By J.R. Austin
Image from: Bitcoin Exchange Guide
A lot of us invested in cryptocurrency because we believe the technology behind it as well as the hope for the decentralization of monetary power. It has a great potential to create equality in terms of wealth generation, asset possession, and ease of use. The idea behind bitcoin is all about not having to ask permission. Bitcoin also offers hope for many of the unbanked across the globe.
However, the US Internal Revenue Service (IRS) seems to be blocking at least part of humanity’s chance for greater development through faster and more accessible financial transactions. Instead of promulgating rules that could ease the ownership of cryptocurrencies, the US government even makes it more complicated to own and use digital coins. To make matters worse, each agency promotes its own set of extra-legislative rules (that is making law or “regulation” without actually voting on it in Congress).
According to the 2014 guidelines issued by the IRS, cryptocurrencies are considered property. It falls under the same category as houses, stocks, bonds gold or silver. For this particular arm of the government, cryptocurrencies are convertible virtual currencies that have equivalent values in real currency. This designation is mostly because they don’t want to treat it as currency. No one wants to admit that bitcoin is a currency yet, unless it serves them for some other purpose. Wait until you see the FinCen rules.
What do the guidelines imply to us? Since cryptocurrencies are property, The IRS basically wants us to record all the transactions that we have made using virtual currencies. We need to compute the losses and gains that we have acquired by using the digital coins that we have. If we intend to pay a night of hotel accommodation using Bitcoins, then we shall record the amount of BTC used, convert the value according to existing exchange rates, and subtract the cost basis in BTC from the price. We will all have to pay taxes from such transaction if it resulted in gains and of course deduct loses How does that sound to you?
It would be much easier to treat it like a currency. For example, you pay taxes on the USD that you put in the market such as when you trade it for Euros on vacation, but you don’t pay taxes every time you spend it if the market is up. Life is easier this way because you do not need to keep track of every soda or beer you buy in Euros and the corresponding exchange rate at the time. To do so would stifle free trade. Maybe this is the goal?
However, the IRS does not provide comprehensive guidelines on the methods of recording retail transactions using bitcoin and other altcoins. This has resulted in a lot of confusion concerning individual tax obligations related to cryptocurrency ownership and use. No one has yet to sue over this issue. I think that should be forthcoming. Our job as citizens is not to serve the state, but vice versa. Rest assured, the State will not choose to control itself and most of its employees are detached from real market conditions with their guaranteed salaries and pensions. They can make a mistake (hopefully not with your life or estate) and suffer little if any negative consequences. What happens to you in the process is inconsequential. To put it lightly, they will take your money, but they don’t represent you, nor do they care about you. In fact, your objects are a nuisance to them. They have more important things to do.
Apart from the IRS, there are also other government entities that propose restrictions and limitations on the liberty of cryptocurrency use based on archaic laws from the 30s and 40s. The SEC is starting to consider some digital coins as a security though no law has been passed allowing them to do so. They are interpreting existing laws in a way that gives them maximum authority. The US Commodity Futures Trading Commission also proposes to include virtual currencies under commodities. At least when it comes to bitcoin there is a consensus regarding its commodity status between the SEC, IRS and CFTS.
Here is where it gets rich and dodgy to be polite: The US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has provided a statement that convertible virtual currencies constitute money transmissions. Now isn’t that rich? It’s not currency when you want to use and spend it, but when it comes to stapling your better parts to the floor in complete submission… it is now a currency, but only for the purposes of calling it a money transmission.
All of these, by the way, are extra-legislative in nature. All of these bodies have been asking Congress to clamp down on your freedoms to no avail. The banks lobby day and night. They have recruited the likes of Diane Feinstein and even a few Republicans to take away our financial choices.
The real question the courts need to answer is this: If FinCEN and the other entities really intend to regulate cryptocurrencies in the country, how are they supposed to do this without any legal basis or continuity? The US is not a nation of people that is supposed to ask for permission to transact.
With differing and contrasting views on cryptocurrency coming from the federal government, everyone is faced with extreme dilemmas concerning crypto investment and business compliance. The incoherence of policies among bodies of government can negatively affect the realization of the crypto world’s purposes for the middle class and poor. Maybe this is the goal after all?