From: jim bell <jimbell@pacifier.com>
Date: Mon, 8 Apr 1996 14:31:54 +0800
To: cypherpunks@toad.com
Subject: Re: the cost of untracability?
Message-ID: <m0u65hy-0008ynC@pacifier.com>
MIME-Version: 1.0
Content-Type: text/plain


At 12:53 PM 4/7/96 PDT, Jim Gillogly wrote:
>
>jim bell <jimbell@pacifier.com> writes:
>>FWIW, I think that there is no capital-gains-type tax on currency 
>>conversions.  In other words, if I take dollars and buy yen today, and the 
>
>I bounced this off a CPA, who said she would be very suprised if this is
>really the case: in general the IRS considers increases in wealth to be
>taxable, and unless there's a specific exclusion for currency transactions
>that she doesn't know about, she suspects this is not the case.  As a
>conceptual counterexample she points out that you are responsible for any
>profit you make from selling your car for more than you pay for it (but,
>as you might expect, you don't get to take a loss if you sell it for less).

That assumes that there is "profit" from exchanging currencies.  On any 
given transaction, there is never any "profit."  The only thing that might 
be called a profit is a difference in exchange rates, and that really isn't 
an increase in wealth at any point.   Ask that CPA to look it up.

This makes sense:  If the currency in my pocket becomes less valuable due to 
inflation, I cannot deduct the loss.  If it becomes MORE valuable due to 
deflation, I do not need to declare the difference as income.  Currency 
transactions only generate "profits" from a change in conversion rates, 
which are simply differences in inflation rate between two currencies.  

>>interconvert rate changes and I convert back and make a "profit," that is 
>>not considered income.  If that's the case, then ecash has an excellent 
>>precedent behind it to avoid any taxes on interest, especially if that
>>interest is, in effect, paid by increasing the inherent value of the
>>currency.
>
>My tame CPA also volunteered the information that the IRS is very interested
>and concerned about how they're going to capture transaction information for
>electronic transactions, and they do think it's in their bailiwick... she's
>read some articles on it.

The answer is, "They're not!"  That's right, you heard me.  It's uphill all 
the way for the IRS.