{"id":687,"date":"2019-10-26T23:01:39","date_gmt":"2019-10-26T23:01:39","guid":{"rendered":"https:\/\/woocommerce-687904-2269909.cloudwaysapps.com\/?p=687"},"modified":"2019-10-30T12:58:26","modified_gmt":"2019-10-30T12:58:26","slug":"irs-revenue-ruling-2019-24","status":"publish","type":"post","link":"https:\/\/www.aceofcoins.com\/irs-revenue-ruling-2019-24\/","title":{"rendered":"IRS REVENUE RULING 2019-24"},"content":{"rendered":"

Many\nof you have been asking me what I think of this, so let\u2019s review\nthe latest IRS Letter Ruling, 2019-24:\nhttps:\/\/www.irs.gov\/individuals\/international-taxpayers\/frequently-asked-questions-on-virtual-currency-transactions<\/a>\n Although I haven\u2019t been able to locate this in the Federal\nRegister, maybe someone else is better at searching it than me.<\/p>

The\nfollowing has always been my premise on the matter and it has\nresulted in the Secretary of the Treasury issuing determination\nletters in agreement. \u201cIf you cannot pay the tax in Bitcoin, then\nit\u2019s not taxable.\u201d These are my words of course, but you can\nread the article and the Secretary\u2019s response for yourself at\nwww.aceofcoins.com<\/a><\/p>

But let\u2019s say I\u2019m wrong. You would be a fool to receive any asset in your name, especially as a U.S. Citizen. This is more astounding when you realize that you have many choices of how you can receive, spend and manage these \u201ccoins\u201d, whether or not anyone can establish ownership from an address on the blockchain. How can this revenue ruling create even just one new question in your mind?<\/p>

If\nyou receive coins through a reporting third party such as Coinbase,\nin your personal account, that is not taxable as we\u2019ve already\nobtained written determination letters from the IRS on this point. \nHowever, why not just use a tax deferred account, such as a limited\nliability company or other structure? Why not use encryption (e.g. a\nVPN) and hard wallets or decentralized software wallets or paper\nwallets or even a washing service? You have so many choices, why is\nthis even a question?<\/p>

I\ndon\u2019t mind paying taxes, but it seems quite unreasonable that\ncrypto-graphic currency should have this huge carrying cost in the\nform of paying taxes before you even sell them for the actual\ncurrency being taxed. We don\u2019t do this for precious metals, real\nestate, even securities, unless some amount of dollars (USD)\nis paid to us because of our ownership in the property, not simply\nbecause it\u2019s worth something in the currency being taxed. It\nis the government fiat currency that\nis being\ntaxed, not crypto-graphic currency. But if you report the value of\nthe crypto-graphic currency in USD, under penalties of perjury, the\nagency will make no distinction and you will then have created a tax\nobligation for yourself when you had none before you made the report.\n Read\nsection 61 again, it\u2019s quoted in the ruling and\ntake some time to read Publication 544,\nhttps:\/\/www.irs.gov\/pub\/irs-pdf\/p544.pdf<\/a>\n You\u2019ll note that\nthe IRS is correct and\nthere is nothing new.<\/p>

Quoting\nfrom page 3, right column:<\/p>

\nAmount\n realized. The amount\n you realize\nfrom a sale\n or exchange\n is the total of all the money\n you receive\n plus\n the fair market value\n(defined below) of\nall property or services you receive.\nThe amount you realize also includes any of your liabilities that\nwere assumed by the buyer and any liabilities to which the \nproperty you transferred is subject, such as real estate taxes or a\nmortgage.<\/p>

\tAnd\nsince the entire 40 page publication is hypothetical, let\u2019s talk\nhypothetically here for a moment. Let\u2019s\nsay I exchange some Bitcoin for Litecoin, what is my gain? This can\nnever be calculated because I don\u2019t have any data on my initial\nprice. My Bitcoin purchase of course was not taxable, and buying\nLitecoin is then not taxable for the same reason, I have nothing by\nwhich to\ncompare it.\n What was the price of the Litecoin I bought? It was so many\nBitcoin. Give that some thought. You accountant will tell you it\nwas so many dollars and some dude in France will tell you it was so\nmany Euros (or Francs, whatever they are using these days). The\n\u201camount\u201d is what you claim and in what currency you claim it. If\nyou claim it in USD, then it is taxable, or\nat least reportable.<\/p>

My\nmain point is this, what if I paid 1 Bitcoin for so many Litecoins\nand when I exchange my Litecoins\nfor Bitcoin, I receive 1.1 Bitcoins. Whoa! I just \u201crealized a\ngain\u201d, going by the commonly accepted rhetoric, of 0.1 Bitcoins. \nLet\u2019s say I report that gain to the IRS and it becomes taxable. \nHow do I pay the tax? Do I find some dollars from somewhere else and\npay the amount of dollars that would be assessed in taxes? That\u2019s\nwhat most people are doing. But am I required by any law to go get\nsome dollars for that specific purpose? No.<\/p>

Well\nthen, should I pay the tax in Bitcoin? Let\u2019s say I owe 23% of 0.1\nBitcoins, that would be .023 Bitcoins. Where do I send it? Will the\nIRS penalize me for making a frivolous return by paying the tax? \nYes, most likely. Again, if you cannot pay the tax in Bitcoin,\nBitcoin is not taxable.<\/p>

What\nis the fair market value (FMV) of 1 USD? It\u2019s 1 USD right?<\/p>

What\nis the fair market value of 1 Bitcoin? It\u2019s 1 Bitcoin right?<\/p>

Let\u2019s\nsee if we can find agreement with the definition of fair market value\nin the IRS\u2019s Publication 544 to this example.<\/p>

\nFair\n market value. Fair market value (FMV) is the price at which the\nproperty would change hands between a buyer and a seller when \nboth have reasonable knowledge of all the necessary facts and\nneither is being forced to buy or sell. If parties with adverse\ninterests place a value on property in an arm’s-length\ntransaction, that is strong evidence of fair mar-ket value. If there\nis a stated price for services, this price is treated as the fair\nmarket value un-less there is evidence to the contrary.<\/p>

How\nmuch would you pay for 1 Bitcoin? I would pay 1 Bitcoin, but today,\nI would also pay 159.88 Litecoins as of the writing of this article. \nBy agency standards, the fair market value of any coin is at least\nthe same value of that coin, even though people would trade you land\nor securities, the fair market value of any one coin is reasonably\none of the same coin.<\/p>

You\nshould be aware that there are no new laws regarding crypto-graphic\ncurrencies or any related transactions. Since the IRS defined the\ncurrency as property in 2014, this definition adopts all case law and\nstatutes that pertain to taxing property. In other words, when you\nthink Bitcoin, think gold. If you don\u2019t pay taxes on gold until\nyou sell it or dispose of it for USD, why would you pay taxes on\nother property?<\/p>

Because\ncrypto-graphic currency is not taxable, and to change existing laws\nwould be too risky and possibly cause people to wake up and start\nthinking about this instead of cowering in fear, it appears to be\nmuch easier to use the media and revenue rulings like this to change\npublic policy. That way, people will just pay taxes on their cryptos\njust because everyone else is doing it. Just like everyone is using\na social security number for everything even though there is no law\nrequiring one.<\/p>

Why\nis the revenue ruling process being used in place of real legislative\nchanges? Maybe because people don\u2019t understand how this works, but\ncan easily be fooled because they are already afraid. Here\nare the Internal Revenue Manual (IRM) provisions for issuing or\nobtaining a letter ruling. \nhttps:\/\/www.irs.gov\/irm\/part32\/irm_32-003-002<\/a><\/p>

But\nlet\u2019s poke some fun at the language in the ruling itself:<\/p>

First,\nquoting, “An airdrop is a means of distributing units of a\ncryptocurrency to the distributed ledger addresses of multiple\ntaxpayers.”<\/p>

This\nis patently false in that this is not the industry definition of\n\u201cairdrop\u201d and makes wild assumptions. What do “taxpayers”\nhave to do with ledger addresses? The statement assumes too much. \nWhen has any crypto-currency been designed for taxpayers? It should\nread, \u201cAn airdrop is a means of distributing units of a\ncryptocurrency to the distributed ledger addresses of multiple\naddresses.\u201d Or, let\u2019s use a definition from the industry itself,\n\u201cAn airdrop is a distribution of a cryptocurrency token or coin,\nusually for free, to numerous wallet addresses.\u201d Either way,\nwhoever owns an address is another matter entirely and it really\nassumes too much to believe that only U.S. Citizens are the address\nowners here.<\/p>

Here\nare a couple more issues, first, receiving the ability to sell\nproperty is not taxable, by the IRS’s own rules and definitions,\nusing gold or stock or real estate as an example. Cryptos are\nproperty, there are no new laws on this matter. Receiving the\nability to sell property is not taxable because I\u2019m not required,\nat any time, to sell for USD (which are taxable).<\/p>

Second,\nhow is ownership established and how is the “individual”\nidentified. For example, someone using a paper wallet (or Exodus). \nIn your own household for example, let\u2019s say your friend sends you\ncoins to your Exodus Wallet. Who has access to this wallet? Your\nwife? You? Your oldest son? Your brother who visits on weekends to\ntalk cryptos? How is ownership ever established, by your I.P.\naddress and whoever the account holder is with your ISP provider? \nAgain, the sole purpose of this letter ruling is the same as all the\nother media on the subject, to trick people into believing that they\nneed to determine the fair market value of the coins upon receiving\nthem, then keep track of how they are used and then report on\nthemselves at the end of the year, as if they sold their coins for\nUSD in every example.<\/p>

Quoting,\n\u201cSection 61(a)(3) provides that, except as otherwise provided by\nlaw, gross income means all income from whatever source derived,\nincluding gains from dealings in property.\u201d<\/p>

In\nreceiving Bitcoins for example, where is the gain? Where is the\nincome? Is it in the right to sell? Can I buy groceries with the\nBitcoin or can I pay federal income taxes in Bitcoin? If one has the\nright to sell, then he has the right to sell for anything, not just\nUSD. So what is being taxed here, USD or cryptos or the exercise of\none’s intangible property rights? Is there any tax liability at all?\n I don’t see it and not because I might be ignorant, I don\u2019t see it\nunder any rules or authorities cited by the IRS anywhere, including\nthis letter ruling.<\/p>

Let\u2019s\npoke a little more. Quoting, \u201cIn general, income is ordinary\nunless it is gain from the sale or exchange of a capital asset or a\nspecial rule applies. See, e.g., \u00a7\u00a7 1222, 1231, 1234A.\u201d Is the\n\u201csale of a capital asset\u201d similar or the same is the disposition\nof an asset? Where is the sale in receiving a transfer of Bitcoins? \nThis is how the U.S. Supreme Court explains the meaning and\nlimitations of the definition of \u201ccapital asset\u201d, \u201cit is\nevident that not everything which can be called property in the\nordinary sense and which is outside the statutory exclusions\nqualifies as a capital asset.<\/em> This Court has long held\nthat the term \u2018capital asset\u2019 is to be construed narrowly in\naccordance with the purpose of Congress to afford capital-gains\ntreatment only in <\/em>situations typically involving the\nrealization of appreciation in value accrued over a substantial\nperiod of time<\/em>\u2026<\/em>“, Commissioner v. Gillette\nMotor Transport, Inc., 364 U.S. 130 (1960). The moment I receive\nit, there is a tax owed? How do you calculate a rate over time when\nthe time value is 0?<\/p>

Let\u2019s\nreview FAQ 36<\/p>

\nQ36.\n I own multiple units of one kind of virtual currency, some of which\nwere acquired at different times and have different basis amounts. \nIf I sell, exchange, or otherwise dispose of some units of that\nvirtual currency, can I choose which units are deemed sold,\nexchanged, or otherwise disposed of?<\/p>

\nA36.\n Yes. You may choose which units of virtual currency are deemed to\nbe sold, exchanged, or otherwise disposed of if you can specifically\nidentify which unit or units of virtual currency are involved in the\ntransaction and substantiate your basis in those units.<\/p>

This says it all. You are choosing your own tax treatment, but look at all the complex record-keeping and look at how many infinite possibilities there are for anyone involved in cryptos to be audited and assessed taxes for under-reporting. I didn\u2019t even consider costs of attending an audit and tax court. This is a quagmire and if you continue managing your financial affairs like you always have been, while using this new technology, it will be very expensive. There is no reason to be financially eviscerated in cryptos, use the technology properly, managing your money so that you don\u2019t receive any gains and re-allocate at the right time into your new investment portfolio.<\/p>

I really don\u2019t think we need anymore rulings or news articles or interpretations from anyone, including the IRS, before we can conclude that, once again, cryptos are not taxable until you sell them for a taxable currency (e.g. USD).<\/p>

And\nwhile we\u2019re on this subject, let\u2019s get the heart of the matter. \nThe statutes and \u201ctax treatment\u201d policies are not relevant when\nit comes to private property. Let\u2019s call it what it is,\ncrypto-graphic assets, when used by most people, are intangible\nprivate property and the rights to use these assets are solely the\nintangible and private property rights of the people exercising those\nrights. No statute that has ever been written, and no statute that\nwill ever be written can change this.<\/p>

The recent Wyoming legislation is a great example. I\u2019ve spoken with many people this year who had the erroneous idea that Wyoming was friendly to the use of Crypto-graphic assets. The state of Wyoming (a private membership association) did not grant property rights for the use of crypto-graphic currency. Just like no state can grant a human being the right to be born or to live, no more than it can grant a tree the right to grow or grant the Earth a rotational period of 24 hours.<\/p>

Even so, the recent Litecoin conference reveals that Wyoming has or is adopting a very favorable set of rules and guidance for the court system that will uniquely protect property rights for crypto-graphic currency holders. You will want to review this, https:\/\/youtu.be\/7YAGPK4vMrQ?t=11180. The most impressive deals with establishing clear title, avoiding licensing and money transmitter requirements (competing with New York and Wall Street that is) and bailments. The state tax is nice, but it doesn’t change anything with the federal laws. My point here is that you have to decide how to manage the asset to reduce or eliminate any possible federal taxes, but for state regulatory issues, Wyoming looks very promising.<\/p>

The\nrights that the state has claimed to have been granted already\nexisted. Instead, what the state did was impose a lien upon (take)\nthe rights that people already had to have, own, use or exchange\ntheir intangible private property, by classifying these rights\nas \u201cintangible personal<\/em> property\u201d. Nothing has changed\nhowever, because no association, or even government, can take private\nproperty where there is no compelling or public interest. Call it\nwhat you want, write pages with words on them, publish those pages,\nit does not alter in any way the private property rights that people\nhave had since recorded history. These rights are protected under\nthe Law of Nations and cannot be taken by any private membership\nassociation such as the state of Wyoming (or any other \u201cstate\u201d). \nThe state legislative enactment is irrelevant, unless you lack the\nunderstanding to know the difference. Likewise, association (IRS)\nletter rulings are irrelevant unless you waive your rights.<\/p>

Just\nthe same, we all know that theft is illegal or unlawful. But the law\nprohibiting and penalizing theft does not prevent theft. The\nproperty owner must take measures to protect his own property and\nproperty rights. He must place locks on his doors, secure his\npasswords, have deliberate habits, store his valuables, carry weapons\nand encrypt not only his communications, but access to his money\n(i.e. crypto-graphic assets).<\/p>

This\nis precisely the reason why crypto-graphic currency is not taxable,\nbecause it is not a creature of the state. It\u2019s the result of\npeople working independently of any government, independently of any\ngovernment official purpose, and simply trading with each other, or\nimproving their means of trade. In nearly every instance, the state,\nand I\u2019m including any state or private association, has zero\ncompelling interest and therefore no rights to impose a lien upon or\ntax the use or possession of crypto-graphic assets. However, if you\ncan be fooled into placing a dollar value on the use of your\ncrypto-graphic assets and then declaring that to the agency,\nespecially under penalties of perjury, then you will have waived your\nrights.<\/p>

Money\nis fire. I\u2019ve seen it kill people and I\u2019ve seen it bring society\ninto the modern era. Make no mistake, crypto-graphic currency and\nrelated assets are like fire. We just discovered it, and we can use\nit to burn down our houses, or, we can use it to cook our food, stay\nwarm and protect what is important to us.<\/p>","protected":false},"excerpt":{"rendered":"

Many of you have been asking me what I think of this, so let\u2019s review the latest IRS Letter Ruling, 2019-24: https:\/\/www.irs.gov\/individuals\/international-taxpayers\/frequently-asked-questions-on-virtual-currency-transactions Although I haven\u2019t been able to locate this in the Federal Register, maybe someone else is better at searching it than me. The following has always been my premise on the matter and […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"ub_ctt_via":"","footnotes":""},"categories":[10],"tags":[],"class_list":["post-687","post","type-post","status-publish","format-standard","hentry","category-crypto-currency"],"featured_image_src":null,"author_info":{"display_name":"John Jay Singleton","author_link":"https:\/\/www.aceofcoins.com\/author\/johnjay\/"},"_links":{"self":[{"href":"https:\/\/www.aceofcoins.com\/wp-json\/wp\/v2\/posts\/687","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.aceofcoins.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.aceofcoins.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.aceofcoins.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.aceofcoins.com\/wp-json\/wp\/v2\/comments?post=687"}],"version-history":[{"count":0,"href":"https:\/\/www.aceofcoins.com\/wp-json\/wp\/v2\/posts\/687\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.aceofcoins.com\/wp-json\/wp\/v2\/media?parent=687"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.aceofcoins.com\/wp-json\/wp\/v2\/categories?post=687"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.aceofcoins.com\/wp-json\/wp\/v2\/tags?post=687"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}