15 replies to this topic

[ag man]

I sat down to visit with my accountant about the potential taxes we would pay. This guy amazes me with his insight on
taxes and business in general.

Capital gains would be where the tax would come at 20% is what I believe he said.

The worst news is there will be an increase to 25% after 2012 and a 3.85% Medicare tax on investment income is also
scheduled to go into effect after 2012.

I assume the IRS would say this would be investment income. Does anyone have more info on this?

[Captjohn]

I sat down to visit with my accountant about the potential taxes we would pay. This guy amazes me with his insight on
taxes and business in general.

Capital gains would be where the tax would come at 20% is what I believe he said.

The worst news is there will be an increase to 25% after 2012 and a 3.85% Medicare tax on investment income is also
scheduled to go into effect after 2012.

I assume the IRS would say this would be investment income. Does anyone have more info on this?

Long term capital gains (assets held more than one year) are currently taxed at 15%. Those held for less than one year are taxed at your applicable income tax rate (as with ordinary income). Talk to your CPA or financial advisor for what is applicable to your situation.

[keepmwlknfny]

Its regular income....not capital gains....

[Poker]

Its regular income....not capital gains....

Not sure why it would be considered regular income, there is not too many people that have foreign currency as a regular income. Do you have any facts to back up your claim?

[usndiver]

Not sure why it would be considered regular income, there is not too many people that have foreign currency as a regular income. Do you have any facts to back up your claim?

Section 988 of the Internal Revenue Code. This question has been asked so many times.

Go to the Tax Discussion Forum and look at the posts made by ExecConsultant.

[keepmwlknfny]

Section 988 of the Internal Revenue Code. This question has been asked so many times.

Go to the Tax Discussion Forum and look at the posts made by ExecConsultant.

Thank you.....

[HopefulTxn]

Section 988 of the Internal Revenue Code. This question has been asked so many times.

Go to the Tax Discussion Forum and look at the posts made by ExecConsultant.

The problem with that is that I have spoken with a CFO/accountant about this and they stated that this event does not fall under 988 since we are dealing with physical currency/simple exchange and not forex trading, forward contracts, bonds, etc. Their description seems to also line up with this LINK

The best bet for anyone, IMO, is if the need arises to go and get their own accountant advice and not rely on anything from the forums. Doing so could cause you to either overpay, which is a bad thing, or to underpay which could cost you more in the end.

[keepmwlknfny]

The problem with that is that I have spoken with a CFO/accountant about this and they stated that this event does not fall under 988 since we are dealing with physical currency/simple exchange and not forex trading, forward contracts, bonds, etc. Their description seems to also line up with this LINK

The best bet for anyone, IMO, is if the need arises to go and get their own accountant advice and not rely on anything from the forums. Doing so could cause you to either overpay, which is a bad thing, or to underpay which could cost you more in the end.

I believe if you are trading on forex, you can opt out of 988 (ordinary income) to 1256 because of the fluctuating currency values on a daily basis, but I havent seen anything that would suggest holding physical currency as speculation can also fall under that category....I could be wrong, and it would def benefit us if we are to recieve a nice profit off of this...

[HopefulTxn]

I believe if you are trading on forex, you can opt out of 988 (ordinary income) to 1256 because of the fluctuating currency values on a daily basis, but I havent seen anything that would suggest holding physical currency as speculation can also fall under that category....I could be wrong, and it would def benefit us if we are to recieve a nice profit off of this...

That kind of goes back to the statement in the IRS publication 525 that states:

Foreign currency transactions. If you have
a gain on a personal foreign currency transac-
tion because of changes in exchange rates,
you do not have to include that gain in your
income unless it is more than $200. If the gain
is more than $200, report it as a capital gain.

http://www.irs.gov/pub/irs-pdf/p525.pdf

But, like I said before, I will, and suggest others do as well, check on this with another professional in the field (probably more than one) once the need arises. Until then, not too worried about it...

[ag man]

Not sure why it would be considered regular income, there is not too many people that have foreign currency as a regular income. Do you have any facts to back up your claim?

My accountant is used as an expert witness in cases with the IRS and he says only capital gains apply to our situation.

[Poker]

My accountant is used as an expert witness in cases with the IRS and he says only capital gains apply to our situation.

Thank you, that is what made sense to fall under those guidelines.

[NeedRv]

So let me get this str8. we are looking at about 20-25% capital gain tax and a 3.85% Medicare tax for a max total of 28-29%??....

well i guess i can live with that as I been allocating a safe 41% off the total cash-in for taxes....hopefully thats the case and puts a little more cash in my pocket.... i figure 41% just to be safe....or at least in the "safe zone"

thanks for the info....

GO RRRRRRRRv

[ExecConsult]

I sat down to visit with my accountant about the potential taxes we would pay. This guy amazes me with his insight on
taxes and business in general.

Capital gains would be where the tax would come at 20% is what I believe he said.

The worst news is there will be an increase to 25% after 2012 and a 3.85% Medicare tax on investment income is also
scheduled to go into effect after 2012.

I assume the IRS would say this would be investment income. Does anyone have more info on this?

I see this over and over again. I'm sure that your accountant is very knowledgeable and I think you should continue to trust him. However, based on your numbers, I am afraid that he is thinking about the income under section 1256 where most foreign exchange income is recognized. Unfortunately we are not able to use section 1256 and our income is governed under section 988 alone. I would be happy to speak with your accountant/CPA regarding these issues. Just leave a message on my profile with how to get hold of you.

I have counseled CPA's and tax attorneys on these issues. All of those whom I have spoken with who have studied the issues agree with me on the tax issues. There is language in section 988 (e ) that leaves a little bit of wiggle room for someone to "claim" capital gains treatment (which would be 15%), but it is clear from the regulations and legislative history that the IRS would disagree.

Best of Blessings,
Mark A. Galloway, Esq.

That kind of goes back to the statement in the IRS publication 525 that states:

Foreign currency transactions. If you have
a gain on a personal foreign currency transac-
tion because of changes in exchange rates,
you do not have to include that gain in your
income unless it is more than $200. If the gain
is more than $200, report it as a capital gain.

http://www.irs.gov/pub/irs-pdf/p525.pdf

But, like I said before, I will, and suggest others do as well, check on this with another professional in the field (probably more than one) once the need arises. Until then, not too worried about it...

The issues here are 1) first of all you can not depend on IRS numbered publications. They are not the law and do not carry ANY weight whatsoever in tax court or even with the IRS. (The same goes for telephone and email responses to questions.) 2) Even if you could rely on Publication 525 Pg. 33 which states exactly what you said, it doesn't matter because the IRS will claim what you have is NOT A PERSONAL foreign currency TRANSACTION. The language in the publication is actually almost a direct quote from the law in section 988 (e ). However, the very next subsection narrowly defines the term "Personal Transaction" in a way that is not intended to include any income derived from a business or investment purpose. The "Personal Transaction" exception is very nice for people who travel to foreign countries, however, it does not apply to we foreign currency investors.

Best of Blessings,
Mark

My accountant is used as an expert witness in cases with the IRS and he says only capital gains apply to our situation.

I'm sure your accountant is brilliant. I also know of a tax attorney who's regular practice is going up against the IRS. He told his client the same thing. However, when I called and spoke with him he changed his tune. Tax professionals are generally trained that any appreciated asset gets capital gains treatment. That is exactly what I thought too before I began researching it. After I spoke with the tax attorney he realized he had just given an "off the cuff" answer without looking into the special rules that apply to income from disposition of nonfunctional currency. If your accountant would like to talk, I'd be happy to.

Best of Blessings,
Mark

The problem with that is that I have spoken with a CFO/accountant about this and they stated that this event does not fall under 988 since we are dealing with physical currency/simple exchange and not forex trading, forward contracts, bonds, etc. Their description seems to also line up with this LINK

The best bet for anyone, IMO, is if the need arises to go and get their own accountant advice and not rely on anything from the forums. Doing so could cause you to either overpay, which is a bad thing, or to underpay which could cost you more in the end.

I'm sure that if your CFO/accountant had taken the time to research the issue he/she would have told you differently. It is precisely because it is physical currency that it is governed by section 988. If it were a currency contract then we could opt out to section 1256, but it is not. This is a very basic issue that is easy to spot. Just tell them an attorney (me) told you that it IS governed under section 988 and have them check the special rules in that section with regard to disposition of nonfunctional currency. It is clearly defined as a "Section 988 Transaction."

I hate to seem like I am harping on people. That is not my intention. I just don't want to sit by while so much incorrect information is being disseminated when it is so easy for me to fix it.

I hope this is helpful.

Best of Blessings,
Mark

[429]

I hate to seem like I am harping on people. That is not my intention. I just don't want to sit by while so much incorrect information is being disseminated when it is so easy for me to fix it.

I hope this is helpful.

Best of Blessings,
Mark

Mark,
I don't know why you got popped with "negs." I could only give you one back. Thanks for the info you've provided, pro bono.
Blessings to you too, sir.
429

[KiaKaha]

+1, Mark... Thanks for clearing that up.

KK

[ag man]

I see this over and over again. I'm sure that your accountant is very knowledgeable and I think you should continue to trust him. However, based on your numbers, I am afraid that he is thinking about the income under section 1256 where most foreign exchange income is recognized. Unfortunately we are not able to use section 1256 and our income is governed under section 988 alone. I would be happy to speak with your accountant/CPA regarding these issues. Just leave a message on my profile with how to get hold of you.

I have counseled CPA's and tax attorneys on these issues. All of those whom I have spoken with who have studied the issues agree with me on the tax issues. There is language in section 988 (e ) that leaves a little bit of wiggle room for someone to "claim" capital gains treatment (which would be 15%), but it is clear from the regulations and legislative history that the IRS would disagree.

Best of Blessings,
Mark A. Galloway, Esq.



The issues here are 1) first of all you can not depend on IRS numbered publications. They are not the law and do not carry ANY weight whatsoever in tax court or even with the IRS. (The same goes for telephone and email responses to questions.) 2) Even if you could rely on Publication 525 Pg. 33 which states exactly what you said, it doesn't matter because the IRS will claim what you have is NOT A PERSONAL foreign currency TRANSACTION. The language in the publication is actually almost a direct quote from the law in section 988 (e ). However, the very next subsection narrowly defines the term "Personal Transaction" in a way that is not intended to include any income derived from a business or investment purpose. The "Personal Transaction" exception is very nice for people who travel to foreign countries, however, it does not apply to we foreign currency investors.

Best of Blessings,
Mark


I'm sure your accountant is brilliant. I also know of a tax attorney who's regular practice is going up against the IRS. He told his client the same thing. However, when I called and spoke with him he changed his tune. Tax professionals are generally trained that any appreciated asset gets capital gains treatment. That is exactly what I thought too before I began researching it. After I spoke with the tax attorney he realized he had just given an "off the cuff" answer without looking into the special rules that apply to income from disposition of nonfunctional currency. If your accountant would like to talk, I'd be happy to.

Best of Blessings,
Mark


I'm sure that if your CFO/accountant had taken the time to research the issue he/she would have told you differently. It is precisely because it is physical currency that it is governed by section 988. If it were a currency contract then we could opt out to section 1256, but it is not. This is a very basic issue that is easy to spot. Just tell them an attorney (me) told you that it IS governed under section 988 and have them check the special rules in that section with regard to disposition of nonfunctional currency. It is clearly defined as a "Section 988 Transaction."

I hate to seem like I am harping on people. That is not my intention. I just don't want to sit by while so much incorrect information is being disseminated when it is so easy for me to fix it.

I hope this is helpful.

Best of Blessings,
Mark

I went ahead and bought the IBC name to get around all this. I'll gift the dinar to my IBC and it can hire me as a "consultant" or even better it can pay me dividends and I will be the custodian. Hope I don't have to clean any toilets. Ha Ha!