Important tax info-need to read

[linny0830]

Please feel free to forward this or share it with anyone you know of who is invested in the Dinar. If you repost this, Just make sure that if you post it in sections, post it in it’s entirety so that we don’t have yet another 1/2 baked, 1/2 informed, 1/2 way done document floating around and it taken out of context without all of the necessary references to make it a complete package.

I wrote this document mainly for myself, friends, and family members who I have told about Dinar, but once I had all the work done, I thought it could be very beneficial to others. The manner in which I wrote this document is almost in “conversation form”. I did this because I wrote it as I researched, and thought it might also make it a little easier to absorb especially when dealing with such a complex issue. So here it is:

Hello everyone, here is some info I have researched the past few days, remember to take this as my opinion and not as fact. Remember to verify not only what I say, but what others say as well. I believe I have compiled more than enough info for you to research on your own if you feel it's necessary. In addition to that, the IRS may release clarification on this single issue at a later date post-RV (this also is rumor), so be prepared to possibly change your strategy at that time. I think it is wise to not cash in more than a small amount until you have met with a tax attorney and get a certified letter of opinion from them and get clarification directly from the IRS as well. This is not something that can be re-done at a later date. You only have one shot to convert your dinar and do it the right way so take your time, make your plans, meet with the pros (several of them) and once you have put in several hours of research, then and only then should you be making an appointment to cash in your dinar!

Secondly, before I really get started, there was an issue covered the other day on MTT where people were freaking out about their bankers or private bankers asking them personal questions. IMO this state of fear and negative attitude is unfounded. You, being a potential client or customer are not the one who runs the show, they are.

You do have the right to interview them and choose who is the best fit for you, and you don't (initially) need to provide certain information to them. Post-RV you most certainly will have to disclose certain things to your banks, especially once you start moving into investments. The reason you may have to disclose information is due to the KYC (Know Your Customer) rule. Your bank not only has the right, but the obligation to dig into your background and personal information. I personally hate this rule, and feel it is an invasion of privacy, but your congressmen are the ones who voted the current legislation into being. To find out what this rule is, check this link for more information: http://en.wikipedia.org/wiki/Know_your_customer

So now I will move on to the main topic of this letter; taxes owed on Dinar profits.

As we currently understand according to all that we have been told about our dinar situation you will be taxed one of 2 ways:

Ordinary Income

Capital Gains

It should be blatantly obvious right from the start that dinar is not something you get a weekly or monthly paycheck from, so it’s already looking like there is nothing “ordinary” about this, and it will take very little evidence to prove this point. I will give you a little preview into the rest of this document, and let you know that short-term capital gains are taxed at the “ordinary income” taxable rate. This is pretty much as far as it goes in regards to anything about this investment being equated as “ordinary income”, so let’s move on.

First off, we can go to the IRS for their definition of what capital gains are : http://www.irs.gov/newsroom/article/0,,id=106799,00.html

An explanation: generally speaking, refers to the profits realized on sales of non-inventory assets. For individuals, capital gains are generally taxed at a preferential rate in comparison to ordinary income.

The amount of tax depends on both the investor’s tax bracket and how long the investment was held before being sold. Short-term capital gains on investments held for a year or less are taxed at the investor’s ordinary income tax rate. Long-term capital gains, which apply to assets held for more than one year, are taxed at a lower rate than short-term gains.

Since 2008, the tax rate on long-term capital gains has been 0% for individuals in the 10% and 15% income tax brackets, and 15% for everyone else. However, those rates were scheduled to expire at the end of 2010, as explained above, with the result that in 2011 the long-term capital gains tax rate would have risen to 20% (10% for taxpayers in the 15% tax bracket) if Congress had not acted.

The new legislation forestalls these increases by extending the 0% and 15% long-term capital gains tax rates for two years (through 2012).

So we still have to figure out if our Dinar returns are Capital Gains or if they are considered ordinary income. I’ll start by going through the various citations (rumors squabbled about in all the chatrooms and conference calls) in the code that have been thrown around as having to deal with the dinar. I will go over several sections in IRS Title 26 and other topics including:

988

525

550

1256 Contracts

Topic 409

Summary on the Capital Gains Issue

Corporations and Trusts

IRS Help

988

1) We first start at looking at IRS Title 26 Section 988: http://www.law.cornell.edu/uscode/26/usc_sec_26_00000988----000-.html

This section pertains to Subchapter N Part 3 which states very clearly "income without the united states", which means foreign earned income OUTSIDE of the united states. Since you are here in the united states, and your income/investment is here, I have a very difficult time believing that this section pertains to us AT ALL even though subpart J refers to foreign currency transactions. Remember, if you are digging down 2,3,4,5 layers in ANY code, you need to make sure that the source/reference/main topic of that code actually pertains to you. Just because there may be 500 places in the IRS code that the words “foreign currency” appear, does not mean that they apply to us as dinar investors.

And then I found this info from a CPA (link at the bottom): The general rule with regard to the U.S. tax treatment of gains or losses from exchanging U.S. currency for non U.S. currency (and back) is that the gain or loss on the currency exchange will now be taxed the same as the underlying transaction. The Taxpayer's Relief Act of 1997 included a provision [Act Section 1104(a)] that included some changes, which are included in the following explanation.

Where there are currency gains or losses in connection with a trade or business or with the management or administration of investment assets, the gain is treated as an ordinary gain (rather than as a capital gain) and any loss is generally treated as an expense.

Where currency gains or losses are incurred in connection with the purchase of an investment, the gain or loss on the currency change on realization (usually from selling) is a capital gain or loss and is included as part of the total capital gain or loss on the investment.

Currency gains of $200 or less that arise from personal transactions (not for investment or business) are not taxable, but any personal currency losses are not deductible. A personal transaction includes any gain or loss arising from travel even if the travel is business related. Any currency gains in excess of $200 per transaction (per trip or per purchase) are treated as a capital gain. Losses on currency exchanges for business travel also appear to be non-deductible.

The primary source of information on the tax treatment of currency gains or losses is IRC Section 988.

Here is the link for that excerpt: http://www.rpifs.com/offshoretax/otcurrency.htm

So... even though I don’t believe this specifically pertains to us, even in this section of the code, it still speaks of the increase in value of a currency as “capital gain”.

Then I find information on 988 pertaining to “non functional currency”. What the heck is that you ask? I have no idea! BUT, I will point out that in this link, the second blue highlighted line states it pertains to “export trade corporations”, and once again, I do not believe this pertains to us. Here is the link I am referring to:

http://law.justia.co....1.0.6.164.html

Then I found a somewhat decent definition explained here: http://www.ato.gov.a...6528.htm&page=7

And here is a definition for “functional currency”: http://en.wikipedia....tional_currency

What I am presuming this to mean, is that any money made internationally, regardless of its currency etc, any profits made with overseas business must be converted to a “US dollar amount” in order for you to properly report/pay your taxes. So this just further instills my opinion that this section DOES NOT pertain to us at all.

525

Here is the link for IRS Pub 525: http://www.irs.gov/p...p525/index.html

525 is the section referring to taxable and non-taxable income. I found 3 snippets of information on capital gains in:

“Itemized Deduction Recoveries” section. This may or mat not apply to you. Unless you have realized gains or had losses in the year(s) prior to the RV, this section does not apply to you at all.

“Non-Itemized Deduction Recoveries” -same basic situation as #1

Under “Miscellaneous Income” and then “other income” you find the only info on Capital Gains.

I found this in 525 and I had to put this in here, it’s just too funny...

“Illegal activities. Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.”

I had no idea you could knowingly operate in criminal activity, and the IRS thinks that you would somehow be honest enough to claim your illegal drug sales as income! LOL

You may want to keep this section in mind if you sell your Dinar to a Corp. or trust:

Sale of personal items. If you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry, or silverware, your gain is taxable as a capital gain. Report it on Schedule D (Form 1040). You cannot deduct a loss.

However, if you sold an item you held for investment, such as gold or silver bullion, coins, or gems, any gain is taxable as a capital gain and any loss is deductible as a capital loss.

Now go here to page 33 at the bottom: http://www.irs.gov/p...rs-pdf/p525.pdf

This paragraph from page 33 states: Foreign currency transactions. If you have a gain on a personal foreign 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.

Now, out of all the mumbo-jumbo we have read so far, does that not seem like plain English enough for us???

550

Here is the link for IRS Pub 550: http://www.irs.gov/p...p550/index.html

550 is the section referring to Investment Income and expenses, including capital gains and losses.

Under “Capital Gain Distributions you find this definition: Capital gain distributions (also called capital gain dividends) are paid to you or credited to your account by mutual funds (or other regulated investment companies) and real estate investment trusts (REITs). They will be shown in box 2a of the Form 1099-DIV you receive from the mutual fund or REIT.

And below that, we find this:

Nondividend Distributions

A nondividend distribution is a distribution that is not paid out of the earnings and profits of a corporation or a mutual fund. You should receive a Form 1099-DIV or other statement showing you the nondividend distribution. On Form 1099-DIV, a nondividend distribution will be shown in box 3. If you do not receive such a statement, you report the distribution as an ordinary dividend.

I am not entirely sure if this even pertains to us, most of this sections seems to deal with Mutual funds and REIT’s.

A dividend is defined here: http://en.wikipedia.org/wiki/Dividend

The Dinar is not a dividend, so it seems like yet another quoted section of the IRS code -Pub 550 does not pertain to us, so let’s look further...

1256 Contracts

Here is a link for the breakdown of this section: http://www.law.corne...56----000-.html

All that you have to read is part “a” through “b” and you find out quite easily that this does not pertain to you either. This pertains to professional currency dealers or traders, which you are most likely not. If you are not currently a FOREX trader and you bought dinar as an investment, this is yet another section of IRS code that does not apply.

IRS Topic 409

After speaking to the IRS today (which I will address later) they referred me to this section for more clarification on capital gains. You can find that info here:

http://www.irs.gov/t...pics/tc409.html

So now here we are, having gone through the “intel” of what we are supposedly bound to in regards to taxation, and I have only found a SINGLE section that would apply to our situation -IRS Pub 525 Page 33. This is why I am such a stickler for the truth, because we keep getting advice from random intel sources and random posts in chatrooms that all claim to have the answers, and when you spend the time and dig deep enough you find out that their position/opinion/arguments are based on nothing but speculation and unverified rumor. These are the wrong sections, the wrong citations, and most of them without any merit or applicability whatsoever to our situation.

So where do we go from here... We go to the source of all of this, the IRS itself. The size of the tax code is roughly 71,000 pages, too many pages for me to read. Based on the following links, not too many of our own Govt. officials seem to even know just how big it is. I suppose they never checked Google!?

Link: http://www.trygve.com/taxcode.html

Link: http://politicalcalc...ederal-tax.html

SUMMARY

After reviewing all the potential tax issues, categories, sections, explanations etc. I placed a call into the IRS “Complex Individual Issues” department on 3-18-11. I spent 35 minutes on hold and got in touch with Paul ID#1000842891.

Paul told me that as long as I personally purchased the Dinar as an investment and it was not purchased by me as a foreign currency trader (remember 1256?), any profits would be considered as CAPITAL GAINS, and NOT ordinary income. This means that IRS Pub. 525 is the proper and correct section to apply to our investment verified/explained by IRS Topic 409, and will need to be reported on Schedule D at the end of the year.

I asked him if there was a limit on capital gains being taxed at the lower/lowest rates regardless of whether I made $5000.00, $5 Million, or $50 Million. He then told me that I needed to be transferred to another department to get clarification on that.

I also verified with him that the Dinar was NOT a dividend, and cannot be classified as dividend income, it is CAPITAL GAINS income.

I was then transferred to Miss Johnson ID#1000246729. I asked her the same question, and she replied that there was no limitation on capital gains, even if it was considered and applied to the 2 lower income brackets. She also stated that she has personally processed claims that have exceeded the lowest 2 income brackets and they have STILL APPLIED the ZERO TAX qualification to those filings (up to the maximum income allowed for this income bracket). Keep this in mind, but also remember to get a certified letter of opinion from a tax attorney or confirmation letter from the IRS itself if you think this strategy/situation will work for you. It would be awesome if this was 100% true, but I think she may have been off a little bit.

So what does all of this mean for you? Well, if you meet the qualifications for the lowest (10%) tax bracket;

SHORT TERM capital gains are taxed at ordinary income tax rate

LONG TERM capital gains are taxed at 0%, up to the maximum income allowed for this income bracket (see chart below)

For the second lowest income bracket (15%), you will be taxed at;

SHORT TERM capital gains are taxed at ordinary income tax rate

LONG TERM capital gains are taxed at 0%, up to the maximum income allowed for this income bracket (see chart below)

For the other higher income brackets (25% thru 35%+), you will be taxed at;

SHORT TERM capital gains are taxed at ordinary income tax rate

LONG TERM capital gains are taxed at a MAXIMUM15%

To find out what tax bracket you are in, review the chart below:

Tax Bracket Married Filing Jointly Single

10% Bracket $0 – $17,000 $0 – $8,500

15% Bracket $17,001 – $69,000 $8,501 – $34,500

25% Bracket $69,001 – $139,350 $34,501 – $83,600

28% Bracket $139,351 – $212,300 $83,601 – $174,400

33% Bracket $212,301 – $379,150 $174,401 – $379,150

35% Bracket Over $379,150 Over $379,150

This chart was taken from here: www.fivecentnickel.com/2010/02/15/2011-federal-income-tax-brackets-...

You can go here for more explanation: http://www.mhtb.com/wordpress/?p=233

More explanation: http://thefinancebuf...1-and-2012.html

If you would like to play around with numbers to see what you may have to pay in taxes, you can use a capital gains calculator. I cannot guarantee this to be 100% accurate, but it is fun to play around with nonetheless. Here is the link:

www.smartmoney.com/personal-finance/taxes/the-smartmoneycom-capital...

I think I have done enough research to prove the point that this investment is considered to be capital gains, and that if you are in the lower 2 income brackets, you can effectively pay no taxes whatsoever if you meet certain criteria.

Here is a link for 10 facts on capital gains: http://www.irs.gov/n...=106799,00.html

More info here: www.smartmoney.com/personal-finance/taxes/making-the-most-of-capita...

Corporations and Trusts

Far too many people are not only giving bad advice on taxes, but also on corporations and trusts. For those of you who qualify for the lower 2 income brackets you could pay nothing in tax, but if you put it into a trust or corp, you could end up paying 15-42% taxes OR MORE!!!

Corp and trust tax info is another huge undertaking as far as research goes, and I don’t feel like explaining it all, however I have done enough research to get some decent links put together for you to review on your own. You will quickly find out that corps and trusts are NOT the perfect vehicles to use INITIALLY and may cost you MILLIONS of dollars in unnecessary taxes. For some of you, it may benefit you GREATLY to cash in personally, claim it as capital gains, pay little to no taxes, AND THEN PUT IT INTO A TRUST or CORPORATION!!!

Be very cautious taking advice from people on corps and trusts, because even though they may want to help you, they are still salesmen, and may not give you the best advice. Anyone who would try and convince me of setting up a 1000 page long trust for $8000 so that I can pay 42% taxes is someone I will run away from as fast as I can. Do your due diligence, do your research, it could save you thousands and/or cost you millions...

Here are some links for more research:

http://www.incnow.com/tax.shtml

pay close attention to #7: www.cato.org/pub_display.php?pub_id=3063

http://www.residual-.../LLCsTaxes.html

Differences between corporate structures: www.themoneyalert.com/Corp-Entity-Table.html

http://www.smbiz.com/sbrl001.html -this is a great link, it shows/proves quite easily how a trust or corp won’t save you money on taxes in all situations

With that being said, trusts and corps are great tools! BUT they may not be the BEST tool to start off with. I would much rather pay zero to 15% taxes post-RV, set up a trust or corp and donate or assign the money/assets/profits later and have them 100% protected rather than pay over 15%, 35%, 42% or more in taxes and spending all that money on a structure prior to the RV when I could have bought more dinar, or stayed current on my bills and paid my mortgage on time... Just food for thought.

IRS Help

You can confirm this information if you like by calling the IRS and ask for "complex individual issues" department at 1-800-829-1040

For those of you who are not US citizens who have green cards or visa’s and not sure where they stand, the IRS has a special department for you as well. Just call 1-800-829-1040 and ask for the “foreign issues department”.

For IRS Tax help:

They have at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. You can call your local advocate, whose number is in your phone book, in Pub. 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www.irs.gov/advocate. You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059.

You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www.taxtoolkit.irs.gov. You can get updates on hot tax topics by visiting our YouTube channel at www.youtube.com/tasnta and our Facebook page at www.facebook.com/YourVoiceAtIRS, or by following our tweets at www.twitter.com/YourVoiceAtIRS.

I hope I was able to answer some of your questions and concerns, and that you were able to find this helpful. Happy reading! - John Galt

http://don't promote other sites.invisionzone.com/index.php?/topic/17059-tax-ans...

[mzmichele]

Thanks for sharing linny have a great day!

[paydirt]

Thanks SOOOO Much..... Great Information and links....

[markst]

Im assuming Long term equals one year or more. Really do like the long term rate on 15% tax brkt. All we need now is an RV.

[linny0830]

Im assuming Long term equals one year or more. Really do like the long term rate on 15% tax brkt. All we need now is an RV.

Yes one year or greater and yes, we need just the RV!!!!

[double_duce_duce]

WOW that was great info,it gave me some good incite..THANK YOU....

[mark1027]

Thanks!

A wise man once told me if you are paying 35% of your income out in taxes... THEN you should should spend 35% of your time trying to minimize them.[/size]

[stillwaters]

Thank you linny for the excellent post! I am now more encouraged than before. As others have stated I don't mind paying my taxes since it was the gov't (and our military) who gave us this investment opportunity. However I still think the FED has to go since they are NOT part of the gov't, they are just manipulating it.

[blessedman]

Thank you so much very considerate of you. Just what I was looking for.

[hurricanewayne]

I spoke to my CPA this past week and he said the highest amount of tax is 39% it all depends on how much you make and yes it is capital gains according to him. so figure you going to be paying in the 35% to 39% for you taxes and if your state has a tax you will be paying that too.

[p71rock]

i did a google search for the http://www.fivecentn...-federal-income and got the page

http://www.fivecentnickel.com/2010/02/15/2011-federal-income-tax-brackets-irs-income-tax-rates/

[ExecConsult]

Linny - and those of you who are relying on his posted information; please read this.

Hi, This is Mark. A lot of you who follow the tax forums know me. For those of you who don't, I'm an estate planning attorney and I have put a lot of time into the tax issues relating to dinar. This "Call to the IRS" was discussed over and over a while back. I did a post some time back on this issue. I want to be sure people have the best information I can provide in their decision making processes. I hope that no one feels I am bashing them. I am just going to spell things out and give people the best information I can.

First I want to say that I can tell that Linny has put in a tremendous amount of time and effort and he truly wishes to help people. For that he gets a + from me.

I am not going to attempt to take the time to address everything in this post. I will only address what I feel is most critical for people to understand when reading Linny's post.

When this came up the first time, I wanted to illustrate a point so I called the IRS myself and spoke with a gentleman in the "Complex Individual Issues" department. When I began telling him the issue, he stopped me and told me that that they were not supposed to answer questions regarding gains on foreign currency exchanges. I told him I was an attorney and told him what Mr. Kirk had said. His response was that they have a list of items they are not supposed to attempt to answer. Foreign currency transactions are on the list. They are considered "outside the scope" of their department. He went on to tell me that it was unfortunate that most of the people did not refer to that list before trying to answer the questions. Previous to this phone call, I also tried to use their email Q&A service and got the same "outside the scope" response.

So basically Mr. Kirk has not been trained to appropriately address these issues, is not supposed to be answering these questions for which he is not qualified, and can not be relied upon. I can hear a lot of you now saying that I am being too harsh and that just because he was not officially supposed to answer, he certainly knew what he was talking about and had the documents to back him up. Lets discuss that next.

IRS Publications are NOT the LAW

Over and over again, Publication 525 Pg. 33 is quoted as definitive proof that our investment will be taxed as capital gains. On the surface it certainly seems like an open and shut case. However, nothing is EVER that easy with the IRS.

IRS publications are not binding on the Service. They are printed to give help and guidance. Tax professionals have known (or should have known this for a long time. Note the following from a case back in 1978.

"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 peril." [emphasis added] Caterpillar Tractor Co. v. United States, 589 F.2d 1040, 1043, 218 Ct. Cl. 517 (1978)

This is what the IRS has to say about the quality of the information they put out to help you:

This guidance should be used to ensure and maximize the quality of disseminated information. The Internal Revenue Service’s guidelines are based on the Office of Management and Budget (OMB) guidelines published in the Federal Register on September 28, 2001, January 3, 2002, and February 22, 2002. These guidelines, as the name suggests, are in the nature of guidance. They are not intended to be, and should not be construed as, legally binding regulations or mandates. They are not legally enforceable and do not create any legal rights or impose any legally binding requirements or obligations on the agency. Nothing in these guidelines affects any otherwise available judicial review of agency action.

So, you see -- as important as the "Complex Individual Issues" department sounds, it is just a little higher level of the call center in the customer service department. Not only are they not trained or qualified to answer the questions about foreign currency transactions, if they do, you can not rely on what they told you. The IRS doesn't care. What the customer service department employees tell you does not matter.

Section 988 is the LAW

The taxes for profits and losses from foreign currency transactions are controlled by Section 988 of the Internal Revenue Code. (What publication 550 refers to is the ability to "opt out" of 988 control to Section 1256 for foreign currency "contracts." This doesn't apply to us because we are not purchasing forex contracts.) What is found in publication 525 on page 33 is, in fact, mostly a quote from section 988. However, it is only a quote for an exception written into the law for people who do foreign currency exchanges for personal purposes like travel. What the publication fails to point out is that the very next subsection in the actual LAW gives a very limiting definition of what can be considered a "personal transaction" to be able to take advantage of the exception to the rule.

My analysis of the law after research and consulting with IRS tax professionals and private tax professionals is that as of today, the IRS' position is that anything done with a business or investment purpose/intent will not qualify for this "personal transaction" exception to the rule. Therefore, they will be taxed at ordinary income levels instead of as capital gains. I made a more complete post of my analysis. It can be found here:

Is this final? Well . . . not really. I do believe that it is fairly difficult to overcome. However, the IRS has not addressed one phrase in the law very directly and it "could" give someone wiggle room to at least attempt to claim capital gains treatment. However, I believe to do so invites a guaranteed audit and I believe you will most likely lose. Still, I am an attorney and though we council our clients one way, we may argue on the client's behalf another. I did a submission to the IRS requesting guidance where I argued for capital gains treatment. I did a post on it which can be found here:

I hope you find this to be helpful.

Best of Blessings,

Mark

P.S. See my profile for a shortened professional disclaimer

[NonLinear]

Linny - and those of you who are relying on his posted information; please read this.

I hope you find this to be helpful.

Best of Blessings,

Mark

P.S. See my profile for a shortened professional disclaimer

I, for one, appreciate your posts. Thank you for your clarity on a complex issue!

Funny thing, I had a close friend who sold everything he had and bought gold before the window 'shut' years ago. He put it in his Swiss account. The IRS audited him for 17 years straight yet he had done his homework and they were just harassing him because he did everything 'right'. The funniest part, his daughter ended up dating an IRS agent for years and still was when he died. The oddest part was that him and the agent/boyfriend got along quite well!

[ExecConsult]

In reference to my post above, I found my old post about the call I made to the IRS:

"I spoke with the Mr. Colbert ID# 1000220899. He was aware of section 988 controlling the issue. However, 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."

Best of Blessings,

Mark