Crypto Currency


Many of you have been asking me what I think of this, so let’s review the latest IRS Letter Ruling, 2019-24: Although I haven’t been able to locate this in the Federal Register, maybe someone else is better at searching it than me.

The following has always been my premise on the matter and it has resulted in the Secretary of the Treasury issuing determination letters in agreement. “If you cannot pay the tax in Bitcoin, then it’s not taxable.” These are my words of course, but you can read the article and the Secretary’s response for yourself at

But let’s say I’m wrong. You would be a fool to receive any asset in your name, especially as a U.S. Citizen. This is more astounding when you realize that you have many choices of how you can receive, spend and manage these “coins”, whether or not anyone can establish ownership from an address on the blockchain. How can this revenue ruling create even just one new question in your mind?

If you receive coins through a reporting third party such as Coinbase, in your personal account, that is not taxable as we’ve already obtained written determination letters from the IRS on this point. However, why not just use a tax deferred account, such as a limited liability company or other structure? Why not use encryption (e.g. a VPN) and hard wallets or decentralized software wallets or paper wallets or even a washing service? You have so many choices, why is this even a question?

I don’t mind paying taxes, but it seems quite unreasonable that crypto-graphic currency should have this huge carrying cost in the form of paying taxes before you even sell them for the actual currency being taxed. We don’t do this for precious metals, real estate, even securities, unless some amount of dollars (USD) is paid to us because of our ownership in the property, not simply because it’s worth something in the currency being taxed. It is the government fiat currency that is being taxed, not crypto-graphic currency. But if you report the value of the crypto-graphic currency in USD, under penalties of perjury, the agency will make no distinction and you will then have created a tax obligation for yourself when you had none before you made the report. Read section 61 again, it’s quoted in the ruling and take some time to read Publication 544, You’ll note that the IRS is correct and there is nothing new.

Quoting from page 3, right column:

Amount realized. The amount you realize from a sale or exchange is the total of all the money you receive plus the fair market value (defined below) of all property or services you receive. The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage.

And since the entire 40 page publication is hypothetical, let’s talk hypothetically here for a moment. Let’s say I exchange some Bitcoin for Litecoin, what is my gain? This can never be calculated because I don’t have any data on my initial price. My Bitcoin purchase of course was not taxable, and buying Litecoin is then not taxable for the same reason, I have nothing by which to compare it. What was the price of the Litecoin I bought? It was so many Bitcoin. Give that some thought. You accountant will tell you it was so many dollars and some dude in France will tell you it was so many Euros (or Francs, whatever they are using these days). The “amount” is what you claim and in what currency you claim it. If you claim it in USD, then it is taxable, or at least reportable.

My main point is this, what if I paid 1 Bitcoin for so many Litecoins and when I exchange my Litecoins for Bitcoin, I receive 1.1 Bitcoins. Whoa! I just “realized a gain”, going by the commonly accepted rhetoric, of 0.1 Bitcoins. Let’s say I report that gain to the IRS and it becomes taxable. How do I pay the tax? Do I find some dollars from somewhere else and pay the amount of dollars that would be assessed in taxes? That’s what most people are doing. But am I required by any law to go get some dollars for that specific purpose? No.

Well then, should I pay the tax in Bitcoin? Let’s say I owe 23% of 0.1 Bitcoins, that would be .023 Bitcoins. Where do I send it? Will the IRS penalize me for making a frivolous return by paying the tax? Yes, most likely. Again, if you cannot pay the tax in Bitcoin, Bitcoin is not taxable.

What is the fair market value (FMV) of 1 USD? It’s 1 USD right?

What is the fair market value of 1 Bitcoin? It’s 1 Bitcoin right?

Let’s see if we can find agreement with the definition of fair market value in the IRS’s Publication 544 to this example.

Fair market value. Fair market value (FMV) is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither is being forced to buy or sell. If parties with adverse interests place a value on property in an arm’s-length transaction, that is strong evidence of fair mar-ket value. If there is a stated price for services, this price is treated as the fair market value un-less there is evidence to the contrary.

How much would you pay for 1 Bitcoin? I would pay 1 Bitcoin, but today, I would also pay 159.88 Litecoins as of the writing of this article. By agency standards, the fair market value of any coin is at least the same value of that coin, even though people would trade you land or securities, the fair market value of any one coin is reasonably one of the same coin.

You should be aware that there are no new laws regarding crypto-graphic currencies or any related transactions. Since the IRS defined the currency as property in 2014, this definition adopts all case law and statutes that pertain to taxing property. In other words, when you think Bitcoin, think gold. If you don’t pay taxes on gold until you sell it or dispose of it for USD, why would you pay taxes on other property?

Because crypto-graphic currency is not taxable, and to change existing laws would be too risky and possibly cause people to wake up and start thinking about this instead of cowering in fear, it appears to be much easier to use the media and revenue rulings like this to change public policy. That way, people will just pay taxes on their cryptos just because everyone else is doing it. Just like everyone is using a social security number for everything even though there is no law requiring one.

Why is the revenue ruling process being used in place of real legislative changes? Maybe because people don’t understand how this works, but can easily be fooled because they are already afraid. Here are the Internal Revenue Manual (IRM) provisions for issuing or obtaining a letter ruling.

But let’s poke some fun at the language in the ruling itself:

First, quoting, “An airdrop is a means of distributing units of a cryptocurrency to the distributed ledger addresses of multiple taxpayers.”

This is patently false in that this is not the industry definition of “airdrop” and makes wild assumptions. What do “taxpayers” have to do with ledger addresses? The statement assumes too much. When has any crypto-currency been designed for taxpayers? It should read, “An airdrop is a means of distributing units of a cryptocurrency to the distributed ledger addresses of multiple addresses.” Or, let’s use a definition from the industry itself, “An airdrop is a distribution of a cryptocurrency token or coin, usually for free, to numerous wallet addresses.” Either way, whoever owns an address is another matter entirely and it really assumes too much to believe that only U.S. Citizens are the address owners here.

Here are a couple more issues, first, receiving the ability to sell property is not taxable, by the IRS’s own rules and definitions, using gold or stock or real estate as an example. Cryptos are property, there are no new laws on this matter. Receiving the ability to sell property is not taxable because I’m not required, at any time, to sell for USD (which are taxable).

Second, how is ownership established and how is the “individual” identified. For example, someone using a paper wallet (or Exodus). In your own household for example, let’s say your friend sends you coins to your Exodus Wallet. Who has access to this wallet? Your wife? You? Your oldest son? Your brother who visits on weekends to talk cryptos? How is ownership ever established, by your I.P. address and whoever the account holder is with your ISP provider? Again, the sole purpose of this letter ruling is the same as all the other media on the subject, to trick people into believing that they need to determine the fair market value of the coins upon receiving them, then keep track of how they are used and then report on themselves at the end of the year, as if they sold their coins for USD in every example.

Quoting, “Section 61(a)(3) provides that, except as otherwise provided by law, gross income means all income from whatever source derived, including gains from dealings in property.”

In receiving Bitcoins for example, where is the gain? Where is the income? Is it in the right to sell? Can I buy groceries with the Bitcoin or can I pay federal income taxes in Bitcoin? If one has the right to sell, then he has the right to sell for anything, not just USD. So what is being taxed here, USD or cryptos or the exercise of one’s intangible property rights? Is there any tax liability at all? I don’t see it and not because I might be ignorant, I don’t see it under any rules or authorities cited by the IRS anywhere, including this letter ruling.

Let’s poke a little more. Quoting, “In general, income is ordinary unless it is gain from the sale or exchange of a capital asset or a special rule applies. See, e.g., §§ 1222, 1231, 1234A.” Is the “sale of a capital asset” similar or the same is the disposition of an asset? Where is the sale in receiving a transfer of Bitcoins? This is how the U.S. Supreme Court explains the meaning and limitations of the definition of “capital asset”, “it is evident that not everything which can be called property in the ordinary sense and which is outside the statutory exclusions qualifies as a capital asset. This Court has long held that the term ‘capital asset’ is to be construed narrowly in accordance with the purpose of Congress to afford capital-gains treatment only in situations typically involving the realization of appreciation in value accrued over a substantial period of time“, Commissioner v. Gillette Motor Transport, Inc., 364 U.S. 130 (1960). The moment I receive it, there is a tax owed? How do you calculate a rate over time when the time value is 0?

Let’s review FAQ 36

Q36. I own multiple units of one kind of virtual currency, some of which were acquired at different times and have different basis amounts. If I sell, exchange, or otherwise dispose of some units of that virtual currency, can I choose which units are deemed sold, exchanged, or otherwise disposed of?

A36. Yes. You may choose which units of virtual currency are deemed to be sold, exchanged, or otherwise disposed of if you can specifically identify which unit or units of virtual currency are involved in the transaction and substantiate your basis in those units.

This says it all. You are choosing your own tax treatment, but look at all the complex record-keeping and look at how many infinite possibilities there are for anyone involved in cryptos to be audited and assessed taxes for under-reporting. I didn’t even consider costs of attending an audit and tax court. This is a quagmire and if you continue managing your financial affairs like you always have been, while using this new technology, it will be very expensive. There is no reason to be financially eviscerated in cryptos, use the technology properly, managing your money so that you don’t receive any gains and re-allocate at the right time into your new investment portfolio.

I really don’t think we need anymore rulings or news articles or interpretations from anyone, including the IRS, before we can conclude that, once again, cryptos are not taxable until you sell them for a taxable currency (e.g. USD).

And while we’re on this subject, let’s get the heart of the matter. The statutes and “tax treatment” policies are not relevant when it comes to private property. Let’s call it what it is, crypto-graphic assets, when used by most people, are intangible private property and the rights to use these assets are solely the intangible and private property rights of the people exercising those rights. No statute that has ever been written, and no statute that will ever be written can change this.

The recent Wyoming legislation is a great example. I’ve spoken with many people this year who had the erroneous idea that Wyoming was friendly to the use of Crypto-graphic assets. The state of Wyoming (a private membership association) did not grant property rights for the use of crypto-graphic currency. Just like no state can grant a human being the right to be born or to live, no more than it can grant a tree the right to grow or grant the Earth a rotational period of 24 hours.

Even so, the recent Litecoin conference reveals that Wyoming has or is adopting a very favorable set of rules and guidance for the court system that will uniquely protect property rights for crypto-graphic currency holders. You will want to review this, The most impressive deals with establishing clear title, avoiding licensing and money transmitter requirements (competing with New York and Wall Street that is) and bailments. The state tax is nice, but it doesn’t change anything with the federal laws. My point here is that you have to decide how to manage the asset to reduce or eliminate any possible federal taxes, but for state regulatory issues, Wyoming looks very promising.

The rights that the state has claimed to have been granted already existed. Instead, what the state did was impose a lien upon (take) the rights that people already had to have, own, use or exchange their intangible private property, by classifying these rights as “intangible personal property”. Nothing has changed however, because no association, or even government, can take private property where there is no compelling or public interest. Call it what you want, write pages with words on them, publish those pages, it does not alter in any way the private property rights that people have had since recorded history. These rights are protected under the Law of Nations and cannot be taken by any private membership association such as the state of Wyoming (or any other “state”). The state legislative enactment is irrelevant, unless you lack the understanding to know the difference. Likewise, association (IRS) letter rulings are irrelevant unless you waive your rights.

Just the same, we all know that theft is illegal or unlawful. But the law prohibiting and penalizing theft does not prevent theft. The property owner must take measures to protect his own property and property rights. He must place locks on his doors, secure his passwords, have deliberate habits, store his valuables, carry weapons and encrypt not only his communications, but access to his money (i.e. crypto-graphic assets).

This is precisely the reason why crypto-graphic currency is not taxable, because it is not a creature of the state. It’s the result of people working independently of any government, independently of any government official purpose, and simply trading with each other, or improving their means of trade. In nearly every instance, the state, and I’m including any state or private association, has zero compelling interest and therefore no rights to impose a lien upon or tax the use or possession of crypto-graphic assets. However, if you can be fooled into placing a dollar value on the use of your crypto-graphic assets and then declaring that to the agency, especially under penalties of perjury, then you will have waived your rights.

Money is fire. I’ve seen it kill people and I’ve seen it bring society into the modern era. Make no mistake, crypto-graphic currency and related assets are like fire. We just discovered it, and we can use it to burn down our houses, or, we can use it to cook our food, stay warm and protect what is important to us.


John Jay Singleton

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