IRS Complex Individual Issues Dept: Dinar = Capital Gains

[gridkeeper]

I found the following post of extreme interest and wanted to throw it onto the Tax Issue Pile as we explore the truth of the situation.

First of all, Yes, I will be talking to a tax attorney as soon as the Dinar RVs. Having said that:

When I read here that we were to report this currency transaction on the IRS 1040 form as 'interest income', I realized that we/I could be charged with falsifying information on IRS forms, since this is clearly NOT 'interest income'. And I wondered if the IRS Agent saying this was just trying to create problems for a whole lot of us so they would have excuse to take everything away from us. [NOTE: Where the IRS is concerned, I don't believe it is possible to be too paranoid.]

Now, if Mark or any other expert reads this, I would be interested in your opinion of this information. We can each make this call to this agent and ask. We can each pay the $1,000 and get a definitive letter on the subject, if we so desire. Or maybe we can go in as a group and pay for one letter. Lots of things are possible.

Copied from One Dinar

A Call to the IRS 03/14/2011 posted by Trac

EdwardK on Tue Mar 29, 2011 4:37 am

A Call to the IRS 03/14/2011 posted by Trac

I called the IRS yesterday with a couple of questions.

After spending approximately 15-20 minutes on hold I got to talk to a Mr. Kirk ID# 5906613. When you call 1-800-829-1040 you should ask for the Complex Individual Issues.

I spent approximately 30-40 minutes with Mr. Kirk, a very nice man of which answered my question very well.

1. The first question of number one on most of our lists which concerned just how are we to be taxed on our currency transaction. He mentioned (2) publication that he would be using to answer this question. Pub 525 and Pub 550. His first question to me was did I purchase the foreign currency using a futures contract and then also mentioned 1256 contracts. I said no contracts. I then went on to explain exactly how I purchased my foreign currency, that it was sent to me from a foreign currency dealer here in the United States via Federal Express and I paid for it using a money order. He said if my gains were less than $200 then I would not owe any taxes. I said it will be over $200 gain. He then said you will be taxed as capital gains. I asked him what the tax rate would be ? He asked me when did I purchase the currency and I told him. In my case I have held my currency for well over a year. I told him I had been told that it could possibly be regular income ? His reply was no - Capital Gains. I asked him what publication and paragraph would I use ? He lead me to Pub 525 on the internet and page 33 of that publication then had me find Foreign Currency Transactions.

I asked him so what is that Pub 550 you had mentioned ? He said that is if you purchased your currency using a futures contract. I said I did not do anything like that. He said then you will file this transaction on Schedule D - Capital Gains and Loses.

Note: I did mention what about a getting a certified letter of opinion ? He said the cost of those start at around $1000.00 - there is no need for you to have anything like that. This currency transaction you have made is simply Capital Gains.

2. My second question was on the gifting. I stated out with gifting US currency and tried to get information about the lifetime gifting increase. The $5,000,000 lifetime gifting does not come into play the way it was previously explained to me. If you wish to gift US currency either keep it under the $13,000 gift exclusion. If you gift over the $13,000 exclusion the amount over the exclusion will be deducted from your lifetime gifting of $1,000,000. The $5,000,000 does not come into play at all with this gifting even though it is included in your estate lifetime your lifetime gifting exclusion over and above the $13,000 exclusion is still $1,000,000. I used the example that if I gifted one of my childrean $15,000 how will I be taxed on it if I have not used any of my lifetime gifting. He said I would file on the $15,000 gift - then subtract the $13,000 exclusion and the $2000.00 would be deducted from my $1,000,000 lifetime exclusion. Once I have exceeded my $1,000,000 total lifetime exclusion I would have to pay gifting tax of approximately 35% for any amount gifted from that time on that was over the $13,000 gift exclusion. So I asked him when my lifetime exclusion is used up I can still gift the $13,000 per year per person without having to pay any gifting tax ? He said that is correct. But if in a years time you gift to any one person over the $13,000 exclusion you will owe a gift tax on the amount that exceeds the $13,000.

3. My third question was at what amount does the recipient of the gift has to pay any taxes on the money they receive as a gift. He was a bit of a comedian and said they would enter that amount on there tax return where they enter their Christmas gifts. I am a little slow sometimes but did not take me long - and I said so they never have to file the gift on their tax return regardless of what the amount is ? He said that is correct.

4. My fourth question was if I gift the foreign currency to my children and I will use the example of : At the time I gift the foreign currency to my children it is worth $100 but when they sell it how will they be taxed on it ? He said capital gains. So I said do I give them some kind of letter or what to show when I gave it to them and how much I paid for it. He said yes they will need a paper trail of where the money came from and what the basis was on it. I said do I need to have this notorized ? He said no - and followed with the question - Is your tax return notorized. I said no. He said the paper trail does not need to be notorized either. So I gave him another example : If I wrote a letter stating the amount of the foreign currency - the price I paid for the currency and the date that I gifted the foreign currency and attached the receipt of my purchase of the foreign currency to show I actually gave them the gift after my proof of purchase date, would that be sufficient ? He said that would be fine. I said so what tax rate would they have to pay ? He said it would depend on how long they actually held the foreign currency.

Well I thanked him sincerely for his time and information and we said goodbye.

Take this for what it is worth to you. I don't care to debate this with anyone. I am only trying to pass on my actual experience with the IRS that I had today.

If you call the IRS at 1-800-829-1040 you should ask for the Complex Individual Issues.

I believe why some are getting conflicting answers from the IRS is because they are all calling different departments and the people are experts only on those particular issues.

_________________

Continued from Trac

I have heard so many conflicting stories as to how we will be taxed on this investment. I finally decided to call the IRS myself. And you can do this too just for peace of mind if nothing else.

When you call 1-800-829-1040 you should ask for the Complex Individual Issues.

If you do get any other answers other than what I was told please mention this publication 525 and in that page 33. Foreign Currency Transactions

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

Page 33 Foreign Currency Transactions

There will be some of us with such a low income that may even not have to pay any tax on this investment. This gets far more complicated and will require you to fill out the Schedule D - Capital Gains and Losses for your individual situation.

Then you will use the Schedule D Tax Worksheet located in the Instructions for Scheduled D.

http://www.irs.gov/pub/irs-pdf/i1040sd.pdf

We will still owe whatever state tax we have on this investment too but still this is far better than paying our regular income tax rate, especially if you have been holding your dinar for more than a year.

I found one other bit of info in my research today that I wanted to share. This guy sounds very interesting. Anybody have any experience with his information?

http://cl.publicaster.com/ViewInBrowser.aspx?pubids=7889%7c6431%7c775714%7c775715&digest=/%2br1CWxzo9/ccmI98v/gTw&sysid=1

While I fully agree that we should each seek our own direct connection to a tax attorney, even they don't necessarily know everything. So having multiple sources from various experts seems the only way to truly protect ourselves.

Just my two cents on the subject.

gridkeeper

[Elixirbaby]

Well done. Thanks for your time.

Go RV

[TFK]

Very interesting read. Thanks!

I wonder if an investors group trying to get a definitive tax ruling letter from the IRS, or in my case the CRA, would be possible? But I suppose if we do become wealthy a $1k payment to be sure they won't come back later, is well worth it!

Lets all hope it will be Capital Gains. The auditors where I work, that are invested, all say Capital Gains. Lets hope so.

[Dinar_o'saurs]

All this may change...............

http://dinarvets.com...witching-sides/

Posted 07 September 2011 - 04:14 PM

WooHOoo!! (I hope.)

I was Just informed by the attorney who convinced me to do the IRS submission to begin with. The IRS has published their Priority Guidance Plan and Section 988 is now on the plan.

Before we get too excited, it is unclear if they will address the issues regarding section 988 which we need them too, but I am hopeful that this is in response (at least partially) to my submission and we will get the guidance and direction we need.

WHAT THIS MEANS?

There are a total of 317 projects the IRS has decided are priorities for giving guidance on for July 2011 through June 2012. Section 988 is one of the 317 projects. Now we have to wait and see if the guidance they give for section 988 is of any real help to Dinar investors.

Best of Blessings,

Mark

This post has been edited by ExecConsult: 07 September 2011 - 04:16 PM

Read more: http://dinarvets.com.../#ixzz1Y9K2XJy4

[Aqua Dude]

may kudos to your for this one my friend!

[streakinblue2]

Does gifting have to be with family? Why could we all not gift each other, over

and over again, and we would not owe any taxes. I would not mind exchanging

all of my profits when the Dinar explodes with someone else, or lots of other people, so we ALL do not pay taxes. We could do this exchange in ?? Hawaii ??

New Zealand ?? Maybe we should play in one of these places after gifting / receiving our profits with each other....thoughts????

GO RV !!!

[ExecConsult]

Gridkeeper - 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 Gridkeeper has put time and effort into understanding this stuff 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

[Carrello]

Thank you Grid and Mark for the information you provided that could help all of us enormously. You are both selfless in your effort to provide with the fruits of your hard work and dedicated time.

Thanks again. I will look forward to your posts in the future with any updates you may have.

Carrello

[aliciadogz]

THANKS, GOOD READ!!!!

[ExecConsult]

Does gifting have to be with family? Why could we all not gift each other, over

and over again, and we would not owe any taxes. I would not mind exchanging

all of my profits when the Dinar explodes with someone else, or lots of other people, so we ALL do not pay taxes. We could do this exchange in ?? Hawaii ??

New Zealand ?? Maybe we should play in one of these places after gifting / receiving our profits with each other....thoughts????

GO RV !!!

Gifting does not have to be with family. However, gifting does not avoid income taxes.

There are two different types of taxes being discussed here; income tax and gift tax. If you are careful you can make gifts while avoiding gift taxes. However, income taxes will still apply to someone (whoever gets income). If I give you 500,000 dinar today it is only worth about $500. Therefore, I'd owe no tax on the gift I made. However, when you receive the dinar with a "basis" of $500 and turn around and exchange it for$1.5 million later, YOU will have income so YOU will have to pay taxes on that income.

I hope that helps you understand things a little bit better.

Best of blessings,

Mark

[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