Why would you ever exchange BTSX for BTSX? BTSX is fungible, that makes no sense. Now what would be interesting in terms of the like-kind rule is trading BitGold on one chain for BitGold on another chain. Then I wonder if you can carry over the cost basis from the BitGold of the previous chain.
BitGold is BTSX. If you're talking about BitGold on another chain then perhaps you can make an argument that it is like trading Bitcoin for Litecoin. In that case there might some sort of capital gain tax involved in cross chain trading.
But when everything is taking place on the same chain you cannot make the case on any level that anything more than BTSX to BTSX is taking place. Therefore there cannot be any capital gains taxes within a chain between BTSX and BitGold.
I disagree that governments will view BitUSD and BTSX as "the same thing" from a tax perspective. BitUSD is a crypto-derivative.
No it's not. A derivative is a legal contract. BitUSD is not a legal contract. Bitcoin is not a currency either and you're probably one of the people who expected the government to think of it as a currency just because a lot of people in the Bitcoin community want it to be.
Bitcoin is being taxed as a commodity because that is what it functions like. Bitshares X (BitAssets) are just BTSX and if you think otherwise then Bitcoin could be argued to be a currency, a derivative to the dollar, etc. I think if Bitcoin doesn't fit the definition of a currency then there it is inconsistent to believe BitUSD is a derivative.
Suppose it were to function like a crypto-derivative? It doesn't mean it's a legal derivative any more than bottle caps functioning like currency are a legal currency. The IRS and US government at this time does not believe Bitcoin is a currency, Bitshares X is not a foreign bank either.
I don't want to call it a derivative because technically there is no legal contract between two parties. Still, it is similar enough to a derivative that the IRS may just treat it like one (just like how they claimed BTC should be treated as property even though ownership rights of BTC are not enforced by law but by cryptography).
Bitcoins are a property because you can own it. It's not an ownership right, it's like owning the password to a bank account. Your password is your property because it allows you to access your stored value but it doesn't mean that Bitcoin itself is a currency under the law.
This is for lawyers to sort out and not programmers. Let the IRS start suing people and then respond to the threat. As of right now there is almost no risk of any of this happening and just a bunch of people in panic mode thinking about what the IRS could do if it wants to. The IRS could do virtually anything it wants to take down the whole crypto economy and the government can use all kinds of laws in any kind of way to put a lid on blockchain technology.
Until they actually start doing it there is no reason to start taking actions. It is paranoia to act prior to there being any risk and that paranoia can waste development time. Development should not be driven by paranoia and fear of government possibilities because there are too many possibilities.
So if they treat it like a derivative, I bet they will expect people to pay capital gains taxes on any gains from trading these BitAssets (just like they expect capital gains taxes on trading Gold ETFs for example).
How long will that take? 5 years? 10? Either you'll have millions of dollars and the tax will be a drop in the bucket or it will never amount to anything and the IRS wont care. If Bitshares X were to replace NASDAQ and if what PWC said is true and banks cease to exist in 2025 then you'll have to worry about it then but there is no evidence at all that the IRS is going to do anything in the next 5 years.
This is like people fearing the government would tax the Internet so they don't built websites like Ebay and Amazon. Build Ebay and Amazon first and then wait for the government to decide whether to tax it or not. It's very possible that a few years from now there will be a lot more friendly politicians in office and it may actually mean a tax cut for using these technologies. Laws can be changed and just like with the Internet it could be possible to make crypto tax free for a while.
Yes it is possible the IRS could go into the mode of taxing everyone but how popular do you think that will make the IRS politically? Remember that scandal when the IRS got caught with involving taxing Republicans?
And if they already expect capital gains taxes from trading Litecoin and Bitcoin, I don't think they will care whether it is on the same blockchain or not, or whether the exchange was implemented on a centralized server or on a decentralized network. To think otherwise is naive and/or wishful thinking in my opinion.
Litecoin and Bitcoin are considered two different technologies. BitUSD and BTSX are the same technology.
You can argue in court that it is like kind exchange. You can't argue it is like kind exchange when it's Bitcoin and Litecoin. If you cannot argue in court that it is like kind exchange then tell me what a like kind exchange is and why that clause exists at all? I'm not a lawyer but I doubt you are either.
Based on the fact that the IRS ruled that Bitcoin should be treated as property, to the point that every time you spend BTC on goods/services it is a taxable event and you could be liable for capital gains taxes, I would say the likelihood of the IRS expecting capital gains taxes on BitAsset trades is actually VERY HIGH.
It's already known that it is a taxable event to spend BTC on goods and services. But mining is not a taxable event in itself is it? Mining is not considered money exchanging is it? Because it's all taking place on the same technology, on the same chain.
What do you mean there is no sales tax? Merchants still need to charge sales tax on their goods/services whether the customer pays in credit cards, checks, cash, or cryptocurrency.
There is a sales tax when you buy something from a merchant. There is no sales tax when you're interacting with Bitshares X technology. If you're bartering BitUSD for some product or service then of course there is a sales tax but if you're within the Bitshares X chain and not actually doing anything else then what exactly can be taxed?
It would be like taxing people who trade around bottle caps while playing dice. If the IRS really wanted to tax stuff like that I'm sure they could find a law to figure out a way but there is no evidence they are going to spend the resources to do it. And it's not feasible for developers to focus on what the IRS and all the other tax agencies in the world might decide to do in the future.
Calculating capital gains and losses actually shouldn't be that difficult and it certainly doesn't require changing the BitShares X protocol in any way.
Suppose you're not an American? How do you calculate your taxes then?
How do you know what counts as a gain and a loss when everything is in BTSX internally?
A gain of what? a loss of what?
Here is a quote on like kind exchange:
One critical issue in a like-kind exchange is defining “property of like kind.” The tax code contains no such definition. Treasury Regulation § 1.1031(a)-1(b) offers a little guidance, suggesting that the term “like kind” refers to “the nature of character of the property and not to its grade or quality.” But the regulation does not further define a property’s nature, character, grade or quality. Rather, it states that “one kind or class of property may not be exchanged for property of a different kind of class.” https://en.wikipedia.org/wiki/Like-kind_exchange#What_is_Property_of_.E2.80.9CLike_Kind.E2.80.9D.3F
Exchanges of personal property (vehicles, equipment, intellectual property rights) are subject to more restrictive rules than exchanges of real property, as set forth by Treasury Regulation § 1.1031(a)-2. Depreciable personal property is generally considered like-kind to other depreciable personal property that has the same “General Asset Class” in assigning class lives for purposes of depreciation. For intangible property (and personal property not subject to depreciation), the more general test of “nature or character” applies. While livestock can qualify for like-kind exchange treatment, livestock of different sexes will not qualify as like-kind.
Six types of property are not eligible for a like-kind exchange: (1) stock in trade or other property held primarily for sale; (2) stocks, bonds, or notes; (3) other securities or evidences of indebtedness or interest; (4) interests in a partnership; (5) certificates of trust or beneficial interests; and (6) choses in action.
DEFINITION OF 'LIKE-KIND PROPERTY'
Any two assets or properties that are considered to be the same type, making an exchange between them tax free. To qualify as like kind, two assets must be of the same type (e.g. two pieces of residential real estate), but do not have to be of the same quality.
For example, you can exchange your car for another car tax free, but if you exchange your car for a piece of land, you could be subject to capital gains tax. Similarly, if you sell your car and then reinvest the proceeds back into another car, you should be able to avoid paying taxes on any gains incurred. In the U.S., this type of like-kind transfer can be accomplished by what is called a Section 1031 exchange.
BTSX exchanges are like trading passwords. All the passwords are like car keys.
So this would be like we are trading cars, and all of our cars are BTSX. It's just trading passwords as far as I understand it which is ultimately just trading entries in a database. The cars don't have to be of the same quality though so if it's BitUSD, BitGold, Bitwhatever, it's still BTSX at the core so why wouldn't that qualify as a like kind exchange?
There is no capital gain or capital loss. There might be income so you could say the taxable events could be income but I don't really see why it's the developers responsibility to do that. If developers wanted to make the job of the tax agencies easier then they would not have rushed to implement TITAN. Tax agencies are just going to have to wait for years for the technology to mature and actually decide on the rules before developers should respond.
If tax agencies don't give any guidance, and if tax agencies aren't caring about it, it's likely the market cap isn't big enough to matter. When the market cap is in the tens of billions then maybe the IRS will start to care but at that point you can hire a tax lawyer to help you figure out how much you owe.
Let's face it. No one knows how much they owe in Bitcoin. There is uncertainty and it's not going to change. If you want certainty then you should just buy your Bitcoins and hold them in cold storage until you can determine what the IRS wants you to do. If you've spent any Bitcoin at all you have no way to know how much taxes you owe the IRS so just pay what you think you owe.
You also don't know what the FBI might do, or the NSA, or any of the other government agencies all around the world. If you want to help them to do their job then contact congress and tell congress to get off their ass and make a law to make the crypto industry tax free for a certain amount of time like they did with the Internet. This way there will be no uncertainty about the tax.
Also tell the SEC to stop wasting time and implement the JOBS Act.
In fact, someone could just write a small script to read in the client's exported JSON file and calculate it all for us. No need to even change the client design. By the way, that was a very funny joke about the IRS developing an app to help us in the cryptocurrency community with our taxes. LOL!
You should go ahead and do it then. I don't think it's worth the time to bother with it because I don't think Bitshares X is a real exchange. Nothing is being exchanged except for BTSX so it's more like a gambling app at this point. In the future maybe someday it might seem like more but $1 worth of BTSX is still just BTSX. It's not like BitUSD is actually anything more than BTSX so I don't see how BTSX suddenly becomes a real stock which can be subject to capital gains unless you purchased it and in our case we didn't purchase the genesis block.
Sure lawyers and the IRS can interpret the law in any kind of way. I'm not a lawyer but that is an extremely bizarre interpretation which would have very broad and destructive implications for Bitcoin and beyond. Are items in Second Life subject to capital gains taxes, property taxes, etc? I guess they are and we should pay the IRS for that too?