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El Salvador ‘Legal Tender’ Move Unlikely to Change US Tax on Bitcoin: Former IRS Counsel

If El Salvador adopts Bitcoin as legal tender, the cryptocurrency won’t automatically become a foreign currency in the US.

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In brief

  • Bitcoiners preparing to claim the $200 tax exemption—granted for foreign currencies—on their Bitcoin transactions shouldn’t get their hopes up, Roger Brown, former IRS senior counsel, told Decrypt.
  • The IRS recognized Bitcoin as property in 2014, and El Salvador’s move won’t change that, thinks Brown.

As Bitcoin is poised to gain legal tender status in El Salvador, some US crypto traders and investors are wondering whether the decision comes with tax implications for them.

A viral Reddit post published on Sunday claimed Bitcoin’s legal tender status in El Salvador could have “huge US tax and reporting implications.” It argued that the move could lead the IRS to treat Bitcoin like a foreign currency, allowing a $200 tax exemption on each transaction involving Bitcoin.

Not so fast, former IRS Senior Counsel Roger Brown told Decrypt.

It’s true that an obscure tax rule—section 988(e)—allows a $200 tax exemption for gains in personal transactions involving foreign currencies—those with legal tender status in any jurisdiction. But that exemption applies strictly to currency fluctuation gains in personal transactions like buying a cup of coffee or a car, not to profit-motivated transactions like speculative trading, explained Brown, who is now global head of tax and regulatory affairs at blockchain software and data company Lukka.

There’s no similar treatment for Bitcoin at the moment because it’s not a foreign currency. As a result, when you spend your Bitcoin, say to buy a car, you pay capital gains tax—up to 37%—on the difference between how much you paid for the cryptocurrency and how much you cashed it out for.

Focusing on the $200 tax exemption for Bitcoiners, then, is mostly fruitless because the vast majority of trading and investing in Bitcoin is associated with transactions for profit instead of personal purchases.

However, there’s a bigger issue lurking, suggested Brown.

If Bitcoin were to become a foreign currency for US tax purposes, any trading or investing gains will have an “ordinary” tax character under a different part of section 988 of the tax code. That means any Bitcoin gain is taxable at the highest statutory rate for individuals—regardless of holding period. This is in contrast to the current tax treatment of Bitcoin, which gives a lower capital gains rate for assets held longer than a year.

So for most Bitcoin traders and investors, the current status of capital gains tax is more preferable because the tax rates are generally lower than they would be if Bitcoin were treated as ordinary income. Be careful what you wish for.

“El Salvador making this move is a wake-up call that elevates the question of what makes something a currency,” Brown told Decrypt.

In March 2014, the IRS issued a notice stating that cryptocurrency is property, rather than currency, for US federal income tax purposes. It also noted cryptocurrencies aren’t legal tender in any jurisdiction, which is a pre-condition of being labeled a currency by the IRS.

Brown doesn’t think the IRS would make such a sweeping change in the application of tax rules to Bitcoin transactions just because El Salvador has decided to adopt it as legal tender. Important though it may be, he said, El Salvador isn’t on the level of the European Union or another major economy.

“If more and more countries were to declare Bitcoin as legal tender, however, then the IRS would have to take a harder look at when something rises to the level of a currency for tax purposes,” he said.

But the IRS could also rule out Bitcoin as currency for tax purposes on other grounds.

According to a definition from the Financial Crimes Enforcement Network (FinCEN), one criterion of currency is that it is “customarily used and accepted as a medium of exchange in the country of issuance.”

The IRS understands money issuance in the narrow sense of printing money, according to Brown. So the El Salvadoran government mining Bitcoin en masse wouldn’t alter this requirement.

The IRS could also focus on the notion that a currency is “backed by the full faith and credit of the sovereign.” Bitcoin is neither due to its decentralized nature.

The IRS had no immediate comment as it doesn’t generally discuss hypothetical legal questions with the press. The US Treasury, which sets tax policy, couldn’t be reached for comment by press time.

The IRS takes a long time to reach tax decisions, so Bitcoiners shouldn’t expect an official announcement anytime soon. The takeaway for Bitcoin users, Brown warned, is that “seeking to claim a $200 exemption on [Bitcoin] gains may be met with an IRS challenge.”

Disclaimer

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.

Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://decrypt.co/73101/el-salvador-legal-tender-move-unlikely-to-change-us-tax-on-bitcoin-former-irs-counsel

Blockchain

Russian Billionaire Oleg Deripaska Urges Bank of Russia to Move to Bitcoin

Russia should follow El Salvador’s example and accept BTC as a payment method, asserted billionaire Oleg Deripaska.

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The Russian oligarch Oleg Deripaska blamed the Bank of Russia for its strict regulations imposed on digital assets. In his opinion, the central bank obstructs the citizens from involving in cryptocurrencies like Bitcoin.

Russia Should Add BTC As a Payment Method

One of the wealthiest Russians – Oleg Deripaska – used his Telegram account to criticize the Bank of Russia on its crypto stance. He surmised that the country should add the primary cryptocurrency as a payment method, giving an example with the Latin country of El Salvador, which already laid the foundations:

”Even poor El Salvador, known for being close to oft-mentioned Honduras, has realized the need for digital currencies and taken a simple path, recognizing Bitcoin as a means of payment.”

Furthermore, the oligarch outlined Russia’s need to execute business deals effectively with the rest of the world and urged the central bank to adopt a ”real financial instrument enabling independence in foreign trade settlements.”

Oleg Deripaska, the founder of the largest charitable foundation in Russia – Voloe Delo, was once the richest man in the country but lost the first spot after the financial crisis in 2008. The industrialist is also the founder of Basic Element. As of June 2021, Forbes estimates his wealth at $4.8 billion.

But despite his charity activities and business achievements, Deripaska caught the attention of the United States Department of the Treasury. In April 2018, the US authorities accused him of threatening the lives of business rivals, taking part in extortion and racketeering, and illegally wiretapping a government official.


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Oleg Deripaska. Source: Forbed
Oleg Deripaska. Source: Forbes

Crypto Regulation in Russia

As CryptoPotato reported, the officials in the largest country by landmass have decided to legally recognize cryptocurrencies as properties. This legislation would mean that crypto investors with exceeding transactions of 600,000 rubles ($8,184) per year must declare them in front of the authorities.

Another point of the bill would be a 13% tax on gains made from such investments. If implemented, the law will require investors who fail to disclose the necessary information to be slammed with a 10% fine of the undeclared amount.

Furthermore, the bill indicated that a severe 40% penalty would be issued to people who try to escape the stipulated tax or to those who make incomplete payments.

Even though the regulations may sound strict, the initiative would grant Russian crypto owners the right to legal protection.

Featured Image Courtesy of FT

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Source: https://cryptopotato.com/russian-billionaire-oleg-deripaska-urges-bank-of-russia-to-move-to-bitcoin/

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Blockchain

Russian Billionaire Oleg Deripaska Urges Bank of Russia to Move to Bitcoin

Russia should follow El Salvador’s example and accept BTC as a payment method, asserted billionaire Oleg Deripaska.

Published

on

The Russian oligarch Oleg Deripaska blamed the Bank of Russia for its strict regulations imposed on digital assets. In his opinion, the central bank obstructs the citizens from involving in cryptocurrencies like Bitcoin.

Russia Should Add BTC As a Payment Method

One of the wealthiest Russians – Oleg Deripaska – used his Telegram account to criticize the Bank of Russia on its crypto stance. He surmised that the country should add the primary cryptocurrency as a payment method, giving an example with the Latin country of El Salvador, which already laid the foundations:

”Even poor El Salvador, known for being close to oft-mentioned Honduras, has realized the need for digital currencies and taken a simple path, recognizing Bitcoin as a means of payment.”

Furthermore, the oligarch outlined Russia’s need to execute business deals effectively with the rest of the world and urged the central bank to adopt a ”real financial instrument enabling independence in foreign trade settlements.”

Oleg Deripaska, the founder of the largest charitable foundation in Russia – Voloe Delo, was once the richest man in the country but lost the first spot after the financial crisis in 2008. The industrialist is also the founder of Basic Element. As of June 2021, Forbes estimates his wealth at $4.8 billion.

But despite his charity activities and business achievements, Deripaska caught the attention of the United States Department of the Treasury. In April 2018, the US authorities accused him of threatening the lives of business rivals, taking part in extortion and racketeering, and illegally wiretapping a government official.


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Oleg Deripaska. Source: Forbed
Oleg Deripaska. Source: Forbes

Crypto Regulation in Russia

As CryptoPotato reported, the officials in the largest country by landmass have decided to legally recognize cryptocurrencies as properties. This legislation would mean that crypto investors with exceeding transactions of 600,000 rubles ($8,184) per year must declare them in front of the authorities.

Another point of the bill would be a 13% tax on gains made from such investments. If implemented, the law will require investors who fail to disclose the necessary information to be slammed with a 10% fine of the undeclared amount.

Furthermore, the bill indicated that a severe 40% penalty would be issued to people who try to escape the stipulated tax or to those who make incomplete payments.

Even though the regulations may sound strict, the initiative would grant Russian crypto owners the right to legal protection.

Featured Image Courtesy of FT

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Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://cryptopotato.com/russian-billionaire-oleg-deripaska-urges-bank-of-russia-to-move-to-bitcoin/

Continue Reading

Blockchain

Russian Billionaire Oleg Deripaska Urges Bank of Russia to Move to Bitcoin

Russia should follow El Salvador’s example and accept BTC as a payment method, asserted billionaire Oleg Deripaska.

Published

on

The Russian oligarch Oleg Deripaska blamed the Bank of Russia for its strict regulations imposed on digital assets. In his opinion, the central bank obstructs the citizens from involving in cryptocurrencies like Bitcoin.

Russia Should Add BTC As a Payment Method

One of the wealthiest Russians – Oleg Deripaska – used his Telegram account to criticize the Bank of Russia on its crypto stance. He surmised that the country should add the primary cryptocurrency as a payment method, giving an example with the Latin country of El Salvador, which already laid the foundations:

”Even poor El Salvador, known for being close to oft-mentioned Honduras, has realized the need for digital currencies and taken a simple path, recognizing Bitcoin as a means of payment.”

Furthermore, the oligarch outlined Russia’s need to execute business deals effectively with the rest of the world and urged the central bank to adopt a ”real financial instrument enabling independence in foreign trade settlements.”

Oleg Deripaska, the founder of the largest charitable foundation in Russia – Voloe Delo, was once the richest man in the country but lost the first spot after the financial crisis in 2008. The industrialist is also the founder of Basic Element. As of June 2021, Forbes estimates his wealth at $4.8 billion.

But despite his charity activities and business achievements, Deripaska caught the attention of the United States Department of the Treasury. In April 2018, the US authorities accused him of threatening the lives of business rivals, taking part in extortion and racketeering, and illegally wiretapping a government official.


ADVERTISEMENT
Oleg Deripaska. Source: Forbed
Oleg Deripaska. Source: Forbes

Crypto Regulation in Russia

As CryptoPotato reported, the officials in the largest country by landmass have decided to legally recognize cryptocurrencies as properties. This legislation would mean that crypto investors with exceeding transactions of 600,000 rubles ($8,184) per year must declare them in front of the authorities.

Another point of the bill would be a 13% tax on gains made from such investments. If implemented, the law will require investors who fail to disclose the necessary information to be slammed with a 10% fine of the undeclared amount.

Furthermore, the bill indicated that a severe 40% penalty would be issued to people who try to escape the stipulated tax or to those who make incomplete payments.

Even though the regulations may sound strict, the initiative would grant Russian crypto owners the right to legal protection.

Featured Image Courtesy of FT

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PrimeXBT Special Offer: Use this link to register & enter POTATO50 code to get 50% free bonus on any deposit up to 1 BTC.

You Might Also Like:


Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://cryptopotato.com/russian-billionaire-oleg-deripaska-urges-bank-of-russia-to-move-to-bitcoin/

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Blockchain

Bitcoin Volatility in July? 16K BTC Unlocking on Grayscale Coming Up

The impending unlocking of over 16,000 bitcoins through Grayscale’s trust in mid-July could bring enhanced volatility in the crypto markets.

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With the second quarter of 2021 almost done and July just around the corner, bitcoin might be headed towards a highly volatile month, and Grayscale could receive the blame. This is because one of the largest unlockings from GBTC will take place in the middle of the month as accredited investors will receive access to over $600 million worth of BTC.

Volatility in July Because of GBTC Unlocking?

Founded in 2013, Grayscale is the leading digital asset manager enabling institutional investors to receive exposure to BTC, and other cryptocurrencies, through its funds without having to worry about storing and managing their holdings.

In return, they agree to pay a specific commission and to follow precise rules. One of which dictates that their Bitcoin holdings will be locked for six months. Meaning, once they purchase GBTC shares, they would have to wait half a year before receiving the chance to realize gains.

With Grayscale’s popularity blossoming in late 2020 and early 2021, numerous accredited investors used the company’s products to purchase shares, tracking the performance of the primary cryptocurrency.

Consequently, some of them had their assets unlocked just recently, but the most substantial quantity will come on July 18th.


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As Bybt’s graph demonstrates, Grayscale customers will receive the equivalent of over 16,000 bitcoins on that date. With today’s USD prices, this sizeable amount represents nearly $650 million.

Grayscale GBTC Unlocking. Source: Bybt
Grayscale GBTC Unlocking. Source: Bybt

Although it’s debatable if all investors would decide to dispose of their assets immediately, such a considerable portion of BTC’s liquid supply could most certainly lead to enhance volatility once it’s unlocked.

Bitcoin in July

Historically, July is actually among the most bullish months for bitcoin, especially in the past few years. Apart from the year-long bear market in 2019 when BTC dipped by 6.6% in July, the cryptocurrency has spiked by double-digits in 2017, 2018, and 2020.

In fact, last year was the best-performing July since Bybt keeps data (meaning – 2013). Some experts have even argued that July 2020 was the actual start of the bull market because it was the first month deep in green after the halving.

Keeping in mind the aforementioned unlocking, this year’s July would be intriguing to follow.

Bitcoin Monthly Performance against USD. Source: Bybt
Bitcoin Monthly Performance against USD. Source: Bybt
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You Might Also Like:


Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://cryptopotato.com/bitcoin-volatility-in-july-16k-btc-unlocking-on-grayscale-coming-up/

Continue Reading
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