Topic: Is the IRS ruling final? Where is the legal / technical analysis? (Read 4256 times)

Can you get congress to pass a law to reverse the IRS ruling?

You will end up needing me and guys like me but remember, I was here first.................

Congress has gotten some legislation passed. Granted it has not been much due to extreme polarization but bills have passed.

And Congress is not going to do shit so it is up to every Bitcoiner to figure it out for him/herself.

There are ways.

Nothing is every final. Congress could easily (in theory) pass a budget/law that would essentially change this ruling.

Here is an article I found helpful. I am trying to follow this stuff as much as possible. Not very cut-and-dry...

http://www.coindesk.com/bitcoin-regulation-lessons-early-days-skype/

The bitcoin industry seems to be adamant that bitcoin is a currency and bitcoin companies are financial institutions. This was very much in evidence at Bitcoin2014, where all major actors were describing their progress to ‘regulatory compliance’. But is this necessary?

From the inception of Skype, we could have said that the firm is a telco (telecommunications company). We could have decided to apply for telecoms licences all around the world and customize the product to both match and support the vagaries of different rules and directives.

It would have been the logical thing to do and it is similar to the route many bitcoin actors are taking today. However, if Skype had done so, it would have been the worst strategic mistake it ever made.

Your tax liability depends on what vehicle you use to set up your business.

Which works fine, so long as you also aren't a US citizen.

Unfortunately, US citizens pay taxes whether they are in the US or not, according to the "law". 

If you are correct, as you may well be, it becomes incumbent on users to find legal ways around the IRS policy.

My $.02.

The IRS ruling is not final, it will only get worse however. That's tyranny...

IMHO, now is not the time to try to start a tax revolt with bitcoin as its foundation.

the only thing the general public knows about bitcoin is what they have read in the headlines; Silk road, Gox; various thefts and scams and the use of bitcoin as a tax evasion tool.

There are legal ways to deal with the IRS matter.

My $.02.

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Thank you for this post I agree and its a good way to move forward.

If you are right and the IRS are taking into account how people are behaving in respect of virtual currencies instead of solely focusing on what the currencies in fact represent then that is wrong. Its quite possible given the conclusion that they could be considered "property".

In my view, where they cannot be considered as "currency", being a medium of exchange, then virtual currencies should be viewed as "services" rather than "goods" or "property".

I will look into drafting a legal opinion and posting it here for comment.

Here in New Zealand we have quite established laws around what are goods or services. We have a GST (goods and services tax) which is the same as VAT.

I can leverage off established rules and case law here. There is in fact quite detailed views issued by the authorities here around software and intangible property and what should properly be considered goods/property and services.

Don't know if you boys have discussed the concept of constructive receipt when talking about business income derived from mining. I see alot of chatter here about having to keep track of every coin when you mine it and receive it from your pool. Since none of you ever pay an accountant, I suggest you google constructive receipt and learn about this accounting concept and think how you can apply it to the actual receipt of value for your mining activities. I'll give you a hint, you're going to have to make the argument that you actually can't use the coins you receive as a mining reward until you convert them to fiat because, well you know digital currencies are worthless and cannot be used in real life...

Really? One recent example is when the Electronic Privacy Information Center got a ruling from the D.C. Circuit that DHS violated the Administrative Procedure Act by implementing body scanners as a primary screening method without first undertaking public notice and comment rule-making.

http://www.cadc.uscourts.gov/internet/opinions.nsf/B3100471112A40DE852578CE004FE42C/$file/10-1157-1318805.pdf

Oh, yeah?

Please show us how; citations, etc..

My $.02.

This method has been used to combat unpopular agency actions since the Administrative Procedure Act was passed in 1946...

Personally I'd just like to see them change the view on mining activity, that the cost basis for all mined coins is $0 and you realize a capital gain when selling them. Thus you have far less record keeping issues. For example, what if you mine an alt coin on p2pool and receive dozens of payments per day? The paperwork to report each one of those on your tax return is madness. Better to just gather it all up, and report a gain when you eventually sell the coins or exchange them for property of some value.

Ain't gonna work.

My $.02.

reusing an earlier post from a different thread:

The issue is one of administrative law, and I'm not sure how to reconcile the different treatment by two executive branch agencies. Both the IRS and FinCEN's definitions were promulgated in the form of a guidance document, which has no binding legal effect. Guidance documents are neither rules (which would require the agencies to comport with the rule-making requirements enumerated in the Administrative Procedures Act, 5 U.S.C. §§ 551-559), nor are they adjudications the substance of which can be appealed and reviewed by federal courts.

I see two ways forward, one short term and one long term:

Short term way forward: The IRS guidance document requests "comments from the public regarding other types or aspects of virtual currency transactions that should be addressed in future guidance." You can mail your comments to:

Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2014-21)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044

I think taxing virtual currencies as property ignores the fact that they are indeed designed to be used as a medium of exchange. The IRS's definition treats BTC as property (and taxing according to capital gains), which means they perceive BTC as something that is purchased to appreciate in value. This perception is probably driven in part by how much BTC can fluctuate relative to fiat and the fact that some people are purchasing and selling for purely speculative purposes: the IRS wants to tax realized gains as income. The most significant problem with this guidance is that it discourages the use of BTC as a medium of exchange by imposing a substantial record keeping burden. It would be helpful if future guidance distinguished between the manner in which BTC was used, and in particular differentiating between using BTC to buy and sell goods and services (BTC as a medium of exchange) from purchasing and selling BTC for the purpose of making money from speculation (BTC as a traded commodity).

Long term way forward: Petition various agencies to initiate the rule-making process for actual rules regarding the treatment of virtual currencies (http://www.reginfo.gov/public/reginfo/Regmap/regmap.pdf). The most obvious candidates are the Department of Treasury, the IRS and/or FinCEN, but it would probably not be effective to simply ask these agencies for a rule. Rather, before petitioning for rule-making to be initiated, some groundwork is required: (1) what person or association of persons will petition for the rule; (2) clear statement of purpose of the proposed rule-making; (3) clear language of the proposed rule; (4) clear explanation of why the proposed rule would be in the public interest; (5) relevant information assembled in easily digestible form; and (6) a clear and compelling explanation of why the rule is necessary.

A decentralized way to move forward would be to announce that we need this information, and call upon the BTC community to start submitting it to a designated repository. A committee of curators of that repository could cull the best and most relevant information and assemble a draft proposal of the petition for rule-making. The proposal would be announced for additional comment period before the community approves the petition in its final form. The committee of curators would then submit the petition to the agency or agencies.

Thoughts?

The question is...  "If a taxpayer’s “mining” of virtual currency constitutes a trade or business ..."

It's the business vs. hobby thing.  If it's a business, it's easier to deduct expenses, but you need to pay self-employment tax.  If it's a hobby, the deductions can't exceed the hobby's profits during the year, and can only be taken if you itemize.

But the question of whether it's a business or a hobby doesn't seem clear cut to me.  At least for a small miner, you could argue either way.