Author Topic: Invictus Innovations to Return PTS Donations  (Read 36756 times)

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Offline bobmaloney

« Last Edit: November 13, 2014, 07:25:37 pm by bobmaloney »
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Offline Stan

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The IRS has effectively forced all businesses accepting crypto-currencies to liquidate immediately because otherwise they could face income taxes on the value at the time of receipt and be unable to offset that income with capital losses.    A very sly move by the IRS that effectively kills using crypto as a currency to actually buy things.


Yes.  Heh. Very sly.  Except it won't work against fiendishly stable BitAssets!

Nice .... Anyone know where I can find the detail of this new rule from IRS ?
It's a huge news for pegged assets .

Quote
IRS Notices,Notice 2014-21,Internal Revenue Service,(Mar. 25, 2014)
Notice 2014-21, I.R.B. 2014-16, March 25, 2014.
[ Code Secs. 83, 1000, 1221, 1402 and 6041 and 31 U.S.C. 5311-5330]
Property transactions: Virtual currency: Frequently asked questions: Information reporting: Sales and exchanges: Capital assets: Self-employment tax: Independent contractors: Withholding: Payroll taxes.–
The IRS has issued guidance providing answers to frequently asked questions (FAQ) about virtual currency. Bitcoin is an example of such currency. The FAQ provides basic information on the tax implications of transactions in, or using, virtual currency. In some circumstances, virtual currency operates like actual currency, but it lacks legal tender status in any jurisdiction. Virtual currency is treated as property for U.S. federal tax purposes, and is governed by the same general principles that apply to property transactions generally. For example, wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer of a Form W-2, and are subject to federal income tax withholding. Back references: ¶6390.25, ¶6390.54, ¶6390.72, ¶29,225.1038, ¶30,422.56, ¶32,578.17, ¶35,836.30 and ¶36,555.36.
SECTION 1. PURPOSE
This notice describes how existing general tax principles apply to transactions using virtual currency. The notice provides this guidance in the form of answers to frequently asked questions.
SECTION 2. BACKGROUND
The Internal Revenue Service (IRS) is aware that “virtual currency” may be used to pay for goods or services, or held for investment. Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. In some environments, it operates like “real” currency — i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance — but it does not have legal tender status in any jurisdiction.
Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” virtual currency. Bitcoin is one example of a convertible virtual currency. Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, Euros, and other real or virtual currencies. For a more comprehensive description of convertible virtual currencies to date, see Financial Crimes Enforcement Network (FinCEN) Guidance on the Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies (FIN-2013-G001, March 18, 2013).
SECTION 3. SCOPE
In general, the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability. This notice addresses only the U.S. federal tax consequences of transactions in, or transactions that use, convertible virtual currency, and the term “virtual currency” as used in Section 4 refers only to convertible virtual currency. No inference should be drawn with respect to virtual currencies not described in this notice.
The Treasury Department and the IRS recognize that there may be other questions regarding the tax consequences of virtual currency not addressed in this notice that warrant consideration. Therefore, the Treasury Department and the IRS request comments from the public regarding other types or aspects of virtual currency transactions that should be addressed in future guidance.
Comments should be addressed to:
Internal Revenue Service
Attn: CC:PA:LPD:PR ( Notice 2014-21)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
or hand delivered Monday through Friday between the hours of 8 A.M. and 4 P.M. to:
Courier's Desk
Internal Revenue Service
Attn: CC:PA:LPD:PR ( Notice 2014-21)
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
Alternatively, taxpayers may submit comments electronically via e-mail to the following address: Notice.Comments@irscounsel.treas.gov. Taxpayers should include “ Notice 2014-21” in the subject line. All comments submitted by the public will be available for public inspection and copying in their entirety.
For purposes of the FAQs in this notice, the taxpayer's functional currency is assumed to be the U.S. dollar, the taxpayer is assumed to use the cash receipts and disbursements method of accounting and the taxpayer is assumed not to be under common control with any other party to a transaction.
SECTION 4. FREQUENTLY ASKED QUESTIONS
Q-1: How is virtual currency treated for federal tax purposes?
A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.
Q-2: Is virtual currency treated as currency for purposes of determining whether a transaction results in foreign currency gain or loss under U.S. federal tax laws?
A-2: No. Under currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.
Q-3: Must a taxpayer who receives virtual currency as payment for goods or services include in computing gross income the fair market value of the virtual currency?
A-3: Yes. A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received. See Publication 525, Taxable and Nontaxable Income, for more information on miscellaneous income from exchanges involving property or services.
Q-4: What is the basis of virtual currency received as payment for goods or services in Q&A-3?
A-4: The basis of virtual currency that a taxpayer receives as payment for goods or services in Q&A-3 is the fair market value of the virtual currency in U.S. dollars as of the date of receipt. See Publication 551, Basis of Assets, for more information on the computation of basis when property is received for goods or services.
Q-5: How is the fair market value of virtual currency determined?
A-5: For U.S. tax purposes, transactions using virtual currency must be reported in U.S. dollars. Therefore, taxpayers will be required to determine the fair market value of virtual currency in U.S. dollars as of the date of payment or receipt. If a virtual currency is listed on an exchange and the exchange rate is established by market supply and demand, the fair market value of the virtual currency is determined by converting the virtual currency into U.S. dollars (or into another real currency which in turn can be converted into U.S. dollars) at the exchange rate, in a reasonable manner that is consistently applied.
Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?
A-6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer's adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency. See Publication 544, Sales and Other Dispositions of Assets, for information about the tax treatment of sales and exchanges, such as whether a loss is deductible.
Q-7: What type of gain or loss does a taxpayer realize on the sale or exchange of virtual currency?
A-7: The character of the gain or loss generally depends on whether the virtual currency is a capital asset in the hands of the taxpayer. A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer. For example, stocks, bonds, and other investment property are generally capital assets. A taxpayer generally realizes ordinary gain or loss on the sale or exchange of virtual currency that is not a capital asset in the hands of the taxpayer. Inventory and other property held mainly for sale to customers in a trade or business are examples of property that is not a capital asset. See Publication 544 for more information about capital assets and the character of gain or loss.
Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities?
A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.
Q-9: Is an individual who “mines” virtual currency as a trade or business subject to self-employment tax on the income derived from those activities?
A-9: If a taxpayer's “mining” of virtual currency constitutes a trade or business, and the “mining” activity is not undertaken by the taxpayer as an employee, the net earnings from self-employment (generally, gross income derived from carrying on a trade or business less allowable deductions) resulting from those activities constitute self-employment income and are subject to the self-employment tax. See Chapter 10 of Publication 334, Tax Guide for Small Business, for more information on self-employment tax and Publication 535, Business Expenses, for more information on determining whether expenses are from a business activity carried on to make a profit.
Q-10: Does virtual currency received by an independent contractor for performing services constitute self-employment income?
A-10: Yes. Generally, self-employment income includes all gross income derived by an individual from any trade or business carried on by the individual as other than an employee. Consequently, the fair market value of virtual currency received for services performed as an independent contractor, measured in U.S. dollars as of the date of receipt, constitutes self-employment income and is subject to the self-employment tax. See FS-2007-18, April 2007, Business or Hobby? Answer Has Implications for Deductions, for information on determining whether an activity is a business or a hobby.
Q-11: Does virtual currency paid by an employer as remuneration for services constitute wages for employment tax purposes?
A-11: Yes. Generally, the medium in which remuneration for services is paid is immaterial to the determination of whether the remuneration constitutes wages for employment tax purposes. Consequently, the fair market value of virtual currency paid as wages is subject to federal income tax withholding, Federal Insurance Contributions Act (FICA) tax, and Federal Unemployment Tax Act (FUTA) tax and must be reported on Form W-2, Wage and Tax Statement. See Publication 15 (Circular E), Employer's Tax Guide, for information on the withholding, depositing, reporting, and paying of employment taxes.
Q-12: Is a payment made using virtual currency subject to information reporting?
A-12: A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property. For example, a person who in the course of a trade or business makes a payment of fixed and determinable income using virtual currency with a value of $600 or more to a U.S. non-exempt recipient in a taxable year is required to report the payment to the IRS and to the payee. Examples of payments of fixed and determinable income include rent, salaries, wages, premiums, annuities, and compensation.
Q-13: Is a person who in the course of a trade or business makes a payment using virtual currency worth $600 or more to an independent contractor for performing services required to file an information return with the IRS?
A-13: Generally, a person who in the course of a trade or business makes a payment of $600 or more in a taxable year to an independent contractor for the performance of services is required to report that payment to the IRS and to the payee on Form 1099-MISC, Miscellaneous Income. Payments of virtual currency required to be reported on Form 1099-MISC should be reported using the fair market value of the virtual currency in U.S. dollars as of the date of payment. The payment recipient may have income even if the recipient does not receive a Form 1099-MISC. See the Instructions to Form 1099-MISC and the General Instructions for Certain Information Returns for more information. For payments to non-U.S. persons, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.
Q-14: Are payments made using virtual currency subject to backup withholding?
A-14: Payments made using virtual currency are subject to backup withholding to the same extent as other payments made in property. Therefore, payors making reportable payments using virtual currency must solicit a taxpayer identification number (TIN) from the payee. The payor must backup withhold from the payment if a TIN is not obtained prior to payment or if the payor receives notification from the IRS that backup withholding is required. See Publication 1281, Backup Withholding for Missing and Incorrect Name/TINs, for more information .
Q-15: Are there IRS information reporting requirements for a person who settles payments made in virtual currency on behalf of merchants that accept virtual currency from their customers?
A-15: Yes, if certain requirements are met. In general, a third party that contracts with a substantial number of unrelated merchants to settle payments between the merchants and their customers is a third party settlement organization (TPSO). A TPSO is required to report payments made to a merchant on a Form 1099-K, Payment Card and Third Party Network Transactions, if, for the calendar year, both (1) the number of transactions settled for the merchant exceeds 200, and (2) the gross amount of payments made to the merchant exceeds $20,000. When completing Boxes 1, 3, and 5a-1 on the Form 1099-K, transactions where the TPSO settles payments made with virtual currency are aggregated with transactions where the TPSO settles payments made with real currency to determine the total amounts to be reported in those boxes. When determining whether the transactions are reportable, the value of the virtual currency is the fair market value of the virtual currency in U.S. dollars on the date of payment.
See The Third Party Information Reporting Center, http://www.irs.gov/Tax-Professionals/Third-Party-Reporting-Information-Center, for more information on reporting transactions on Form 1099-K.
Q-16: Will taxpayers be subject to penalties for having treated a virtual currency transaction in a manner that is inconsistent with this notice prior to March 25, 2014?
A-16: Taxpayers may be subject to penalties for failure to comply with tax laws. For example, underpayments attributable to virtual currency transactions may be subject to penalties, such as accuracy-related penalties under section 6662. In addition, failure to timely or correctly report virtual currency transactions when required to do so may be subject to information reporting penalties under section 6721 and 6722. However, penalty relief may be available to taxpayers and persons required to file an information return who are able to establish that the underpayment or failure to properly file information returns is due to reasonable cause.
SECTION 5. DRAFTING INFORMATION
The principal author of this notice is Keith A. Aqui of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information about income tax issues addressed in this notice, please contact Mr. Aqui at (202) 317-4718; for further information about employment tax issues addressed in this notice, please contact Mr. Neil D. Shepherd at (202) 317- 4774; for further information about information reporting issues addressed in this notice, please contact Ms. Adrienne E. Griffin at (202) 317- 6845; and for further information regarding foreign currency issues addressed in this notice, please contact Mr. Raymond J. Stahl at (202) 317- 6938. These are not toll-free calls.
Anything said on these forums does not constitute an intent to create a legal obligation or contract of any kind.   These are merely my opinions which I reserve the right to change at any time.

Offline jae208

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I did not read through 10 pages of posts but aren't the Bitshares-PTS pretty much worthless even if returned?
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Offline cn-members

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The IRS has effectively forced all businesses accepting crypto-currencies to liquidate immediately because otherwise they could face income taxes on the value at the time of receipt and be unable to offset that income with capital losses.    A very sly move by the IRS that effectively kills using crypto as a currency to actually buy things.


Yes.  Heh. Very sly.  Except it won't work against fiendishly stable BitAssets!

Nice .... Anyone know where I can find the detail of this new rule from IRS ?
It's a huge news for pegged assets .
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Offline Pheonike

Because time is a factor most of the time. It would great for them to layout the case every time, let everyone debate then come to a conclusion. But sometimes their isn't enough time to do that. Also, it can be informative to see what conclusion ppl come to when they don't have all the facts. There are legal and economic reasons why some things can't be disclosed in a public forum. As has been mentioned before, there are alot of ppl who view this forum that don't have BitShares interest at heart. I don't expect every decision they make to be perfect, but I do believe they have everyone interest in mind as best as be be possible and when a mistakes do happen the are flexible enough to recognise them make solutions.

Offline Stan

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The IRS has effectively forced all businesses accepting crypto-currencies to liquidate immediately because otherwise they could face income taxes on the value at the time of receipt and be unable to offset that income with capital losses.    A very sly move by the IRS that effectively kills using crypto as a currency to actually buy things.


Yes.  Heh. Very sly.  Except it won't work against fiendishly stable BitAssets!
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Offline sschechter

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Real reasons?   What kind of evil conspiracy could this represent?   They have already said that no government agencies have contacted them thus this is not being forced on them.   

The conspiracy is not about the PTS, the conspiracy is about why Dan and Stan have chosen to communicate in a shitty, vague and ambiguous manner.

Edit: This style would be ok if they were trying to tease a slick new feature in development - not for notifications where there are potential legal ramifications
« Last Edit: November 13, 2014, 05:26:41 pm by sschechter »
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Offline Thom

One can easily read between the lines...
Assuming they are working with...
After racking my head about what would motivate them to give back all of the PTS this is the clear open and shut case.  It is also clear that if this is the reason, those who gave PTS would clearly support rescinding the donation.   I could be completely wrong. 
This theory...

Mr. ghost, your analysis looks thorough and your theory seem quite reasonable. If it is true did they need to post this thread at all? I don't think so. In doing so they ran the risk of injecting speculation and uncertainty into the community, at least with the ambiguous manor they posted. As I stated earlier, there are better ways to inform the PTS donators of the refund, if that was even necessary (it probably was, even if only for courtesy).

And what harm would there be to disclose the reasons, if your theory is correct?

They could have disclosed the refund in another thread, still public, still on this forum but in a less visible location. It's just not a good example of wisdom imo, and I couple it with the lack of wisdom used with the merger post. I would like to see them get wiser, but my confidence in this area is still weak. I'm not seeing the vetting / scrutiny of potential problematic posts we were promised last month in the wake of the merger announcement.

I do have hope however, as I still trust in the principles they have publicly stated on many occasions.
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Offline inarizushi

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Thank you stevejobsghost, a very satisfactory analysis  :)
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Offline Stan

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I generally agree with you Stan, but in the face of last October's foopa of BM's merger post that set the community on edge and generally made a mess, your request to simply "have faith" in your posts here is like asking people to shut off their brain and stop thinking.

You would be wise to note the negative comments here and discard those that are simply nay saying FUD and those which are expressing a genuine concern for your continued style of communication that harkens back to October.

Think unity not division. If you can't see any division going on here in this thread then you haven't truly understood the danger of making ambiguous posts in the community.

I trust I3's technical skills and leadership in general, but not so much in PR and marketing. This doesn't help to strengthen my confidence.

I'm not necessarily disagreeing with your PTS refund, only asking why and why this way. But it seems my point is being ignored and my expression is falling on deaf ears.

I don't want to be identified with the nay sayers and FUD slingers, I'm not in their camp. But I will not sit silent and "go with the flow" when I see something that troubles me or I believe is contrary to helping with our joint mission here. I'm an ally not an adversary and I've made my case. If you choose to ignore it that's your choice, but it doesn't help your mission to alienate people when there's no good reason to.

Let's assume we have three equally smart people.
Two of them know all of the facts of the situation.
One of them doesn't.
Who should make the decisions about what statements to make in a public forum read by people with many different agendas?

 :)
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Offline Overthetop


Think unity not division. If you can't see any division going on here in this thread then you haven't truly understood the danger of making ambiguous posts in the community.

I trust I3's technical skills and leadership in general, but not so much in PR and marketing. This doesn't help to strengthen my confidence.


I have the same feeling in this point with Thom.

It would be better if we can avoid ambiguous statements when we are trying to announce something important.

Ever think that accountants and lawyers demand I3 be careful about how much they say?   Ever think that one wrong word could cause more trouble than leaving it ambiguous?

I am sure they want to tell us everything clearly.
Thanks for the reminding.

But, I think we are talking different aspects about how to make a good statement to community.

 :)

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Offline vegolino

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Think unity not division. If you can't see any division going on here in this thread then you haven't truly understood the danger of making ambiguous posts in the community.

I trust I3's technical skills and leadership in general, but not so much in PR and marketing. This doesn't help to strengthen my confidence.


I have the same feeling in this point with Thom.

It would be better if we can avoid ambiguous statements when we are trying to announce something important.

Ever think that accountants and lawyers demand I3 be careful about how much they say?   Ever think that one wrong word could cause more trouble than leaving it ambiguous?

I am sure they want to tell us everything clearly.
  +5%

Offline liondani

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I'm not a US citizen, not an accountant, not a lawyer...
By returning the "gift", would that be treated as a NOP by the IRS and therefore no tax liability?


I still don't see how PTS 2.0 can make any sense/have any value.

This decision seem to both enable PTS 2.0 (no more huge stake of I3 that would have too much voting power) and undermine it (the new PTS 2.0 must now be post november 5th snapshot, which does not represent well the real founders anymore, since many PTS were sold - or is that false ?).

I hope that the real reasons behind this will be revealed soon, as well as the reasons behind the form of this murky revelation : playing the interpretation game is a waste of time, and this thread gives a very bad impression.

Real reasons?   What kind of evil conspiracy could this represent?   They have already said that no government agencies have contacted them thus this is not being forced on them.   

One can easily read between the lines and see that this is being done for tax purposes.    If they return the funds this year and reject the donations thereby rescinding the transactions then the result is to declare any and all contract between PTS donors and Invictus void as well as to make the transaction nonexistent for tax purposes.   If they keep the funds then they either have to spend them or pay taxes on their receipt.

The IRS didn't publish their guidance until after AGS was started.   According to IRS guidelines income from virtual currency payments is taxed at the value it had upon receipt.   If I3 had originally planned to treat PTS/BTC as a currency then these guidelines would have changed how profit, income, and expenses would be calculated.  Treated as a currency I3 would only have income equal to the present value of the PTS (a couple hundred thousand dollars).   Under this new IRS treatment I3 would face an income tax bill based upon a $3+ million valuation of PTS at the time it was given which could not be offset by the capital loss.

Rescinding the PTS transactions moves the capital loss from I3 back to the donors and removes $3+ million worth of fantom-income from I3's balance sheet.  The donors can use the capital loss from PTS to offset the capital gains from BTSX, DNS, Play, etc which have a cost basis of 0. 

They were probably advised that if they kept the donations and the IRS declared them income to I3 they would have to pay 35% tax on the value of the donations at the time they were received.  They clearly couldn't pay a $1 million tax bill by selling the PTS they have.   Refusing to accept the donation is the only thing they could possibly do.

I3 also has about $3 million worth of income from BTC which they will have to pay taxes on if it is not spent in 2014 on business expenses.   I suspect this is a large motivating factor for giving the development team large end-of-year bonuses.   The developers will still have to pay taxes on the income, but it won't be double taxed.  Almost all companies with large profits end up doing this kind of thing at the end of the year. 

Looking at the public BTC balances it looks like I3 is on track to spend all of the BTC they received this year.  My guess is that they will end up spending a total of $3 million on deductible expenses by Dec. 31st which will completely offset the value of the BTC donations.   Any capital losses they incurred from BTC falling will offset capital gains made on BTSX that they have spent.   

Assuming they are working with a world class accounting firm they have likely legally organized themselves in such a way as to pay little or no corporate income tax on the donations they received.   

After racking my head about what would motivate them to give back all of the PTS this is the clear open and shut case.  It is also clear that if this is the reason, those who gave PTS would clearly support rescinding the donation.   I could be completely wrong. 

This theory also explains the push to enable dilution to fund development.   I3 has burned through the donations.  This probably happened because BTC fell 50% and I3 was budgeting on the original value and not the present value of BTC.   So while they raised $3 million in BTC they were only able to buy about $2 million in development and had to burn through $1 million worth of the BTSX they were given to avoid a $350,000 tax bill they would be unable to pay without dumping BTSX on the market.

Some may look at this explanation and assume I3 has mismanaged their development fund to run out in 1 year.  In my opinion they have done a great job managing the funds and have produced $50 million worth of value based upon $3 million dollars worth of R&D in just 1 year while securing the long term future for BTS at the same time.

The IRS has effectively forced all businesses accepting crypto-currencies to liquidate immediately because otherwise they could face income taxes on the value at the time of receipt and be unable to offset that income with capital losses.    A very sly move by the IRS that effectively kills using crypto as a currency to actually buy things.

 +5% +5% +5%

make sense to me...

Offline stevejobsghost

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Think unity not division. If you can't see any division going on here in this thread then you haven't truly understood the danger of making ambiguous posts in the community.

I trust I3's technical skills and leadership in general, but not so much in PR and marketing. This doesn't help to strengthen my confidence.


I have the same feeling in this point with Thom.

It would be better if we can avoid ambiguous statements when we are trying to announce something important.

Ever think that accountants and lawyers demand I3 be careful about how much they say?   Ever think that one wrong word could cause more trouble than leaving it ambiguous?

I am sure they want to tell us everything clearly.

busygin

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Real reasons?   What kind of evil conspiracy could this represent?   They have already said that no government agencies have contacted them thus this is not being forced on them.   

One can easily read between the lines and see that this is being done for tax purposes.