The Facts About The Capital Gains Tax

[PartyTime]

That is debatable, I spoke with 2 tax pros and 1 said Cap Gain the other said regular income. There is a post somewhere on this website where a tax guy actually got the exception rule from the IRS stating it would be taxed as cap gains. Exception rule because the law can be interpreted both ways!

There was another post on DD's site today that claims he talked with the IRS and they said it would be treated as ordinary income.

Just goes to show, ask a dozen people the same question and get a dozen different answers.

If some got a ruling letter from the IRS they should post it. That is what will protect you in the event someone else at the IRS tries to say otherwise after you file any tax returns.

[TechguyLA]

I also talked to several forex investors and they all say they send you a w-9 every year just like regular income job,, and all forex does is currency trading so I would think this falls into same category

[Ghost Rider]

I also talked to several forex investors and they all say they send you a w-9 every year just like regular income job,, and all forex does is currency trading so I would think this falls into same category

Okie Dokie.

[TQueezy]

Here's the problem, and it gets linked to it from Publication 550, page 40 ...

It would be treated as ordinary income, with special circumstances, and the tax law points those out and makes exceptions, one of which being if on or after the date of purchase, to your knowledge, the exchange rate does not exceed a reasonable gain or loss, then you could report it as regular income. If it does exceed it, which it most certainly would with a straight up RV or RI without a LOP... then special rules apply, most likely those requiring reporting it as capital gains.

B ) Foreign currency gain or loss

For purposes of this section -

(1) Foreign currency gain

The term ''foreign currency gain'' means any gain from a

section 988 transaction to the extent such gain does not exceed

gain realized by reason of changes in exchange rates on or after

the booking date and before the payment date.

(2) Foreign currency loss

The term ''foreign currency loss'' means any loss from a

section 988 transaction to the extent such loss does not exceed

the loss realized by reason of changes in exchange rates on or

after the booking date and before the payment date.

http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._988._Treatment_of_certain_foreign_currency_transactions

Edited July 8, 2011 by TQueezy

[TechguyLA]

Okie Dokie.

guy thats a low blow.....I could just as easily say that about your "my sister works at irs for 25 years" story

Here's the problem, and it gets linked to it from Publication 550, page 40 ...

It would be treated as ordinary income, with special circumstances, and the tax law points those out and makes exceptions, one of which being if on or after the date of purchase, to your knowledge, the exchange rate does not exceed a reasonable gain or loss, then you could report it as regular income. If it does exceed it, which it most certainly would with a straight up RV or RI without a LOP... then special rules apply, most likely those requiring reporting it as capital gains.

B ) Foreign currency gain or loss

For purposes of this section -

(1) Foreign currency gain

The term ''foreign currency gain'' means any gain from a

section 988 transaction to the extent such gain does not exceed

gain realized by reason of changes in exchange rates on or after

the booking date and before the payment date.

(2) Foreign currency loss

The term ''foreign currency loss'' means any loss from a

section 988 transaction to the extent such loss does not exceed

the loss realized by reason of changes in exchange rates on or

after the booking date and before the payment date.

http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._988._Treatment_of_certain_foreign_currency_transactions

"Reasonable" is a loose term. lol what you cal reasonable I might not.....so that kind of leaves it open to interpretation doesn't it?

[TQueezy]

guy thats a low blow.....I could just as easily say that about your "my sister works at irs for 25 years" story

"Reasonable" is a loose term. lol what you cal reasonable I might not.....so that kind of leaves it open to interpretation doesn't it?

Unfortunately, they blow your assertions out of the water with the last subsection...

(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.

(2 ) Exclusion for certain personal transactions

If -

(A ) nonfunctional currency is disposed of by an individual in

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.

(3 ) Personal transactions

For purposes of this subsection, the term ''personal

transaction'' means 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).

http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._988._Treatment_of_certain_foreign_currency_transactions

As you can see, they deem that unless you are using this foreign currency transaction as an individual for travel expenses or other "non-gain" reasons beyond $200 gain... then you wouldn't have to pay it as capital gains tax. So, it looks like the 15% over a year, 35% under a year capital short and long-term gains taxes will apply to our Dinar revaluation cash-in profits...

Edited July 8, 2011 by TQueezy

[TechguyLA]

really, I been thinking about this...isnt capital gain tax less than if you reported it on ordinary income....I mean some tax brackets i have seen take 40% or more

I really need to talk to someone cause it wont be personal for me. My dinar were bought with company funds and I will be placing cash in money into corporate accounts so thats a whole nother' bowl of grits I reckon

[TQueezy]

really, I been thinking about this...isnt capital gain tax less than if you reported it on ordinary income....I mean some tax brackets i have seen take 40% or more

I really need to talk to someone cause it wont be personal for me. My dinar were bought with company funds and I will be placing cash in money into corporate accounts so thats a whole nother' bowl of grits I reckon

I would reckon you are correct on the capital gains...

People think it's a bad thing, but it's a way to limit extreme taxation of transactions and individual income that exceeds the normal bracket range for yearly income. Be glad it's in place... but just kick yourself if it RVs and you've held the dinar for less than a year, cuz that's double what you have to pay back

[goldengoose]

really, I been thinking about this...isnt capital gain tax less than if you reported it on ordinary income....I mean some tax brackets i have seen take 40% or more

I really need to talk to someone cause it wont be personal for me. My dinar were bought with company funds and I will be placing cash in money into corporate accounts so thats a whole nother' bowl of grits I reckon

'TechguyLA',

Good evening!

If this is the case, then why go through all of this back and forth with "T" and "Ghost"??? Just say thank you to these fine folks and if you did purchase the IQD with corporate funds, then you should have corporate lawyers to assist with this issue.

Have a good evening and Thank you!

GG

[TechguyLA]

I dont know how it will work being company money and accounts, but I do have several companies to spread it around in and hide it in all kinds of nooks and crannies of those companies!

I will see what my tax guy says...I was afraid to mention dinar related things to him but I found out yesterday that he is invested to!! lol

[detroitjazzman]

INFO DIRECTLY FROM THE IRS:

My sister is a 25 year employee at the IRS and she states the Ferderal Tax Laws that are currently in place state that investment earnings under 1 will be subject to a 35% Capital Gains Tax. Investment earnings over 1 year will be subject to 15% Capital Gains Tax. *THIS IS CONFIRMED and is the current Tax Law. Also, Obama is currently working on increasing the Capital Gains tax VERY SOON (Increased Tax rate unknown at this time).

The IRS doesn't care what any other "financial professionals" are stating, they are following the Federal Tax Laws. The IRS considers Foreign Currency Purchases an "investment" that will be subject to Capital Gains Tax Laws.

I hope this helps. If you are still unsure, you can call the IRS yourself.

GR

you are basicall correct with the exception, those percentages are at the top of the long/short term rate. UP TO 15% long term UP TO 35% short term. Dependant on tax bracket could be less on both long or short. planning calculator is attached. Peace

http://www.moneychimp.com/features/capgain.htm

[TechguyLA]

'TechguyLA',

Good evening!

If this is the case, then why go through all of this back and forth with "T" and "Ghost"??? Just say thank you to these fine folks and if you did purchase the IQD with corporate funds, then you should have corporate lawyers to assist with this issue.

Have a good evening and Thank you!

GG

well it did not matter to me which way was less or more, It was just the way I read the law and thought that was how it would go down is all.

[goldengoose]

well it did not matter to me........... '

'TechguyLA',

Thank you for your reply; however, this was exactly my point.......I had feeling it did not matter to you by reading your posts and replies to 'T' and 'Ghost', so if that was the case, why engage in the back and forth?

If you truly want to contribute in a postive manner, take the advice from some senior members when they provide it and then come back and display the results of that research.

Thank you,

GG

[TechguyLA]

well i did not say i didnt care period.. I said I didnt care which one was more. i was arguing what my belief was in the way it will be taxed. notice soon as he provided that extra info I backed off....but no one ever wants to point out the things people do thats right, they just look for the bad,,,just human nature I guess

[goldengoose]

well i did not say i didnt care period.. I said I didnt care which one was more. i was arguing what my belief was in the way it will be taxed. notice soon as he provided that extra info I backed off....but no one ever wants to point out the things people do thats right, they just look for the bad,,,just human nature I guess

'TechguyLA',

Thank you for your reply; if I interpreted or read your views incorrectly then I digress and make concessions to you!

Have a good night!

GG

[PartyTime]

Here's the problem, and it gets linked to it from Publication 550, page 40 ...

It would be treated as ordinary income, with special circumstances, and the tax law points those out and makes exceptions, one of which being if on or after the date of purchase, to your knowledge, the exchange rate does not exceed a reasonable gain or loss, then you could report it as regular income. If it does exceed it, which it most certainly would with a straight up RV or RI without a LOP... then special rules apply, most likely those requiring reporting it as capital gains.

B ) Foreign currency gain or loss

For purposes of this section -

(1) Foreign currency gain

The term ''foreign currency gain'' means any gain from a

section 988 transaction to the extent such gain does not exceed

gain realized by reason of changes in exchange rates on or after

the booking date and before the payment date.

(2) Foreign currency loss

The term ''foreign currency loss'' means any loss from a

section 988 transaction to the extent such loss does not exceed

the loss realized by reason of changes in exchange rates on or

after the booking date and before the payment date.

http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._988._Treatment_of_certain_foreign_currency_transactions

Ok, from my reading of this it would have NOTHING to do with us buying dinar.

This applies to SECTION 988 TRANSACTIONS,

Is buying physical currenycy a "section 988 transaction"?

Not from what I read under their definition of a section 988 transaction.

© Other definitions

For purposes of this section -

(1) Section 988 transaction

(A) In general

The term ''section 988 transaction'' means any transaction

described in subparagraph ( if the amount which the taxpayer

is entitled to receive (or is required to pay) by reason of

such transaction -

(i) is denominated in terms of a nonfunctional currency, or

(ii) is determined by reference to the value of 1 or more

nonfunctional currencies.

( Description of transactions For purposes of subparagraph (A), the following transactions

are described in this subparagraph:

(i) The acquisition of a debt instrument or becoming the

obligor under a debt instrument. ....................(Is the dinar a debt instrument or make you any knind of an OBLIGOR under holding this currency? NO!)

(ii) Accruing (or otherwise taking into account) for

purposes of this subtitle any item of expense or gross income

or receipts which is to be paid or received after the date on

which so accrued or taken into account..............(This does not apply to anything here with buying currency and holding it)

(iii) Entering into or acquiring any forward contract,

futures contract, option, or similar financial instrument...........(Well I don't know about anyone else, but I certainly did not enter into any kind of forward contract nor acquired one. Nor any option or simular financial instrument)

The Secretary may prescribe regulations excluding from the

application of clause (ii) any class of items the taking into

account of which is not necessary to carry out the purposes of

this section by reason of the small amounts or short periods

involved, or otherwise.

Soooooooooooooo......Based on this definition of a section 988 transaction, this appears to me to have nothing at all to do with us buying a currency and holding it. There is no type of contract, option, etc involved with this. This isn't the same as playing in the futures market.

So the guy that sent this to DD who claims to be a planner, needs to stick with planning and quit misinterpreting the tax code! LOL

[TQueezy]

Ok, from my reading of this it would have NOTHING to do with us buying dinar.

This applies to SECTION 988 TRANSACTIONS,

Is buying physical currenycy a "section 988 transaction"?

Not from what I read under their definition of a section 988 transaction.

© Other definitions

For purposes of this section -

(1) Section 988 transaction

(A) In general

The term ''section 988 transaction'' means any transaction

described in subparagraph ( if the amount which the taxpayer

is entitled to receive (or is required to pay) by reason of

such transaction -

(i) is denominated in terms of a nonfunctional currency, or

(ii) is determined by reference to the value of 1 or more

nonfunctional currencies.

( Description of transactions For purposes of subparagraph (A), the following transactions

are described in this subparagraph:

(i) The acquisition of a debt instrument or becoming the

obligor under a debt instrument. ....................(Is the dinar a debt instrument or make you any knind of an OBLIGOR under holding this currency? NO!)

(ii) Accruing (or otherwise taking into account) for

purposes of this subtitle any item of expense or gross income

or receipts which is to be paid or received after the date on

which so accrued or taken into account..............(This does not apply to anything here with buying currency and holding it)

(iii) Entering into or acquiring any forward contract,

futures contract, option, or similar financial instrument...........(Well I don't know about anyone else, but I certainly did not enter into any kind of forward contract nor acquired one. Nor any option or simular financial instrument)

The Secretary may prescribe regulations excluding from the

application of clause (ii) any class of items the taking into

account of which is not necessary to carry out the purposes of

this section by reason of the small amounts or short periods

involved, or otherwise.

Soooooooooooooo......Based on this definition of a section 988 transaction, this appears to me to have nothing at all to do with us buying a currency and holding it. There is no type of contract, option, etc involved with this. This isn't the same as playing in the futures market.

So the guy that sent this to DD who claims to be a planner, needs to stick with planning and quit misinterpreting the tax code! LOL

Read the subsection marker "ii" and "iii" and tell me that you don't think The Secretary couldn't make an exception for us carrying foreign currency to not fall into that? I mean, it's a "gross income" of sorts, in my opinion, so maybe they could classify us under that... I still think the section at the bottom outlining for personal reasons of travel, and if an exchange rate nets you more than $200 that you fall into the other sections rules, including that first part where it wouldn't be treated as ordinary income any longer. That makes me afraid they could enact a rule pretty quickly to put an extra tax on non-ordinary income items.

[TQueezy]

Also, take a look at this part of this source:

(6) Examples. The following examples illustrate the application of paragraph (a) of this section. The examples assume that X is a U.S. corporation on an accrual method with the calendar year as its taxable year. Because X is a U.S. corporation the U.S. dollar is its functional currency under section 985. The examples also assume that section 988(d) does not apply.

http://law.justia.com/cfr/title26/26-10.0.1.1.1.0.6.159.html

This shows me that the Iraqi Dinar, for all intents and purposes, is a nonfunctional currency where you are living and operating in the United States, or through Business means relating to the United States, so as an individual, if you are not holding Dinar for travel and other personal reasons outlined in the section 988 code, it would apply to you under the section for nonfunctional currency, so you would indeed be making a "section 988 transaction" and would be outside the realm of normal or ordinary income. What that means... I'm guessing, is that you would be taxed as long-term or short-term capital gains on the income you made from that transaction, depending on how long you held the dinar prior to cashing it in.

EDIT: my bad, it looks like it would be treated as ordinary income separately,

(1) Treatment as ordinary income or loss

(A) In general

Except as otherwise provided in this section, any foreign

currency gain or loss attributable to a section 988 transaction

shall be computed separately and treated as ordinary income or

loss (as the case may be).

http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._988._Treatment_of_certain_foreign_currency_transactions

Edited July 8, 2011 by TQueezy

[PartyTime]

Read the subsection marker "ii" and "iii" and tell me that you don't think The Secretary couldn't make an exception for us carrying foreign currency to not fall into that? I mean, it's a "gross income" of sorts, in my opinion, so maybe they could classify us under that... I still think the section at the bottom outlining for personal reasons of travel, and if an exchange rate nets you more than $200 that you fall into the other sections rules, including that first part where it wouldn't be treated as ordinary income any longer. That makes me afraid they could enact a rule pretty quickly to put an extra tax on non-ordinary income items.

It could IF it fell under the definition of a section 988 transaction. Section B defines what a section 988 transaction is. And buying currency to hold isn't it.

BTW...the B letters got replaced with those smily faces. Those are suppose to be the letter B.

So everything in section A must meet the definition of Section B that defines what a section 988 transaction is. So read section B and find anything in there that would define us holding dinar currency. Now if we were buying it by buying futures in a futures market then that could apply. But we aren't involved with futures contracts or options.

Also, take a look at this part of this source:

(6) Examples. The following examples illustrate the application of paragraph (a) of this section. The examples assume that X is a U.S. corporation on an accrual method with the calendar year as its taxable year. Because X is a U.S. corporation the U.S. dollar is its functional currency under section 985. The examples also assume that section 988(d) does not apply.

http://law.justia.com/cfr/title26/26-10.0.1.1.1.0.6.159.html

This shows me that the Iraqi Dinar, for all intents and purposes, is a nonfunctional currency where you are living and operating in the United States, or through Business means relating to the United States, so as an individual, if you are not holding Dinar for travel and other personal reasons outlined in the section 988 code, it would apply to you under the section for nonfunctional currency, so you would indeed be making a "section 988 transaction" and would be outside the realm of normal or ordinary income. What that means... I'm guessing, is that you would be taxed as long-term or short-term capital gains on the income you made from that transaction, depending on how long you held the dinar prior to cashing it in.

EDIT: my bad, it looks like it would be treated as ordinary income separately,

(1) Treatment as ordinary income or loss

(A) In general

Except as otherwise provided in this section, any foreign

currency gain or loss attributable to a section 988 transaction

shall be computed separately and treated as ordinary income or

loss (as the case may be).

http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._988._Treatment_of_certain_foreign_currency_transactions

Functional currency under a SECTION 988 TRANSACTION.

The KEY to everything within this entire code section all relates to a specific type of transaction which is called a section 988 transaction which is clearly defines in section B. Does section B trhat defines what a section 988 transaction is pertain to you buying and holding dinar currency? Answer, NO!

Edited July 8, 2011 by PartyTime

[TQueezy]

The KEY to everything within this entire code section all relates to a specific type of transaction which is called a section 988 transaction which is clearly defines in section B. Does section B trhat defines what a section 988 transaction is pertain to you buying and holding dinar currency? Answer, NO!

So it comes back to that, and I'll repost subsection B here...

(B ) Description of transactions

For purposes of subparagraph (A), the following transactions

are described in this subparagraph:

(i) The acquisition of a debt instrument or becoming the

obligor under a debt instrument.

(ii) Accruing (or otherwise taking into account) for

purposes of this subtitle any item of expense or gross income

or receipts which is to be paid or received after the date on

which so accrued or taken into account.

(iii) Entering into or acquiring any forward contract,

futures contract, option, or similar financial instrument.

The Secretary may prescribe regulations excluding from the

application of clause (ii) any class of items the taking into

account of which is not necessary to carry out the purposes of

this section by reason of the small amounts or short periods

involved, or otherwise.

To me, it seems the clause "ii" applies. What is defined as "gross income" or receipts which is to be paid or received after date on which so accrued or taken into account? That translates to me as accruing for purposes of "gross income" like you're trying to make money off of accruing the foreign currency by holding it. That right there would seem to make your purchase of it a 988 transaction... your thoughts?

Edited July 8, 2011 by TQueezy

[Sdr]

well i am no tax expert so what I am going to do is whatever way i do go i will get it in writing from a tax attorney so if it turns out wrong he will take the heat not me.

Also here is the publication if you wish to read it yourself

http://www.irs.gov/pub/irs-pdf/p550.pdf

Umm..who signs your tax return.......? Think you may sue....but the IRS will come to you first........think about that before you sign it!

[PartyTime]

So it comes back to that, and I'll repost subsection B here...

(B ) Description of transactions

For purposes of subparagraph (A), the following transactions

are described in this subparagraph:

(i) The acquisition of a debt instrument or becoming the

obligor under a debt instrument.

(ii) Accruing (or otherwise taking into account) for

purposes of this subtitle any item of expense or gross income

or receipts which is to be paid or received after the date on

which so accrued or taken into account.

(iii) Entering into or acquiring any forward contract,

futures contract, option, or similar financial instrument.

The Secretary may prescribe regulations excluding from the

application of clause (ii) any class of items the taking into

account of which is not necessary to carry out the purposes of

this section by reason of the small amounts or short periods

involved, or otherwise.

To me, it seems the clause "ii" applies. What is defined as "gross income" or receipts which is to be paid or received after date on which so accrued or taken into account? That translates to me as accruing for purposes of "gross income" like you're trying to make money off of accruing the foreign currency by holding it. That right there would seem to make your purchase of it a 988 transaction... your thoughts?

Does the dinar pertain to the transaction denominated in terms of a nonfunctional currency, or determined by reference to the value of 1 or more nonfunctional currencies? Is the dinat not a functional currency? If the amount recieved is denominated in terms of a nonfunctional currency, or determined by reference to the value of 1 or more nonfunctional curries, where the gross income derives from, then it would apply. But the dinar is not a nonfunctional currency. It IS a functional currency. Can you not walk into any store in Iraq and spend it? Would you be able to spend a nonfunctional currency in a store?

Now if you were to buy into some futures or options pertaining to a currency, your futures, options or contracts would be a nonfunctional currency because those futures, options or contracts are not the currency itself, but merely an investment in a currency through a futures market, options or contracts purchased pertaining to a currency.

Did you invest in the dinar through forex where you purchased futures, or options, or a contract pertaining to the dinar where you could make a profit off those futures contracts, or options, or other contracts? This is all this applies to. If you bought futures contracts, or options, or contracts pertaining to the currency where your profit would become gross income.

I don't know about you, but I bought the actual cash in dinar. There is no futures contracts, or options or any other contracts involved here. I'm holding the actual currency itself which none of this applies to. You can't just pick certain words out of and entire section and read into something that isn't there. What does the "gross income" apply to? It applies to the income made off futures contracts, or options or contracts, pertaining to investing in currencies, which those futures contracts, or options, or contracts are a nonfunctional currency. They are nonfunctional because you can't spend a futures contract, or options contract, or any other contracts, in the open market. You would have to convert that nonfunctional currency into a functional currency, by cashing in your futures contracts, or options, or other contracts, where you then have a "gross income" and then after deducting your cost you have a profit/gain which is treated as regular income under this section of the code, because it is a section 988 transaction.

[TechguyLA]

Umm..who signs your tax return.......? Think you may sue....but the IRS will come to you first........think about that before you sign it!

yes but there is also a place for "preparer" who also signs the return indicating it was not prepared by the tax payer but by a professional.

A guy at H&R block told me that one benefit of having a pro do your taxes is their company is responsible for any mistakes, not the customer

[PartyTime]

yes but there is also a place for "preparer" who also signs the return indicating it was not prepared by the tax payer but by a professional.

A guy at H&R block told me that one benefit of having a pro do your taxes is their company is responsible for any mistakes, not the customer

Not with the IRS they aren't. As far as the IRS is concerned the taxpayer is responsible and liable for their return, regardless of who prepares the return. The liability H&R Block has is to you personally for any errors they make. The IRS still comes after you. They will not go after H&R Block. You would have to go after H&R Block yourself to recoup your damages they caused you by their negilence. What the tax preparers are saying when they say they are responsible, is that if they screw up they will stand behind their mistakes and make good towards you, as long as the problem wasn't based on some information you provided to them. But the IRS comes to you. The tax preparer will normally deal with the IRS to correct the mistake, and if you owe more you are still liable to the IRS and the tax preparer is liable to you for their mistake. As long as the tax preparer is admitting their mistake and willing to fork up the funds to pay the difference for their errors, then all is good. Otherwise if they make excuses trying to get out of paying anything then you have to sue the tax preparer for your damages and meanwhile you still have to settle with the IRS. They don't care your tax preparer made a mistake, you hired them, not the IRS.

[JoeB]

DID THEY FACT CHECK MY EDIT???? NO..... NOT TRUE

Yes, they did:

http://en.wikipedia.org/w/index.php?title=Capital_gains_tax_in_the_United_States&action=edit&undoafter=438303612&undo=438315605