35% Capital Gains Tax???!!

[allinxpress]

Ok, this is JUST WHAT I HEARD. IM JUST ASKING IF AYONE ELSE HERAD THE SAME?

I heard that the U.S. Congress is meeting asap to implement a 35% Capitla gain tax on CURRENCY. Just throwing this out there to see if anyone else heard similar....

GO RV!!!!!!!!!

Be well Everyone!

[blue horseshoe]

There is a web site for the US Senate and US congress that will tell you what bills they are looking at and what bilsl are on the floor for voting. I used to look at it, but haven't in a long time. Trying to find the website. When I do I will post it.

[Golfnsr]

Obama's Budget released today proposes to move Capital Gain Tax from 15% to 20%.

That is all that I have heard about Capital Gain Tax.

[deepseadinar]

VERY GOOD POST AS I HAVE BEEN WONDERING THAT EVERYDAY WHAT I WILL HAVE TO PAY ON RV DAY -THANKS AND HOPE WE GET SOMEONE TO FIND THAT INTEL.

[Tropics]

What a surprise that our government is never satisfied with ripping off the tax payer that they purposely try to tax us more on our RV.

[Darth Nemesis]

I haven't heard that but it wouldn't surprise me. Uncle Sam needs some money in a bad way

[Inbedded HorseHead]

I haven't heard that but it wouldn't surprise me. Uncle Sam needs some money in a bad way

wrong, the Government needs to stop spending and slash it bigtime

[dinnie]

It already is 35% for short term capital gains...nothing new.

[Oscar2]

Current rates are 35% unless you are in low tax brackets...which we will not be when it RV's!

[Inbedded HorseHead]

Current rates are 35% unless you are in low tax brackets...which we will not be when it RV's!

I believe it's 15% if you have held the Dinar longer than one year

[Darth Nemesis]

wrong, the Government needs to stop spending and slash it bigtime

it aint happening man, US government is addicted to debt

[Carrello]

I have not spoken to a tax attorney or CPA regarding the taxes on this RV deal, but from what many DV members that have, have been told by professionals that we will be taxed as income, not capital gain. An attorney, Mark, EXEC Con, a member here, does tax work and investigated the issue with IRS investigators. He was told by the IRS that we will be taxed as regular income.

[dinnie]

I have not spoken to a tax attorney or CPA regarding the taxes on this RV deal, but from what many DV members that have, have been told by professionals that we will be taxed as income, not capital gain. An attorney, Mark, EXEC Con, a member here, does tax work and investigated the issue with IRS investigators. He was told by the IRS that we will be taxed as regular income.

Not true...I have been paying capital gains (losses) for 10 years on currencies. Investments are always taxed as capital gains...that is their nature. Check with a good accountant or tax adviser.

[Helicopter Barry]

I have not spoken to a tax attorney or CPA regarding the taxes on this RV deal, but from what many DV members that have, have been told by professionals that we will be taxed as income, not capital gain. An attorney, Mark, EXEC Con, a member here, does tax work and investigated the issue with IRS investigators. He was told by the IRS that we will be taxed as regular income.

If thats the case then the IRS agent was incorrect, Zero chance this can be taxed as income, #1 no TAX ID from receipt for catalog> In other words you have to have some basis to attach the income as "earned income" Not possible because this is an Investment that has a chance to lose value. Not sure on the short or long term rate but as income.......Ummm no.

[Darth Nemesis]

Not true...I have been paying capital gains (losses) for 10 years on currencies. Investments are always taxed as capital gains...that is their nature. Check with a good accountant or tax adviser.

agreed, that's why its important to keep documentation!

[imdamanz]

Not true...I have been paying capital gains (losses) for 10 years on currencies. Investments are always taxed as capital gains...that is their nature. Check with a good accountant or tax adviser.

As an accountant, I can say with 100% assurance that gains and losses on currenct exchanges are reported on the INCOME STATEMENT, items directly increasing or reducing income. It is not an investment activity, it is a cost of doing business - just like paying the phone bill. These are taxed as regular income, short (25%) and long (15%) term capital gain rates do not apply. I strongly suggest that everyone seek a qualified tax professional.

I read a statistic a while back that said that 80% of lotrtery winners go bankrupt within 5 years of winning. New found wealth can get a lot of people in a lot of trouble if proper planning is not done.

Obama's Budget released today proposes to move Capital Gain Tax from 15% to 20%.

That is all that I have heard about Capital Gain Tax.

The budget submitted to Congress today was for FY2012. It will beging on October 1st, 2011 and I do not know if the tax changes will be effective in the 2011 tax year or in 2012. Something that I will look into and let everyone know about.

Edited February 15, 2011 by imdamanz

[magicman6685]

how do a person proves that he/she held their Dinars for more than a year? the certificate that came with my Dinars did not have a date on it. someone please explain

[JimmyB]

This will either help you or confuse you... I'll let the reader choose.

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

[Carrello]

Not true...I have been paying capital gains (losses) for 10 years on currencies. Investments are always taxed as capital gains...that is their nature. Check with a good accountant or tax adviser.

Thank you. Obviously, I hope YOU are right. I will check and recheck when the time comes.

[bamf1414]

I just posted something about this yesterday, short term capital gains tax right now is 39.5%, long term was around 22%. This is not set in stone at this point per my tax consultant and nobody knows what it may be but i am sure they will have it all figured out by the time of the rv, this is why i feel a few people really know when this is gonna happen, ie our govt. why else would it come up now, besides conservatives pushing liberals to stop spending.

[Carrello]

If thats the case then the IRS agent was incorrect, Zero chance this can be taxed as income, #1 no TAX ID from receipt for catalog> In other words you have to have some basis to attach the income as "earned income" Not possible because this is an Investment that has a chance to lose value. Not sure on the short or long term rate but as income.......Ummm no.

The income tax never made sense to me. It sounds illogical. Capital gains - yes. Mark has posted info on this previously. I will see if I can find the posts. None the less, everyone needs a good tax attorney or CPA.

Thank you.

[Carrello]

Hi, I found one of Mark's posts regarding the taxes we are faced with. I am very interested in what your guys have experienced regarding this. And I want to thank Mark for all of his information. He called me personally to discuss this and took time out of his day when he was with daughter at the hospital. He is a very kind man and on our side, he just wants us to be armed with the information needed in order not to make mistakes and be faced with fines.

Here's a bone to chew on.

Hi, My name is Mark. I'm an estate planning attorney. I've been reading lots of topics and posts on taxes going back and forth. Most indicate that people believe that income from exchanging Dinar for US $ will be treated as capital gains. This is what I used to believe too.

You'll find that I have put the same information into other posts, but I've never quite put it together this comprehensively before. The following answers both of your posts regarding the exchange being capital gains tax. It also adds other arguments you might hear in the future and answers them too. It also has corroboration from an "International Examiner" at the IRS. It is long, but I urge you to take the time to read and understand it.

__________________________________________________________________________________________________________________________________________________

I have read, "I talked to my CPA/attorney about this and they said it would definitely be ___________." (Fill in the blank with whatever you want it to be - I've seen it I think.) Since all professionals know the same stuff <coughing to self>, why don't we all see the same answer. I think there are two reasons. 1) We all know pretty much the same "basics" but not all the same specialized information. Those who think of currency exchange in relation to the basics immediately think, "appreciated asset = capital gains." However, if you know more than the basics . . . (read what follows).

GENERAL ANSWERS FOR ARGUMENTS IN support OF CAPITAL GAINS TREATMENT

I will not be at all disappointed if you do not believe or agree with what I post here. After all, a lot of intelligent people are saying otherwise. Here is the link to an article by a CPA, Vernon Jacobs, who seems to have better credentials than I do for dealing with foreign currency (he also charges more than me):

http://www.maximadvi...cy-Gains-Losses (this is a link to the same article you posted above)

This article makes statements without supporting them. In my analysis, most of the statements made in the article agree with what is written in Section 988 (The section dealing with foreign currency). However, the most important one to us does not seem to agree with section 988. Why then should we believe Mr. Jacobs if his assertions are not explained instead of just stated? While I agree that this gentleman certainly seems to know what he is talking about and has impressive credentials, when I have so much contrary evidence I can not simply believe him because he said so. I need some sort of reference to the authority upon which he bases his claims. (Who knows - maybe he was having a bad day and just misstated something.)

Maybe you should believe him. (Maybe I should believe him.) Still, I don't feel comfortable being told something and staking so much on it without being told why. When I try to look into "why" I come up with a different result. Many other CPAs also agree with what I am about to share. The most convincing of which I will share at the end of the post.

Another oft mentioned reason for believing that the foreign currency is a "capital asset" that is subject to capital gains taxes is Internal Revenue Code (IRC) section 1221 which says that a "capital asset" is any asset held by the taxpayer except . . . . Nonfunctional (foreign) currency is not listed as an exception. People therefore surmise that if it is a capital asset, it gets capital gains treatment.

To correctly analyze this circumstance, you must understand that in legal construction, when there seems to be a conflict in language, specific language trumps general language. In other words, section 1221 does not need to spell out all of the ins and outs and exceptions when dealing with foreign currency because section 988 takes care of that. Section 988 is the more specific language when dealing with foreign currency and is thus controlling on the issue. Besides, there actually are times when "nonfunctional" currency might be considered a capital asset subject to capital gains. You might think of it like this. Foreign currency is a capital asset under section 1221 except where Section 988 says it is not.

Probably the biggest thing you will read/hear is, "I called the IRS and . . ." Invariably they point to publication 525 p 33 which says that for a personal foreign currency transaction there will be no recognition of the gain if is is less than $200 and recognized as Capital Gains if the gain is more than $200. The problem is that the IRS is tricky and while it certainly seems cut and dried, it is not. (More on this below.)

MY ANALYSIS OF THE TAXATION ON A DINAR INVESTMENT

Section 988 OR Section 1256?

The Internal Revenue Code (IRC) deals with foreign currency exchange profits and losses under two different Sections; 988 and 1256. The primary section, 988, deals with gains and losses as ordinary income (with one small exception). However, foreign currency investors are often able to opt out of Section 988 and have their investments treated as Capital Gains under Section 1256. Unfortunately, Section 1256 only applies to contracts (i.e. futures contracts and forward contracts) for regularly traded foreign currency. Even if Dinar were a regularly traded currency, I have not seen anyone saying, "I just purchased a spot contract on Dinar this morning. Go RV!!" What I see instead is that people have purchased Dinar either in an account or the physical currency and will hold that currency as long as they want to hold it. Therefore, even if Dinar were a regularly traded currency (which it is not), Section 1256 still does not apply. Therefore you are stuck under Section 988.

The Confusion of Section 988

Many people have looked at IRS Publication 525, Pg. 33 to justify their assertions that your Dinar RV income should be treated as Capital Gains. It 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 capital gain.

This sounds pretty cut and dried. However, you should never underestimate the confusion of the IRS or its code, the IRC. The above quote refers to a "personal . . . transaction." You might be surprised to know that what you have done is not a "personal transaction" under the language of Section 988. IRS Pub. 525 did not anticipated a situation where masses of individuals would be investing in foreign currency with hopes of obscene profits. This language is intended for the traveler who went to New Zealand on "holiday" and when they returned and exchanged back to dollars, they had a little bit of gain or loss. That is not your situation.

Breaking it Down

I figure the best way to make everything clear is to show you the part of Section 988 dealing with "Personal Transactions." and then explain it.

Section 988 (e)

Application to individuals

(1) In general

The preceding provisions of this section shall not apply to any section

988 transaction entered into by an individual which is a personal

transaction. [so far it looks pretty good. This means

it will not be ordinary income. It will be treated like any

other asset and be Capital Gains.]

(2) Exclusion for certain personal transactions

If--

(A ) The preceding provisions of this section shall not apply to any

transaction, and

(B ) such transaction is a personal transaction,

no gain shall be recognized for purposes of this subtitle by reason of

changes in exchange rates after such currency was acquired by such

individual and before such disposition. The preceding sentence shall not

apply if the gain which would otherwise be recognized on the transaction

exceeds $200. [This means that if the gain is lower than $200 you don't even claim it.

However, if you exceed $200 then you are back to my previous statement.

Still looks pretty good. This is where the information for IRS Pub 525 comes from.

Unfortunately this is where most people stop.]

(3) Personal transactions

For purposes of this subsection, the term "personal transaction" means [finally a definition]

any transaction entered into by an individual, except that such term shall

not include any transaction to the extent that expenses properly

allocable to such transaction meet the requirements of--

(A ) section 162 (other than traveling expenses described in

subsection (a)(2) thereof), or

(B ) section 212 (other than that part of section 212 dealing with

expenses incurred in connection with taxes). [and we still don't know what it "shall not include"]

You can see how this can get confusing. To really look at it, we should probably go to Section 162 and Section 212, but I'm going to skip 162 and tell you what 212 says:

Section 212. Expenses for production of income

In the case of an individual, there shall be allowed as a deduction all the ordinary

and necessary expenses paid or incurred during the taxable year--

(1) for the production of income

(2) for the management, conservation, or maintenance or property held for

the production of income; or

(3) in connection with the determination, collection, or refund of any tax.

Each Dinar purchase had expenses associated with it such as transaction fees, transportation fees, etc.... That is how the dealers stay in business. Since there WERE expenses related to the purchase of Dinar that "meet the requirements" of Section 212(1) and/or Section 212(2), the income associated with those transactions are specifically EXCLUDED from the definition of "personal transaction" under Section 988. Section 988 (e) "Application to individuals" - does not apply. Since (e) basically says that the provisions of Section 988 don't apply and now you can't use (e), you are back in a situation where the provisions of Section 988 DO apply. That means that you have ORDINARY INCOME. It even goes as far as to say that it should be looked at as "interest income."

A WAY OUT

Some people argue that they didn't have any expense associated with an investment or business transaction. However, there were transaction fees, transportation fees, etc... that "could" be deducted under section 212 as investment expenses. Since they "could" be deducted as investment expenses, this is not a "personal transaction."

The exception to this is if you absolutely had NO expenses associated with your Dinar that you "could" claim as investment expense. Since none of us got our Dinar in contemplation of an exotic vacation to the Iraqi deserts, the only way that happens is if you got it as a gift (not as an investment). Then you get capital gains treatment. (Be ready to prove it was a gift if you get audited.)

WHAT THE IRS THINKS OF MY ANALYSIS

To further corroborate my analysis of how the IRS would determine the tax on these transactions (not what we would like to believe), I sent my analysis to a friend who is a criminal investigator for the IRS. She forwarded it to an "International Examiner" who agreed with my analysis. (Perhaps when I get to my other computer I might post her email (with name removed) and attach the examples she sent that are used by the examiners in evaluating section 988. There is an example in the materials that specifically addresses selling foreign currency for US $ as a Section 988 Transaction.)

FINAL COMMENTS

As I said before, I am an "Estate Planning" attorney. I am not a tax attorney. I am tax trained with my undergrad being in accounting, receiving a certificate in tax from my law school, and working in a field where I am constantly looking at ways to help people save taxes. However, I am not above understanding that I can be wrong sometimes. If any of you have a brilliant tax attorney who has a way out of what I have just described, I'm sure we would all LOVE to hear about it. Until then, be safe with the IRS - it is ordinary income under Section 988.

Having said all of that - I don't believe guys like Vernon Jacobs just spew stuff out without reason. I really would like to understand his thoughts behind what he said. I'd love to be proved wrong, but until then. . . . I will practice an abundance of caution and go with what the International Examiner thought - ordinary income unless received as a gift.

Best of Blessings,

Mark

SHORTENED DISCLAIMER

Should put a disclaimer here - I am an attorney - you can't use this as legal advice and we do not have an attorney client relationship (Assume this goes for anything I ever write unless I am writing it just for you as my client.)

Read more:

[rjboots1]

We've about beat this horse to death already, but I'm with Mark. I believe this will be taxed as ordinary income, not capital gains, per section 988 in the IRS tax code. I've heard it personally from a tax attorney, I have a copy of the tax code, and I have read it numerous times on DV posts. I, for one, am paying the ordinary income tax rate, so I don't get hammered three years from now after the IRS let's the penalties and interest "age" so that they can come back and take all of my money.

[imdamanz]

The income tax never made sense to me. It sounds illogical. Capital gains - yes. Mark has posted info on this previously. I will see if I can find the posts. None the less, everyone needs a good tax attorney or CPA.

Thank you.

The conclusion of Marks's analysis, which is very impressive I might add, is still my premise that this will quailfy as ordinary or regular income - not capital gain.

[jomur]

"I believe it's 15% if you have held the Dinar longer than one year"

According to my NY tax attorney, Mark is correct-as of now, it is considered income and will be taxed accordingly.