From: Black Unicorn <unicorn@schloss.li>
Date: Tue, 9 Apr 1996 10:15:58 +0800
To: jim bell <jimbell@pacifier.com>
Subject: Re: the cost of untracability?
In-Reply-To: <m0u65hy-0008ynC@pacifier.com>
Message-ID: <Pine.SUN.3.91.960408154753.398D-100000@polaris.mindport.net>
MIME-Version: 1.0
Content-Type: text/plain


On Sun, 7 Apr 1996, jim bell wrote:

> 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.

Instead I'm going to ask the author to look up "taxable event."  Seems 
Mr. Bell now has an LL.M. in taxation.

> 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.  

This assumes that the e-cash is never converted into anything other than 
more e-cash.  It also assumes that the IRS will not assess taxes on 
currency held in a foreign denomination by converting it (theoretically) 
to U.S. currency values first.  In fact this is precisely what is done.  
If the e-cash you are holding in your pocket, or whatever, changes 
dramaticaly in value because of a change in currency rate, then that's 
profit.

If Mr. Bell's supposition were true I could make 20 million dollars 
speculating on DM or SwFr and never pay the IRS so long as I didn't 
convert the currency to U.S. denominations.

> >>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.

I hope Mr. Bell is correct in this, but the battle is not over yet.
U.S. banks will almost certainly not participate in a totally anonymous 
e-cash scheme any time in the next pair of decades.  Offshore banks will 
be the key.


---
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"In fact, had Bancroft not existed,       potestas scientiae in usu est
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