Topic: IRS made a mistake - page 2. (Read 2899 times)

with all the trolling going on, those guys must be worth millions.

Doesn't that rule only apply if you are paid in stock options?  If you were paid directly in stock, I think the tax treatment would be the same as what they are proposing for bitcoin.

The stock option trick has never really made sense to me, so perhaps I am missing something.  

EDIT: All this discussion on tax over the last few days really shows how complex and burdensome the existing system is!!  Our combined efforts discussing and studying these issues has probably already consumed millions of dollars of our time. 

yes you did.

but the other point i'm trying to make is that ppl who accept pay in btc should not be taxed ordinary income if they decide to hold it for over one year thus qualifying it as capital gains.  accepting pay can also be an investment or property as the IRS has defined it.  stock options as pay are structured in this way.

remember that i'm using the IRS's recent decision to not classify Bitcoin as money but instead as property to make this argument.

I agree and that is what I am saying cypherdoc, assuming one is a miner and not a "hasher."

...

Yeah, like I'm a tax lawyer or something...

I have others prepare our taxes, it is too complicate for me to do.

Here is what I am going to do about BTC:

When I spend BTC on something (like when I bought the the only thing I have using BTC: the 0.25 oz Gold Eagle), I will THEN use the value of my BTC spent vs. the average price I paid until then for them as my cost basis.  Alas, I lost a little bit as the value of my BTC went down a bit after buying them before I bought the gold.  So, I will take THAT as a Cap Gains loss, fishez!

I have also been donating BTC here and there as I have seen fit.  On another thread here at bitcointalk, "bitcoin" (aka "El Capo") won a contest (0.05 BTC, congratulations!) I offered up (WHAT was so unusual about a QR Code I took a picture of in Peru).

If you Google "dochenrollingbearing, blog", it will come up as Numero Uno, the last picture is the QR Code for anyone interested.  The winner commented at my blog, which was in the rulez, fishez.  Other pictures from Peru are there, as well as Peru mining (Au and Cu, not BTC, although I have an idea I am working on..., smile,,, a BIG IDEA!).

What the IRS issued was not laws; it was their interpretation of existing laws based on their present understanding of what a bitcoin is.  Some will ignore aspects of this guidance (rightly so IMO), others will work to change perception so that future guidance more accurately reflects reality.  

This is the bitcoin honey-badger process...

The US government has swallowed the whole stock/derivative market technology and throw away good money after bad to save their too big to fail system. I don't care that they don't understand Bitcoin, because they can't regulate it. They should be embracing it and realize that they will never have to bail it out.

You could address it in court, and you'd probably win, yes.

Or you could just ignore the law like everyone already does with copyright.

If you think they will have the resources to go after you, you're wrong. There will be WAY too many people using this currency (without any government permission) in the near future.

The law will be unenforceable, and the IRS + their fiat currency will both go the way of Blockbuster video.

It seems to me that there are two debates:

A. Is our tax system "good as is" or does it "need improvement"?
B. Did the IRS's guidance properly reflect existing laws?  

1. I think this thread is about debate "B."  In that case, I don't see how you could argue that if you received payment for employment-type work in BTC that you didn't also receive income at the time equal to the market price in USD of those bitcoin.  What is the logic?  If I am paid in stocks (at least here in Canada), I am required to pay tax on the income I received in stocks by calculating their fair-market value in dollars.  If the stocks go up and I later sell them for a gain, then this becomes a second taxable event.  Bitcoin is treated the same way.  

2i. On the other hand, I think the IRS guidance did not properly reflect existing tax laws when it comes to mining.  "Hashers" receive income for the service they provided to mining pools, and the guidance was correct in my opinion that they realize income at the moment they receive coins for their effort.  They are akin to the employees and contractors in gold mining: they are in it for the income.    

2ii. Miners are independent and create coins similar to the way a gold mining company creates gold inventory.  This is not income--they are mining property for the property, not for the income in dollars.  In my opinion, miners are not legally obligated to pay taxes on mined coins; I believe a challenge here would win in court.  I believe the IRS guidance was flawed simply due to their lack of understanding of Bitcoin.  Perhaps a large US mining company can move this forward…


Once again to readers, I am not debating whether the present tax system is just.  I am debating whether the recent IRS guidance properly reflects the actual laws.  

The above opinions are mine and should not be construed as legal advice.  IANAL.  

Replace the word unicorn with any other tangible asset and you are delusional, and it's the same. Bitcoin doesn't work that way.

I will ignore the IRS and their laws just as easily as I have been ignoring copyright holders and their laws for years. *shrug*

The day they send some armed men to my door to extract wealth at the point of a gun, is the day I make the news as a patriot who defended his inalienable rights from tyrants.

Income tax is unconstitutional, so is the Fed. Also, we Americans have this old idea.. "no taxation without representation".

I'll start paying taxes again when my government starts representing me, for the first time in my young life.

If you're an American citizen, standing up to a corrupt, tyrannical government is not your right, it is your sworn duty as a citizen of this nation.

It's not a mistake.  If someone pays you $100 in bitcoin, you've earned $100 of income.  That won't change.  If you continue to hold the bitcoin, that's your risk.

So if bitcoin then goes to zero, you pay $100 worth of tax, but you get $100 of capital loss deduction.  That doesn't equate to zero tax, because the capital loss deduction is less than the tax on your income.  But it reflects that you did.  You earned income, and you speculated on bitcoin.

Also, the rules released by IRS are nothing new.  Those have always been the rules, they just haven't said so.  Replace the word bitcoin with any other tangible asset other than a government-issued currency, and it's the same.

When someone pays you in bitcoin, pretend they paid you in cash and you used that cash to instantly buy bitcoin.  Then there won't be any confusion.

Hey Guys, what did you expect the IRS to do?  Did you expect this:

"We, the IRS, tax everything one can make a profit on, except bitcoin, because..., because..., it's bitcoin!  And we love bitcoin and bitcoin users!"

It was never going to happen, not even a possibility.  Banning bitcoin was a possibility and it's off the table.  That's actually great news.

Now, in reality, people will pay taxes on bitcoin when they are provided a 1099 from somebody like coinbase.  I doubt anybody will get 1099's for small bitcoin purchases and so won't pay taxes nor get caught for it.  It's not unlike selling your car for more than you paid for it.  Very few people report that profit to the IRS and yet, by law, they are supposed to.  Nobody gets caught for this either.  The IRS looks the other way unless the person is a car dealer or running some other business.  How about barter.  Do you pay taxes on things you barter?  You are supposed to but not very many people do and not very many people get caught either.  And so it will be with bitcoin.

If the government starts to treat BTC and implements the laws accordingly ( stealing them, abusing them and so on ) that know knows what can happen...

The IRS made no mistake, they purposely made it legally harder to use bitcoin to slow down its adoption.

yep, but less efficient is too kind.

it'll be tax overburdened.  imagine a world when Bitcoin expands further and becomes a true bonafide currency.  and the US has no mining operations.

When you buy bitcoins from an exchange or broker, you don't actually take possession until they are sent to your wallet. The exchange has them and therefor the price they were purchased at is irrelevant. By the time you take possession of them the price will have changed. This is similar to how a stock option works. The value of the bitcoins when you take possession of them is more important, but there is no guidance how this is to be done. You could use a monthly or yearly average for convenience sake.

Updated op

True. Bitcoin went a long way from the currency of computer enthusiasts, to a widely acceptable form of payment, recognized by world banking and regulated by the same institutions as paper money.