IRS Publication 525 - page 33

[mark_mich266]

I did some research and found IRS Publication 525, page 33 entitled 'Foreign Currency Transactions'. It is very brief in its entirety and reads, "If you have a gain on a personal currency transaction 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 I tried to carry it over to here but being it's among three columns and it melds them altogether and is totally trashed so instead here's the link:

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

I would like to hear from Mark (a/k/a ExecConsult) to see if this can be used for tax purposes. Too, if any of you good DV folks have already run this by your professional tax people, what are their thoughts/answers. I have an appointment this coming week with my own tax attorney but I thought I would run this by you folks first.

It depends on the IRS person reviewing your tax return. He or she may interpret the law differently from, say, the IRS person who sits in the cubicle near he or she. NOTE: This is quite similar to an incident I was involved in whereby I stopped a car with four subjects in it and each one of them possessed an open container of beer (For the record, I am retired from the Michigan State Police). Had all four not been asses, I would have just made them dump out the beers and let them go on their way. in any event, I issued all four "Notices to Appear' in court. We have four District Court judges in our county and all four cases were given a different judge to appear before. Each of them pleaded 'not guilty' and all four cases were set for trial. The first three boneheads were found guilty. The fourth judge found the last person innocent - I and the Ass't Prosecutor were dumbfouded as all four of these guys were guity as he11. But, be that as it may, this tax issue could be the same way. As Forest Gump said, "Life is like a box of chocolates. You never know what you'll get". Anyway, anyone have any luck with the above 'IRS 525'?

[lomeygoat]

Thats what it says Mark. Its in writing.....But as you know they could change it later...

[one2one]

investing and making a profit from IQD always sounded like capital gains to me :

not ' normal income ' ---as a lot of people have said here

[pricestar8]

It will be IRS Section 988. This will be ordinary income, This has been talked about in the forum, you should look at some of the past postings

[Scrumdiddles]

Title 26 of the US Code was never enacted into positive law. Lets talk about that one. Everything else is just small beans.

http://en.wikipedia.org/wiki/United_States_Code

Edited February 26, 2012 by Scrumdiddles

[ExecConsult]

To make answering this easier, I copied the following from my Dinar Tax Blog. The entire blog post can be found here: http://whatisiraqidinar.com/archives/42

Dinar investors make frequent reference to Publication 525 Pg. 33 which quotes the personal-use rule found in Section 988. People have the tendency to say, “I don’t know what you are talking about, but it tells me capital gains right there in black and white and that is good enough for me.” To make matters even worse people mistakenly rely upon calls to the Customer Care Department of the IRS. Too often, the call center employee will do a search, come up with Publication 525 Pg. 33 and, with apparent authority, tell the caller that for a “Personal Transaction” the gains are to be treated as capital gains.

SO WHY IS THIS WRONG?

The most popularly repeated tale of how a person found out for sure that taxes would be capital gains has to do with a call made to the IRS on 03-14-2011. The caller was transferred to the “Complex Individual Issues” department. (This sounds important but it is still part of Customer Care.) The caller spoke with a “Mr. Kirk ID# 5906613 who informed the caller that this would be taxed as capital gains. I have typed till I was blue in the fingers trying to tell people otherwise but to no avail, so I thought I’d try speaking their language. I CALLED THE IRS TOO!!

I requested to be transferred to the “Complex Individual Issues” section of Customer Care. I spoke with Mr. Colbert ID# 1000220899. He informed me that NONE of the people from customer care (including Mr. Kirk ID# 5906613) has been trained on section 988. NONE of them are qualified to answer questions about gains from foreign currency exchange rates. They have a list of things they are not supposed to give answers about and the topic of foreign currency transactions is on the list. He suggested that I talk to a certified public accountant about it. (You mean like Mr. Robert Green who posted about the same thing on Forbes website?)

The next argument I sometimes get is that even if Mr. Kirk was not “officially” qualified to counsel people on Section 988 and currency exchange gains, he still knows what he is talking about and has the documentation to back it up. “It is right there in black and white in IRS Publication 525 Pg. 33. The IRS says it is supposed to be Capital Gains.”

Often readers do not understand that you can not rely upon IRS publications. Sounds silly right? “They IRS said it. Whad’da ya mean I can’t rely on it?” Unfortunately, that is the case. Look at the following quote from the case Caterpillar Tractor Co. v. United States:

“It is unfortunately all too common for government manuals, handbooks, and in-house publications to contain statements that were not meant or are not wholly reliable. If they go counter to governing statutes and regulations of the highest or higher dignity, e.g. regulations published in the Federal Register, they do not bind the government, and PERSONS RELYING ON THEM DO SO AT THEIR OWN PERIL.” [emphasis added] (589 F.2d 1040, 1043, 218 Ct. Cl. 517 (1978)) However, in our case this still does not completely answer the argument because the law says the same thing as the publication.

The language in Pub. 525 is almost a direct quote from Section 988 (e )(2 )(A ) & (B ). Here is the real answer to the argument. The publication does not go on to quote the very next lines of 988 (subsection 988 (e )(3 )) which indicates that a transaction of a business or investment nature is NOT qualified as a “Personal Transaction.” Who knew the IRS was so sneaky?

Well, it may not be sneakiness that is the problem here, but one lesson to learn from this situation is that whenever something the IRS says looks cut and dried, look deeper and (as Mr. Colbert of Complex Individual Issues at the IRS said) seek the counsel of a professional.

Best of Blessings,

Mark A. Galloway, Esq.

P.S. For a more detailed tax analysis, see my blog here: http://whatisiraqidinar.com/dinar-income-tax-analysis