel/lodging at various properties worldwide. Again, due to factors such as travel season or special events, like New Year's day parades or sporting events held nearby, the fair market value for these rooms can vary greatly, again subjecting taxpayers to capital gains and loss reporting, although they already pay property taxes.