mt. gox

[Trippy]

The IRS has ruled (PDF) that Bitcoins are "virtual currency" and taxed as property. This will effectively kill Bitcoin as a form of currency here in the US as Bitcoins are no longer equivalent to each other because of differences in taxes (capital gains) that will be owed depending on each Bitcoin, as explained in this article by a banking and finance law professor.

He is wrong and doesn't actually know what he is talking about. Everything that you purchase for resale has differences in taxes (capital gains) which is owed depending on which piece you sell. Typically there are rules like "last in first out or first in first out" which govern how tax basis on commodities work. And those things (like gold, and foreign currency, and oil) are still fungible.

If BTC has a delineated system such that you can choose which BTC you sell this simply makes things advantaged for BTC owners since they have the option of selling whichever BTC is most tax advantaged.

The basis for the buyer is still the same regardless of the BTC purchased. Ergo the only effect this would have would be on the accounting that a BTC owner would have to be doing and if they don't have a specific rule enforced by accounting standards or the IRS then they would be able to choose which BTC was the most advantageous to sell, actually giving it a leg up on other non-USD currency and currency equivalents.

The only way in which this ruling is disadvantageous is that BTC-Cash transactions may be subject to sales tax in jurisdictions which take the IRS's definition of property

I don't see how what you just said makes him wrong. He's saying Bitcoin is no longer "fungible" because of the IRS ruling. Therefore it no longer can be considered a currency. Yes you can still do things with it cause it has value (to some people) but it's not a form of currency.

[Paelos]

The disadvantage is the IRS has no actual way of tracking the basis, thus making our lives a living nightmare trying to file if they want to question it.

[Trippy]

The disadvantage is the IRS has no actual way of tracking the basis, thus making our lives a living nightmare trying to file if they want to question it.

Actually they do. Bitcoins have a transaction history. You can explore some here:

http://blockexplorer.com/

[Goumindong]

The IRS has ruled (PDF) that Bitcoins are "virtual currency" and taxed as property. This will effectively kill Bitcoin as a form of currency here in the US as Bitcoins are no longer equivalent to each other because of differences in taxes (capital gains) that will be owed depending on each Bitcoin, as explained in this article by a banking and finance law professor.

He is wrong and doesn't actually know what he is talking about. Everything that you purchase for resale has differences in taxes (capital gains) which is owed depending on which piece you sell. Typically there are rules like "last in first out or first in first out" which govern how tax basis on commodities work. And those things (like gold, and foreign currency, and oil) are still fungible.

If BTC has a delineated system such that you can choose which BTC you sell this simply makes things advantaged for BTC owners since they have the option of selling whichever BTC is most tax advantaged.

The basis for the buyer is still the same regardless of the BTC purchased. Ergo the only effect this would have would be on the accounting that a BTC owner would have to be doing and if they don't have a specific rule enforced by accounting standards or the IRS then they would be able to choose which BTC was the most advantageous to sell, actually giving it a leg up on other non-USD currency and currency equivalents.

The only way in which this ruling is disadvantageous is that BTC-Cash transactions may be subject to sales tax in jurisdictions which take the IRS's definition of property

I don't see how what you just said makes him wrong. He's saying Bitcoin is no longer "fungible" because of the IRS ruling. Therefore it no longer can be considered a currency. Yes you can still do things with it cause it has value (to some people) but it's not a form of currency.

Yes except that its still entirely fungible. Just like everything else i listed is fungible but has the exact same properties he is claiming BTC now has that makes it not fungible. Unless you believe that GBP aren't fungible and therefore will fail as a currency that is. Or if you believe that BTC wasn't fungible before this ruling because differing basis for BTC taxation purposes were the norm when they were considered currency.

If I bought GBP with dollars 3 years ago and then bought more 1 year ago and then today sold my GBP for dollars i would have some amount of profit or loss. The amount of profit or loss i would have to declare would be different depending on which GBP i sold. Currently accountants have rules which stipulate upon which basis the foreign currency transaction operates (depending on how much is sold relative to when the amounts of GBP were purchased). But GPB is still 100% definitely a viable currency and 100% definitely still fungible.

This is exactly how BTC operates now with the exception that, if assigned as delineable the seller can choose which BTC they sell and so take the most tax advantaged basis. That is not a knock which makes BTC not fungible, the person buying still doesn't care which BTC you sold him(his basis is the sale price regardless). If you traded 1 BTC for another BTC this might force you to update your basis and pay tax on the appreciation (or get a write off on depreciation) but probably not, and why are you trading 1 BTC for another BTC unless you're money laundering.

The idea that this makes BTC not fungible is wrong and misunderstands what the term means.

[pxib]

There's also the Section 1256 of US tax law. Any trader who gets themselves set up for Mark to Market accounting can act as if several specific types of derivatives and, importantly, foreign currency trades are 40% long term (taxed at the regular rate) and 60% short term (taxed at 15%), regardless of when they were bought and sold... giving them a functional top marginal rate of 23% on Bitcoin speculation.

If they're property, any Bitcoins they hold for less than a year get the short term capital gains rate... which is to say, they're taxed as regular income. If they hold them for more than a year they can still get the special 15% rate on their exchange, though. Trouble is, since they're not securities, anybody paid in Bitcoins will get taxed on them as income that year, at their market value at time of payment... and pay regular income taxes on them. No stock options advantages.

[Rendakor]

why are you trading 1 BTC for another BTC unless you're money laundering.

Isn't that the whole point of BTC?

[NowhereMan]

I thought BitCoins were the foolproof system we'd use to stick it to the Man, destroy fiat currencies as institutions and usher in the Singularity (all Hail Schmidt, CEOsident of America inc.)

That and buying child porn.

[KallDrexx]

I am genuinely interested in Goum's rebuttal though.  What are the tax implications of buying 50 euros now for X, 50 euros in a few months for Y, then selling them back to US for Z (where Z is an amount higher than X and Y)?

[Merusk]

He's an economist not an accountant.  Our accounting friends would be the ones I'd ask for that question now that it's been declared how the IRS will handle them.

[KallDrexx]

I didn't mean I was interested in Goum offering his opinion on the matter, I just meant I am interested in the idea he brought up.

[Paelos]

The disadvantage is the IRS has no actual way of tracking the basis, thus making our lives a living nightmare trying to file if they want to question it.

Actually they do. Bitcoins have a transaction history. You can explore some here:

http://blockexplorer.com/

Having a transaction history, and actually relaying that to the government in a way they can operate is unfortunately two different things. Even the top brokerage firms still fuck up basis calcuations due to prior sales or transfers, and the IRS is the one who came up with the brilliant idea of mandating people sending in 1099s to vouch income. Nevermind that if you don't do it, they would literally have no way of proving you did instead of a full-fledged audit, wasting countless hours.

[Goumindong]

I am genuinely interested in Goum's rebuttal though.  What are the tax implications of buying 50 euros now for X, 50 euros in a few months for Y, then selling them back to US for Z (where Z is an amount higher than X and Y)?

My point is that the tax implications do not change whether or not the item is fungible, which is a core property of the item itself*. Varying tax implications exist for foreign currencies, commodities, stocks, bonds, etc etc etc. But all of these things are still fungible and all of these things, if they're good at being currencies can be used as such (and often are though not often for normal goods because "actual money" is easier)

*the only real exception is stolen goods/illegal gains exceptions. But these apply for everything. That is, stolen currency is not fungible with regular currency. The seller of a good actually cares whether or not currency is stolen or not because they can be liable for returning the money(pretty sure on this). But even with these laws we still consider those goods fungible.

[KallDrexx]

My point is that the tax implications do not change whether or not the item is fungible, which is a core property of the item itself*. Varying tax implications exist for foreign currencies, commodities, stocks, bonds, etc etc etc. But all of these things are still fungible and all of these things, if they're good at being currencies can be used as such (and often are though not often for normal goods because "actual money" is easier)

*the only real exception is stolen goods/illegal gains exceptions. But these apply for everything. That is, stolen currency is not fungible with regular currency. The seller of a good actually cares whether or not currency is stolen or not because they can be liable for returning the money(pretty sure on this). But even with these laws we still consider those goods fungible.

Well it might actually change and be defined differently for currency than for property, which is the exact reason why I was asking....

[Goumindong]

My point is that the tax implications do not change whether or not the item is fungible, which is a core property of the item itself*. Varying tax implications exist for foreign currencies, commodities, stocks, bonds, etc etc etc. But all of these things are still fungible and all of these things, if they're good at being currencies can be used as such (and often are though not often for normal goods because "actual money" is easier)

*the only real exception is stolen goods/illegal gains exceptions. But these apply for everything. That is, stolen currency is not fungible with regular currency. The seller of a good actually cares whether or not currency is stolen or not because they can be liable for returning the money(pretty sure on this). But even with these laws we still consider those goods fungible.

Well it might actually change and be defined differently for currency than for property, which is the exact reason why I was asking....

Fungibility just means that two instances of the same item are more or less indistinguishable. Dollars are fungible, you don't care which one you are paid with. Cars are not fungible, if you go and buy a specific car you don't want to get a different car. "Theoretically" you could say they're fungible if they have the same make, model, production plant, and miles but this is kind of quibbling. But a BTC is a BTC is a BTC, if you put them in a metaphorical pile then give an equal amount back to everyone who put stuff in no one can tell the difference between what they started with and what they ended with. It might be the case that such an action would be taxed(probably not) or would force you to update your basis(also probably not) but the key part is that that sort of thing works because the goods themselves are indistinguishable. You can do this with BTC(fungible) but you can't do this with phones(my phone is not the same as yours, such not fungible)

[MahrinSkel]

And the argument would be that since each BTC has history (the transactions it has been in), it's not like a stack of dollars.  I know at some point a physical dollar was issued by the mint and that I'm holding it, but I may not remember specifically who gave it to me and I have absolutely no way of finding out where it was before that (even though it has a unique serial number and it's theoretically possible to track them, they generally aren't).

Gold is truly fungible, if you take a bar with a serial number and melt it down, it's still a lump of gold with the same weight and value, but there's probably no way to prove it's the same gold.  BTC, not so much.  Frankly, that's one of the reasons I sometimes wonder if BTC are some kind of trojan horse.

--Dave

[Goumindong]

Only if the history matters to the next person using it. Insomuch as it does, that history also matters for any other good. If you melt down a bar of gold and that gold was stolen all you're doing is obfuscating the theft, like a tumbler obfuscates the owner of a BTC from its prior owners.