(Dinar Recaps Note: This post is for informational purposes only. It is not legal, tax or investment advice. Dinar Recaps advises that everyone should do their own due diligence and seek local Professional tax, legal and/or investment advisers.)
The question of Tax on Capital Gains still pops up and brings good discussion:
IRONMAN CONTRIBUTES INFO :
Since I don't have high up contacts all over the world I usually just keep my mouth shut and lurk.
But when a guru continues to spread information based on erroneously cited material I have to jump in.
Executive order 13303, signed by President George W. Bush on May 22, 2003, is said to be the document which allows us to purchase IQD, and one guru in particular continues to point to it when they claim that this is an investment "because it says 'investment' in it", and we will be subject to taxation as a Capital Gain.
No. It does not. No. We will not.
Read More Link On Right
The word 'investment' is not found in it anywhere, and this Executive Order has nothing to do with the currency of Iraq; the IQD. This is specifically referring to the "Development Fund for Iraq" pursuant to the responsibilities of the United States as Trustee of the Fund and our obligation to safe-guard it while they remain under sanction, to prevent their creditors from looting the Fund and their petroleum and petroleum products.
The citizens of our country may purchase/sell or hold many of the foreign currencies which the Treasury also holds either as a hedge or as collateral. If the Treasury approves it, then banks can sell it, and you can buy it and wallpaper your house with it if you want to.
In most cases we hope to EXCHANGE the foreign currency we have for our own local currency and would very much like to make a profit. If our exchange nets more than $300 USD then the financial institution which performed the exchange is responsible for completing a FinCen form 104 and forwarding that to the Dept. of the Treasury.
The IRS rules for what constitutes a Capital Gain are quite specific and unless you meet those criteria you will not be subjected to taxation under those rules. Just because you made a large profit does not mean it qualifies as a Capital Gain.
Normally that would require you to be a licensed broker/trader who routinely buys/sells foreign currency, particularly as part of a managed fund, or to be invested in such a fund and realize dividends from it.. The fact that this issue is still being discussed tells me that some of you are not doing your homework and have not talked to a CPA.
Furthermore, no President has the authority to impose any tax on any person or group regardless what any Executive Order says. Only Congress has authority to lay and collect taxes, and we all know how slowly they work! So let's take the whole notion of them springing a new tax on us at the last minute and nip it in the bud shall we?
THE DEBATE BEGINS - BLISTER REPLIES & CONTRIBUTES INFO :
To the issue of 13303 I would say you are correct, but I think there is more than meets the eye in this matter & believe accuracy is important. I love the gurus, but take exception to the claim by some that EO 13303 speaks of investment and therefore makes this a taxable event.
After close review tonight, I don't find any evidence of that whatsoever & have not only read the original document of EO 13303 twice, but have included the official document link for your own examination here (maybe I missed something):
The only talk of "financial instruments" (like currency) that I see in 13303 is regarding the sale or marketing of Iraq's petroleum or petroleum products. This would clearly appear to exclude us as simply purchasing IQD in the USA in simple, personal speculation. Nothing about this being an investment.
Furthermore, in Barack Obama's EO13303 extension, there is no wording about investment as such whatsoever. That can be found online elsewhere and I won't post that here.
BUT... Having said that (and not to be a wet blanket), there is a nagging, clearly written document by the IRS called
'2011 Publication 525'.
The issue appears to be clearly covered on page 33, dead-center of the page under a heading titled:
"Foreign Currency Transactions"
Here is the link:
To save some the effort, here is the text for your convenience:
"Foreign currency transactions. If you have a gain on a personal foreign currency transaction because of changes in exchange rates, you do not have to include that gain in your income unless it is more than $200. If the gain is more than $200, report it as a capital gain."
A typical example might be a traveler who converted foreign currency back to the USD after travel abroad and realizing a profit for doing so. So why wouldn't this pertain to us?
I hope I hear rock-solid, certifiable reasons otherwise that I can take to the bank. (literally!)
But back to this, then the capital gain protocols would come into play (either 15%, or 35%) and you would likely include that on your yearly tax filing. Remember, this is a personal gain, not considered one by Forex investors who professionally trade; therefore no different than other capital gains an individual might encounter who files yearly.
Admittedly, I am neither a tax advisory person, nor a tax attorney... but I can read & it appears to be pretty plain English.
Perhaps the IRS will grant either an exception, or at least leniency in levying a flat 15% tax for all regarding this venture. But I'm mentally preparing for worst-case scenario and giving thanks for what we have remaining; and if we end up keeping more than that after meeting with our Domestic & International Tax attorney I will give thanks again.
Don't misunderstand me- I would love it if this were a non-taxable event, and a few gurus have stated that in their experience with "foreign currency plays", they were non-taxable. I certainly hope they are correct regarding our IQD interest.
But I wouldn't be surprised if the IRS exploits some measure, especially one clearly established as in Publication 525, in getting a piece of the pie, IT'S WHAT THEY DO. IMHO, YMMV, etc
IRONMAN REPLIES & DEFINES:
You are beginning to get the picture Blinkster. Notice though in IRS Pub 525 it says "a gain on a personal foreign currency transaction". It does not say Capital Gain (BIG difference between the 'C' and the 'c').
The qualifier of whether it is a Capital gain is not how much money was made on the transaction, but rather what the initiating instrument was. The transaction must have originated with an investment in a Capital Asset; real estate, stocks, bonds and the like.
Currency is not considered Capital nor an asset. Proceeds from "a gain on a personal foreign currency transaction" may be considered personal income and taxed as such if you are a taxpayer who files, but does not qualify for any Capital Gains tax, which is entirely different than claiming it as a capital gain.
As a rule when considering tax implications it does not matter how much was made, but the origin of the transaction and the rules governing those types of Investment.
A purchase of foreign currency by an individual is not an Investment because it is not an asset, not Capital, and not a Qualified Fund of which all or part of the gain realized was the result of foreign currency trading.
Purchase of foreign currency by the general public is pure speculation. Just like the lotto. You might get lucky - you might not. Just because you bought into the 'Dinar hype' and stocked up on box-loads of the pretty pink paper does not make it an Investment. You have invested in your future, but not in an Investment.
Even if the CBI revalues thier currency tomorrow and you have the opportunity to EXCHANGE it for USD and make a profit it is still not an Investment and does not qualify as an asset or Capital exchange.
SLOUCH ASKS QUESTION:
We do, however, pay state taxes on lottery winnings, which brings me to another question...
Has anyone considered whether taxes at the state level would apply?
I'm guessing that they would.
IRONMAN ANSWERS & SAYS:
That question has been asked many times in the past year Slouch. And as always the answer is...ask a licensed financial professional in your area.
My example only shows that both are speculative ways to spend your money and neither are Qualified Investments. Other than that they are apples and oranges.
Lottery winnings are still considered gambling proceeds which are taxed Federally. As the program is run by the State they have a vested interest in winning, and will set up tax schedules accordingly.
HOWEVER: Once again you must return to the question of how do you file? Even in states which tax personal income, gambling proceeds are not taxed at a flat rate - it is based on how YOU file. As an individual? As an LLC? As a Trust? How the proceeds are taxed is determined by which entity actually claimed the prize.
The physical purchase of foreign currency by individuals is not regulated by the SEC or any State authority that I am aware of, and besides the Fincen 104 there is no reporting of an exchange other than what you file.
BOTTOM LINE: INDIVIDUAL DUE DILIGENCE WITH TRUSTED QUALIFIED PROFESSIONAL !!