If the price of bitcoin continues to rise in the future, then people will probably be liable for capital gains or regular gains taxes (depends on how it is classified) related to bitcoin EVEN FOR PURCHASES OF GOODS AND SERVICES WITH BITCOIN.
Let me explain: Let's say you buy one BTC at $850, and 6 months later that one BTC is now worth $1,700. You then use that one BTC to buy a diamond ring for your significant other. For simplicity's sake, let's say the diamond ring costs $1,700. The IRS will consider that a gain, even though you didn't exchange the bitcoin for money since you exchanged it for something that was twice the dollar value you originally bought the bitcoin at. In this case, you owe taxes on the capital gain or regular gain of $850 (the price doubled, remember).
Most likely the IRS will only go after large purchases (people buying cars, houses, expensive jewelery, etc... with bitcoin) since they don't have the man power to investigate all transactions, but this does give me pause.
This is one reason I don't purchase anything at the moment with bitcoin until there is more clarification of how taxable transactions will be treated in relation to bitcoin by the IRS.
Topic: IRS reply (Read 1809 times)
Personally, I'd really love to pay off my house and not have that to worry about anymore, regardless of where BTC ends up in the future. And last I checked, Wells Fargo doesn't take BTC for mortgage payments.
That's why WE change it back to Fiat and pay the Bank. At least, that's MY plan.Now AFTER it's turned back to Fiat THEN it becomes a Capital Asset and Taxable.
Is that about right?
Why change bitcoin back to dollars?
However great bitcoins may be, it is still bet that they will be at $1000 in few years, they could be much higher or may be near zero, so it is prudent to get some profit. It also distributes the coins so they are more sustainable. 
Why change bitcoin back to dollars?
Just hold till your ready to spend when everyone accepts it in a year or two.
Buy and holding will reward savers of this currency immensely.
As long as there aren't dollars involved in the transaction, I don't see where they have jurisdiction.
I'm no lawyer but this whole bitcoin system is design to get out from under their thumb, we should use it as such, not just a speculation instrument.
what they don't know, we shouldn't report, see 5th amendment,
Happy BankRunning
Personally, I'd really love to pay off my house and not have that to worry about anymore, regardless of where BTC ends up in the future. And last I checked, Wells Fargo doesn't take BTC for mortgage payments. Just hold till your ready to spend when everyone accepts it in a year or two.
Buy and holding will reward savers of this currency immensely.
As long as there aren't dollars involved in the transaction, I don't see where they have jurisdiction.
I'm no lawyer but this whole bitcoin system is design to get out from under their thumb, we should use it as such, not just a speculation instrument.
what they don't know, we shouldn't report, see 5th amendment,
Happy BankRunning
Why change bitcoin back to dollars?
Just hold till your ready to spend when everyone accepts it in a year or two.
Buy and holding will reward savers of this currency immensely.
As long as there aren't dollars involved in the transaction, I don't see where they have jurisdiction.
I'm no lawyer but this whole bitcoin system is design to get out from under their thumb, we should use it as such, not just a speculation instrument.
what they don't know, we shouldn't report, see 5th amendment,
Happy BankRunning
Just hold till your ready to spend when everyone accepts it in a year or two.
Buy and holding will reward savers of this currency immensely.
As long as there aren't dollars involved in the transaction, I don't see where they have jurisdiction.
I'm no lawyer but this whole bitcoin system is design to get out from under their thumb, we should use it as such, not just a speculation instrument.
what they don't know, we shouldn't report, see 5th amendment,
Happy BankRunning
Now after few days, they again replied to my original question with more details, may be they are reading these threads 
Email from IRS:
Still doesn't say whether capital gains tax rates apply though, or whether it is taxed at ordinary income rates. Taxed at ordinary income rates would suck. Email from IRS:
Quote
The IRS has not issued guidance specific to bitcoins. The profit you derive from bitcoin transactions is taxable.
Per Publication 525, Taxable and Nontaxable Income, In most cases, an amount included in your income is taxable unless it is specifically exempted by law. Income that is taxable must be reported on your return and is subject to tax.
The Financial Crimes Enforcement Network ("FinCEN") has issued interpretive guidance to clarify the applicability of the regulations implementing the Bank Secrecy Act ("BSA") to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies. Refer to
http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html
Our basic Electronic Tax Law Assistance is designed to assist the general public in complying with their Federal tax obligations. Our goal is to provide complete and accurate responses to as many taxpayers as possible. With that goal in mind and to maximize our resources, we are unable to provide assistance on highly technical and complex issues that involve lengthy research. Due to the technical or complex nature of virtual currency exchange rate gain we are unable to provide any further response via this service.
Per Publication 525, Taxable and Nontaxable Income, In most cases, an amount included in your income is taxable unless it is specifically exempted by law. Income that is taxable must be reported on your return and is subject to tax.
The Financial Crimes Enforcement Network ("FinCEN") has issued interpretive guidance to clarify the applicability of the regulations implementing the Bank Secrecy Act ("BSA") to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies. Refer to
http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html
Our basic Electronic Tax Law Assistance is designed to assist the general public in complying with their Federal tax obligations. Our goal is to provide complete and accurate responses to as many taxpayers as possible. With that goal in mind and to maximize our resources, we are unable to provide assistance on highly technical and complex issues that involve lengthy research. Due to the technical or complex nature of virtual currency exchange rate gain we are unable to provide any further response via this service.
.. it would also help to know where the communication was made (to confirm that they could officially provide the input "not a capital asset"). Assuming the communication was made in the appropriate place...
I asked the question here http://www.irs.gov/uac/Help-With-Tax-Questions-2You need to get a covered opinion.
.. it would also help to know where the communication was made (to confirm that they could officially provide the input "not a capital asset"). Assuming the communication was made in the appropriate place...
I asked the question here http://www.irs.gov/uac/Help-With-Tax-Questions-2
Now after few days, they again replied to my original question with more details, may be they are reading these threads
Email from IRS:
Email from IRS:
Quote
The IRS has not issued guidance specific to bitcoins. The profit you derive from bitcoin transactions is taxable.
Per Publication 525, Taxable and Nontaxable Income, In most cases, an amount included in your income is taxable unless it is specifically exempted by law. Income that is taxable must be reported on your return and is subject to tax.
The Financial Crimes Enforcement Network ("FinCEN") has issued interpretive guidance to clarify the applicability of the regulations implementing the Bank Secrecy Act ("BSA") to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies. Refer to
http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html
Our basic Electronic Tax Law Assistance is designed to assist the general public in complying with their Federal tax obligations. Our goal is to provide complete and accurate responses to as many taxpayers as possible. With that goal in mind and to maximize our resources, we are unable to provide assistance on highly technical and complex issues that involve lengthy research. Due to the technical or complex nature of virtual currency exchange rate gain we are unable to provide any further response via this service.
Per Publication 525, Taxable and Nontaxable Income, In most cases, an amount included in your income is taxable unless it is specifically exempted by law. Income that is taxable must be reported on your return and is subject to tax.
The Financial Crimes Enforcement Network ("FinCEN") has issued interpretive guidance to clarify the applicability of the regulations implementing the Bank Secrecy Act ("BSA") to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies. Refer to
http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html
Our basic Electronic Tax Law Assistance is designed to assist the general public in complying with their Federal tax obligations. Our goal is to provide complete and accurate responses to as many taxpayers as possible. With that goal in mind and to maximize our resources, we are unable to provide assistance on highly technical and complex issues that involve lengthy research. Due to the technical or complex nature of virtual currency exchange rate gain we are unable to provide any further response via this service.
I was thinking the same thing because of other responses I have gotten from them and the "not a capital asset" comment. In addition to it being helpful to post the full communication, it would also help to know where the communication was made (to confirm that they could officially provide the input "not a capital asset"). Assuming the communication was made in the appropriate place, the next step might be to determine whether bitcoin would be considered nonfunctional currency or some other form of income.
Have any body emailed IRS for guidance related to bitcoins?
I did and got a cryptic reply
"Reclassified 12/9, not a capital asset, see Bitcoin using search on IRWeb, Fincen, port0012, HGK"
Will some expert try to decipher it?
I did and got a cryptic reply
"Reclassified 12/9, not a capital asset, see Bitcoin using search on IRWeb, Fincen, port0012, HGK"
Will some expert try to decipher it?
I think the IRS person is trying to tell you how to look the answer up yourself. They're saying use Google and search IRWeb, Fincen, and port0012. Not sure what port0012 is, that I'm not of. I imagine HGK is the person's responding's initials. Not a capital asset I think means you have to pay taxes like any income on the profit.
Wikipedia says I'm right: In some income tax systems (for example, in the United States), gains and losses from capital assets are treated differently than other income. Sale of non-capital assets, such as inventory or stock of goods held for sale, generally is taxed in the same manner as other income.
But at the very least, you must first ask the right questions before you expect the right answers.
btw can you send them the right questions and get detailed right answers, it will help us a lot. If that is the entire text of your question to the IRS, then the IRS simply determined that your question was incomprehensible and gave you a similarly incomprehensible response. You must describe in full detail your ENTIRE tax situation. The IRS will then return with a written response. This guidance still may or may not answer your question. But at the very least, you must first ask the right questions before you expect the right answers.
My question was more detailed than that, but I have put just the gist of it, anyway whatever the tax situation, in most cases for long term trades there should be one type of tax, it should not matter what my or your tax situation is. Maybe you could tell us what question you asked? I think the 12/9 refers to when they responded to your question, not anything to do with bitcoin itself.
I basically asked:
"I recently sold some bitcoins with some profit, though I am not sure which tax applies to them if any. Is there any guidance from IRS regarding bitcoins?"
If that is the entire text of your question to the IRS, then the IRS simply determined that your question was incomprehensible and gave you a similarly incomprehensible response. You must describe in full detail your ENTIRE tax situation. The IRS will then return with a written response. This guidance still may or may not answer your question. But at the very least, you must first ask the right questions before you expect the right answers.
Maybe you could tell us what question you asked? I think the 12/9 refers to when they responded to your question, not anything to do with bitcoin itself.
I basically asked:
"I recently sold some bitcoins with some profit, though I am not sure which tax applies to them if any. Is there any guidance from IRS regarding bitcoins?"
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Have any body emailed IRS for guidance related to bitcoins?
I did and got a cryptic reply
"Reclassified 12/9, not a capital asset, see Bitcoin using search on IRWeb, Fincen, port0012, HGK"
Will some expert try to decipher it, but to me it looks like a big news, and was 12/9 mentioned is "reclassified just now" ?
I did and got a cryptic reply
"Reclassified 12/9, not a capital asset, see Bitcoin using search on IRWeb, Fincen, port0012, HGK"
Will some expert try to decipher it, but to me it looks like a big news, and was 12/9 mentioned is "reclassified just now" ?
Maybe you could tell us what question you asked? I think the 12/9 refers to when they responded to your question, not anything to do with bitcoin itself.
Have any body emailed IRS for guidance related to bitcoins?
I did and got a cryptic reply
"Reclassified 12/9, not a capital asset, see Bitcoin using search on IRWeb, Fincen, port0012, HGK"
Will some expert try to decipher it?
I did and got a cryptic reply
"Reclassified 12/9, not a capital asset, see Bitcoin using search on IRWeb, Fincen, port0012, HGK"
Will some expert try to decipher it?
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