Crypto question

[mcbreck]

Microstrategy holds $4b in Bitcoin and announced they sold some and bought some in the same week. The corporate press release says there might be some tax benefit to such a trade. How? Wouldn't wash rules wipe out any potential capital loss recognized? Am I missing something where C-corps don't have that rule?

 

They have roughly a 50% loss in their Bitcoin holdings so I'm not sure if the $4b is what they paid or what they hold. My guess is a margin clerk sold some coins on a margin call and they got a new loan and bought some back.

[mcbreck]

$4b is what they paid. Current value is $2.19b

[Pacun]

Not such an animal in crypto!  Wash sales don't exist.

[Lee B]

"The wash sale rule currently only applies to assets classified as stocks or securities and other financial instruments that are traded on organized exchanges. Cryptocurrency is classified as property by the IRS and is currently not subject to the wash sale rule. An investor in a virtual currency can sell their position to lock in a capital loss and immediately repurchase the currency without losing exposure to the cryptocurrency."

I am sure this will inspire a lot of year end transactions.

[Pacun]

Let's say someone invested 2 billions in Zec in January 2022 and they sold them in March 2022 for 4 billions.  Zec really doubled in price between January and March 2022.  Then you moved to a more "stable" coin and you purchased 4 billion in bit coin. On March 31, bit coin cost $46,000. Currently it cost about is about $16000. Needless to say that the company has less than its 2billion original investment right now. 

So if the company doesn't sell bit coin before year end, it will have a tax bill for 2 billion dollars of short term capital gains. By selling the bit coin they can have a loss in their return or they can sell just enough to pay 0 taxes. They can sell and purchase immediately after the same amount of bitcoin and be OK. 

 

[mcbreck]

Thanks - didn't have a clue that wash rules wouldn't apply. Seems odd since the SEC is looking at regulating some of them as securities.

[BulldogTom]

2 hours ago, mcbreck said:

Seems odd since the SEC is looking at regulating some of them as securities.

At the risk of being censored for political commentary.....

I think the cryptoverse wants regulation so they can peddle their risky investments and say they are complying with the regulators.   It will give a shady investment some kind of legitimacy.

Blockchain is a very interesting technology and how it gets used will be in ways I can't even imagine.   I think it is one of the coolest things humans have thought of in the last couple of decades.   

But cryptocurrencies (the offshoot of blockchain technology) are not assets or currencies or securities or property of any kind yet.   

Just my opinion, you don't have to agree.

Tom
Longview, TX

[Lee B]

Last year to my surprise, i had two clients who during 2021 bought crypto and then sold all of their crypto before the of 2021.

Fortunately, they had all of the reports that I needed to report their capital gains and losses.

Tom, would you tell a client that "crypto" isn't a "property of any kind"?

[Max W]

2 hours ago, cbslee said:

Tom, would you tell a client that "crypto" isn't a "property of any kind"?

It's Virtual Property.  

[BulldogTom]

14 hours ago, cbslee said:

Tom, would you tell a client that "crypto" isn't a "property of any kind"?

I don't know what it is.   I think I have a handle on what a NFT is, but the "coins" are not something I can't get behind yet.   Maybe someday, but right now I am not there.   The IRS seems to say it is "property of some kind", and they have some rules on how to handle transactions involving virtual stuff, so I am going to follow that.   

Tom
Longview, TX

[mcbreck]

Tracy Alloway (Bloomberg and the Odd Lots Podcast which is AMAZING) made a really good comparison of crypto with Beanie Baby dolls. Beanie Babies had someone who distributed / sold a price sheet that everyone used to price them as if it was their real value. Prices just kept going up and nobody really questioned it because it was on the list. If someone said that Beanie Baby wasn't worth $30, they could point to the list. Crypto had a price list but turned out it was all manipulated just as much as the Beanie Baby list. FTX was buying on one board and selling on another to themselves at higher and higher prices to justify getting more and more loans on their worthless asset. They bid a coin they owned almost all of up to over $50 each (total value of $9.6b) and now it's priced at $.87 ($300m) and has a value of $0.

Warren Buffet said that if you owned all of the Bitcoin in the world and offered them to him for a total price of $25 he'd decline.

[Lee B]

I don't see any difference between Crypto, Non Fungible Tokens, Stock Options or Derivatives.,

You can't see, smell, touch or hold them.

They are all numbers in a computer somewhere

[BulldogTom]

6 minutes ago, cbslee said:

I don't see any difference between Crypto, Non Fungible Tokens, Stock Options or Derivatives.,

You can't see, smell, touch or hold them.

They are all numbers in a computer somewhere

Well, I think there are differences.   Stock options grant a "right" to the holder to purchase something that is real... a specified stock that has ownership value based on the company that issued the stock.

Derivatives are similar to a exata bet on a horse race... if the horses come in as you predicted, you get paid.   If the prices of the derivative move as you predicted they would you get paid.

NFTs are identifiable computer works.   The first one was a "painting" of sorts created in a computer.  Someone created something that is "signed and numbered" and verifiable through the blockchain recording system.  No different than a numbered lithograph. 

Coins - I am still not sure what they are.

Not trying to be combative, just sharing how I am thinking when I try and bring these concepts down to my level of comprehension. 

Tom
Longview, TX

[mcbreck]

Options and Derivatives are legally binding contracts. Repos, reverse repos, swaps, commodity futures.... There are a lot of really smart people out there.

[Catherine]

One blogger stated at some point that if you cannot stand in front of it and defend it, it's not real and/or not yours. She had (still has) a point.

[Sara EA]

Years ago one of China's leaders stated that the US had gotten away from "making things" to pushing paper around.  China's leadership, for all it flaws, is noted for its no-nonsense, see-things-as-they-are approach, so it made me think.  So much wealth in this country is derived from stock options, swaps, derivatives, stock shorting, straddles, and now NFTs and cryptocurrency.  How does any of that improve anyone's life, except for those on the winning end of those trades?  Most of us have clients with brokerage statements that are dozens of pages of buys, sells, buys, sell, buy again, margins.  All this paper amounts to nothing productive.  Maybe China had a point.  Note that the country has banned crypto.

[Pacun]

China has banned crypto because they are creating their own digital yuan and don't want any competition.

On other posts we have said that our industry is shrinking because Turbo tax has gained popularity and each client they have taken, has been taken from our pools. Other free efiling platforms have also sliced our pool.  We should embrace crypto because it will save our jobs, at least for some of us.  The sooner we embrace it, the better. The genius is out of the bottle and unstoppable. In 5 years, every other person (at least) will have crypto transactions. 

I work for a company and I get paid... with something... let's call it money. I don't see it and don't touch and I don't know where it is registered... but it is registered somewhere... not the block chain.  Every other week, a transaction is registered debiting my employer's account and crediting mine. The next day, my creditors are credited and those amounts are registered somewhere. NONE of us see the money and we only know that an entry has been kept somewhere. We have been using a crypto similar "thing" for a while, correct? At least I have.

With Covid-19, I was happy I never had to touch money and preferred those registered transactions where ever they existed. 

[Lee B]

 Crypto is just like the magic elixir tonic water that carnival barkers used to sell over 100 years ago.

The Fountain of Youth and the Pot of Gold is just waiting for you to find it. 

[TexTaxToo]

Of course currencies are useful - as a medium of exchange.  The problem with cryptocurrencies is that they are being touted as an "investment".  But as someone said, there's no there there. The only way to make a profit is on the greater fool theory.  Too many people who can't afford to speculate are being lured into buying, and scams abound.

And the IRS has delayed the implementation of the reporting requirement for cryptocurrency transactions:

https://www.irs.gov/newsroom/treasury-irs-provide-transitional-guidance-for-broker-reporting-on-digital-assets

[Pacun]

39 minutes ago, TexTaxToo said:

And the IRS has delayed the implementation of the reporting requirement for cryptocurrency transactions:

https://www.irs.gov/newsroom/treasury-irs-provide-transitional-guidance-for-broker-reporting-on-digital-assets

Still taxable. Papers means nothing... you must report your gains and pay taxes on them if any.

Remember that I don't know where my bank has the database of my transactions by block chain is open to anyone who wants to see my transactions and any profits I made.  So the fact that the IRS has said to the crypto exchanges that they don't have to report to the IRS, it doesn't mean that we don't have to report gains and it doesn't mean that the records are not available to everyone.