IRS Says Bitcoin Is Property • Hacker News Board

Re: IRS Says Bitcoin Is Property

#91

Post by dragonwriter » Tue, Mar 25, 2014, 7:20 PM UTC

quakkels wrote: post #75

I can't tell if this is good or bad. But, does it strike anyone else as odd that the IRS ignores that bitcoin _is_ actually currency? Can they even declare it to be property when the reality is that it is currency?

> But, does it strike anyone else as odd that the IRS ignores that bitcoin _is_ actually currency? Can they even declare it to be property when the reality is that it is currency?

"Property" is a statement about a legal relationship between a person and some (tangible or intangible) thing.

"Currency" is a statement about an attribute of a thing idnependent of its legal relationship to any person.

Whether a thing is "currency" and whether it is someone's "property" are orthogonal concerns. It can be either, both, or neither. The fact that it is one does not prevent it from being the other.

Re: IRS Says Bitcoin Is Property

#92

Post by mbreese » Tue, Mar 25, 2014, 7:21 PM UTC

kevinpet wrote: post #33

It still doesn't clearly address the question of how those who mine bitcoin should be taxed. I guess your cost basis is a prorated portion of what you've spent on bitcoin mining. Very hard to do the accounting.

If you're mining in a pool, you should have a record of when you got each fractional allocation of Bitcoins. You could then look up the Bitcoin/USD rate at that time from historical data at one of the exchanges. This is going to be one very large spreadsheet.

One benefit is that you can probably batch rounds together and only count the bitcoins as "realized" when they are sent from the pool to you (at payout). This way you won't have to figure out the rates for each shift.

Re: IRS Says Bitcoin Is Property

#93

Post by saraid216 » Tue, Mar 25, 2014, 7:21 PM UTC

quakkels wrote: post #75

I can't tell if this is good or bad. But, does it strike anyone else as odd that the IRS ignores that bitcoin _is_ actually currency? Can they even declare it to be property when the reality is that it is currency?

What would you say the difference between property and currency is?

Re: IRS Says Bitcoin Is Property

#94

Post by loumf » Tue, Mar 25, 2014, 7:22 PM UTC

tbrownaw wrote: post #67

shmerl wrote: post #22

Earlier quoted context omitted.

And if the money is spent in same Bitcoins? It seems the only control they might have is when Bitcoins are exchanged to regular currency.

I thought the way these things normally work is that someone notices that your standard of living doesn't seem to match what they know of your income, and that news makes its way to the IRS (possibly via local law enforcement?).

These days this is quite automatible. Large purchases, like houses and cars, are public.

Re: IRS Says Bitcoin Is Property

#95

Post by FootballMuse » Tue, Mar 25, 2014, 7:22 PM UTC

jstalin wrote: post #46

loumf wrote: post #37

Earlier quoted context omitted.

According the article this is not true. The tax event is turning the bitcoins into currency or spending them. So, the issue could be you have $1,000,000 of bitcoin, and you spend it. You now owe capital gains on the difference in price between when you bought and sold. Now, even if you have the $x00,000 in bitcoin to cover this, you better convert it fast (like simultaneously). Or, never spend bitcoin directly -- con…

Actually, it says that you are taxed on their value at the time they are mined.

How does this work when mining in a pool is nearly continuous? You earn 0.000000x btc per share in a pool, and you might earn a share every few seconds.

What exchange do I use to determine the value of the btc?

Re: IRS Says Bitcoin Is Property

#96

Post by [deleted] » Tue, Mar 25, 2014, 7:23 PM UTC

quakkels wrote: post #75

I can't tell if this is good or bad. But, does it strike anyone else as odd that the IRS ignores that bitcoin _is_ actually currency? Can they even declare it to be property when the reality is that it is currency?

[deleted]

Re: IRS Says Bitcoin Is Property

#97

Post by mahyarm » Tue, Mar 25, 2014, 7:23 PM UTC

dllthomas wrote: post #71

dragontamer wrote: post #29

Earlier quoted context omitted.

What is so hard about looking through the blockchain and backtracing all of your trades at a later date? You know your own public and private key, so you can find all of your transactions and the date at which you've received or sent off BTC. Come tax day, you run a single program over all your transactions and you should be set. There's no need to go "cloud" on this one, a simple offline blockchain app would solve t…

You need some sort of data source for what prices were at various points. This could be offline, but is likely to be big. Still, substantially easier problem than a lot of tax-related reporting.

Which exchange price would you use too?

Re: IRS Says Bitcoin Is Property

#98

Post by PeterisP » Tue, Mar 25, 2014, 7:24 PM UTC

shmerl wrote: post #22

loumf wrote: post #12

Earlier quoted context omitted.

At large enough amounts, the IRS routinely investigates large accounts no matter how they are held. For example, in cocaine and cash. At some point you spend the money, and the difference in spending and taxes paid gets their attention.

And if the money is spent in same Bitcoins? It seems the only control they might have is when Bitcoins are exchanged to regular currency.

As for cash and cocaine, you track the items that it's being spent on.

If you buy a burger with bitcoin, then, well, noone cares if you didn't pay taxes on that; but if you buy a car or a mansion with bitcoin (or bitcoin-derived resources), then the item is visible, and they can audit your income and purchases to trace the source of that money (and untraceable source = your problem).

Re: IRS Says Bitcoin Is Property

#99

Post by sliverstorm » Tue, Mar 25, 2014, 7:25 PM UTC

Kapura wrote: post #39

>Bitcoin miners would have to report their earnings as taxable income with a value equal to the worth on the day it was mined. Maybe the rules are more thorough in reality than in this article, but how would the above statement apply to people who mine in a pool? Would only the person who hits the hash have to report the income? Would all of the miners? Additionally, how does the IRS plan on enforcing any of this? It…

Sounds like an absolute tax nightmare. In a pool you are awarded some small amount of coins every couple hours. Mine for a month, and you'll have hundreds or thousands of "bitcoin income" events, each with its own market price.

Re: IRS Says Bitcoin Is Property

#100

Post by IgorPartola » Tue, Mar 25, 2014, 7:25 PM UTC

pat2man wrote: post #20

I imagine a managed wallet like Coinbase would really help here. They could easily create a report on exactly how much you owe in capital gains. Managing this yourself could get a bit messy.

Do you need to have it managed? Why not just have a service where you put in your addresses and it looks through the blockchain to find all the transactions you performed, etc. I believe as long as it keeps historical prices it could get very good results even if each BTC transaction doesn't log how much USD-et-al was involved.