Quote from: colinistheman on April 07, 2014, 12:52:43 PM

Quote from: hanwong on April 07, 2014, 05:54:40 AM

Quote from: drew959 on April 05, 2014, 12:41:37 AM

Hi everyone

A few questions regarding the IRS ruling.

1. Is is final? i.e., when they ask for comments/questions does that mean they are seeking feedback on their initial view?

2. Where is the technical analysis to support the position that it is property and not a currency? The paper itself is cursory and contains almost no legal analysis to support the conclusion.

3. Can US taxpayers take a position it is currency and fight it out in the courts? i.e., I would think the IRS is not the arbiter of whether virtual currencies are property or not. It is a legal question rather than a decision to be made by the IRS?

I am a tax professional (outside the US) and would be very willing to assist in making submissions regarding this. The ruling is obviously not a good outcome and without seeing any legal analysis seems contrived to argue this is "property".

Being a fellow tax professional, I think you know the answers to your questions, but it's good to illuminate the masses on this forum who are not familiar.

This is what will happen...

In a few years, the IRS will audit a taxpayer for under reporting income. This taxpayer will be claiming he only has 5k of income, yet he lives in a million dollar apartment and drives a tesla, without any discernible sources of salary wage income. The IRS field agents have heard of these people, they are called bitcoiners. Under pressure, the taxpayer will admit he has been mining bitcoins, trading bitcoins, spending bitcoins. The IRS will impose capital gains rules on this income, according to n-14-21. The taxpayer realizes he might have a better tax treatment if he took another supportable position (google that term boys and learn something). The IRS stands by n-14-21 and we go to tax court. Tax court is not like a regular court where lawyers grandstand and try evidence and facts. Tax court is much more analogous to arbitration where each side presents their argument and a federal tax court magistrate decides the best solution. Perhaps the taxpayer hires me, and I make a convincing argument in front of the tax court and this taxpayer will then receive the beneficial tax treatment that all the silly bitcoiners are trying to get with a petition to the IRS. FYI, no where in the IRM is there a chapter regarding online petitions to change IRS rulings. The IRS will have to abide by the tax court ruling in this case only. Tax court does not set precedent for any other taxpayers. So the next bitcoiner hears about the tax court victory of yours truly, and decides he wants to take the same supportable position. The IRS once again goes to tax court against the second bitcoiner and we win again. Now the IRS has suffered two defeats in tax court. Eventually a revenue manager will see all these defeats and decide it isn't worth it for the service to fight these cases again and again and lose again and again...to me.

So that my friends is how to change this ruling. You go to tax court and look for a favorable ruling from a magistrate. Then you do it again and again and eventually the IRS figures out this bitcoin thing is a money loser for them and then they will go after some other thing for revenue. There's also another venue you can pursue, federal appeals court. But that's a story for another night.

This sounds good and all, but what if the case(s) are lost against the IRS? Then the IRS has won and they have gained from doing it, and they will do it again and again...

I don't see how the IRS would lose that case if the tax avoiding citizen didn't pay their taxes. That makes the citizen guilty doesn't it?

What makes you feel so confident that they would lose as you portray in your example?

Is it because it will be unprovable how much the citizen owes due to the anonymous nature of the blockchain? (In the future, I expect FULL anonymity features)

all is fair in love and tax court. if the IRS wins, then they win fair and square and the taxpayer pays the tax assessment. most people won't go to tax court unless they have a semi strong argument. the IRS loses or settles the majority of tax court cases.

you want to find out my tax court strategies? My retainer is $50K, bitcoin accepted here. SE taxes paid. then capital G/L calculated