US Tax Requirements for BitGold - personal opinion.

Since opening my GoldMoney holding in 2009 I've spent many hours trying to figure out the tax requirements for U.S. citizens concerning GoldMoney (and now BitGold) accounts. I'm neither an accountant nor a lawyer, but this is what I believe to be true and am doing.

There are three areas that must be dealt with: the FBAR, Form 8938, and Capital Gains/Losses. Note: several changes have been made to the FBAR and Form 8938 in the last few years, and they may change again for 2016. So these instructions are probably only good for filing 2015 taxes.

1. FBAR (FinCEN Form 114, Report of Foreign Bank and Financial Accounts)

The FBAR is required for BitGold and Goldmoney if your account(s) exceeded $10,000 at any time during 2015. The deadline for submission is June 30th. I usually do it early in June.

GoldMoney holdings offer a way to display the maximum account value during the year. As far as I know, BitGold accounts do not, so if you're not sure you would need to rely on your monthly statements to see if you went over $10,000.

The FBAR may NOT be filed with your tax return on April 15, 2016, and it may NOT be filed through the mail on a paper form. It must be filed online by going to the BSA E-Filing System. Click the button "Report Foreign Bank and Financial Accounts (FBAR)."

References:

Report of Foreign Bank and Financial Accounts (FBAR)

2. Form 8938 (Statement of Specified Foreign Financial Assets)

Form 8938 is required for BitGold and GoldMoney, if you had at least $50,000 in your account on 12/31/15, or $75,000 at any time during 2015, if filing singly. If married filing jointly, the thresholds are $100,000 end of year, $150,000 during the year. BitGold accounts have a maximum of 2500g, which is under $100,000 at 2015 prices, so if you're married you probably didn't reach the threshold.

Form 8938 is filed by April 15th with the rest of your tax return.

References:

Form 8938
2015 Instructions for Form 8938

3. Capital Gains/Losses

All BitGold (and GoldMoney) sales/redemptions must be reported as capital gains/losses on your tax return. Since this is not a mutual fund, average cost basis may not be used, so gains & losses must be reported on a specific lot by lot basis (each individual transaction is a separate lot). The IRS assumes FIFO (First In, First Out) as the default choice for which specific lots are being sold, meaning that when a redemption takes place, it is assumed that the oldest lot or lots remaining in the account are being sold. Although I think you could use a different method (highest price first, lowest price first, last lot first, or selected order) I'm going to keep it simple and use FIFO. Whatever method you choose, I think you have to stick with it next year, at least for all lots remaining in the account from the previous year.

Gold is treated as a "Collectible" by the IRS. Short term gains/losses are taxed at your regular income tax rate - the same as selling a stock. Long term gains/losses (a year or more between the time the lot was purchased and sold) are also taxed at your regular income tax rate, but with a maximum rate of 28% (not as favorable as selling a stock, where the maximum rate is lower).

Since BitGold was first made available in the US in summer 2015, all of our 2015 transactions are short term.

If you click the "Transactions" tab at the top of your BitGold dashboard, you can set the "Date Filter" to "Previous Year," and click "Export" to download all the transactions. In the downloaded file, the "Historical Basis" column shows the basis for each transaction, with the 1% fee already included.

BitGold support has an article Understanding the tax tool application. It says "The BitGold application will provide you with a tax tool (Tax Currency setting) to calculate your yearly gains or losses from the purchases, sales, and spending transactions that have occurred within your account. … To view this application, please visit the "Settings" page on the BitGold account homepage or click HERE for more details." But there is no longer a "Settings" page on the BitGold account homepage, the link given does not mention the tax tool application, and I can't find the tax tool anywhere (yes, I've reported this to support - haven't heard back yet).

Gains and losses are reported on Form 1040, Schedule D. Your tax accountant will know what to do with the transaction list. D.Y.I. is beyond the scope of this post!

Comments

  • 79Au19779Au197 Posts: 4,047 Gold ✭✭✭✭✭
    edited February 2016
    @SpontaneousOrder

    FATCA Uses Form 8938, thus we are talking about the same three things in our two posts.

    @Melanie - comments on the "tax tool"?

    I am still willing to argue … in an intellectual sense … that the BitGold bailment service is neither bank nor financial institution in a strict interpretation of the IRS rules. But only in an intellectual sense, as I do not have the financial resources to make this a test case. However in that the IRS deems gold to be a collectible, how does this differ from having a number of collector quality cars stored in a garage in say, London or Zurich. BRINKS is neither bank nor financial institution. By Canadian law, BitGold is neither bank, nor financial institution.


    * Foreign Account Tax Compliance Act

  • 79Au19779Au197 Posts: 4,047 Gold ✭✭✭✭✭
    Reposting from the Updated Terms of Service

    1.b
    BitGold:
    BitGold is a precious metals dealer and payment service provider that assists you with making Gold payments to and receiving Gold payments from third parties. BitGold is an independent contractor for these purposes, except that BitGold acts as your agent and bailee with respect to the custody of your Gold. BitGold does not have control of, or liability for, the products or services that are paid for with the BitGold Services. BitGold does not guarantee the identity of any User or ensure that a buyer or a seller will complete a transaction.

    All Gold recorded in your BitGold Account Balance is your property: fully reserved, allocated, and redeemable pursuant to the law of bailment.

    BitGold is not a bank. The Gold held in your BitGold Account is not a deposit with us and your BitGold Account is not a bank account. Because BitGold is not a bank, the Gold is not insured by the Canada Deposit Insurance Corporation, which is only applicable to banks, which have counterparty risk and are lending institutions. You agree that you will not receive interest or other earnings on the Gold from BitGold.

    The use of the BitGold Website and BitGold Services does not constitute a trading of, or an exchange in, securities, investment contracts, or any document, instrument, or writing commonly known as a “security”, at law or otherwise.

    1.c
    Custodian: You authorise us to arrange for the storage, transportation, and insurance of your Gold. We will hold your Gold as bailee on your behalf, pursuant to a storage agreement between BitGold Vault Inc. (“BGVI”) and Brink's Canada Limited, or any other Gold vault operator selected by BitGold in its sole discretion (a "Vault Operator"). The Gold held in your BitGold Account does not constitute evidence of indebtedness or liability by BitGold to you, except to comply with instructions from you in relation to transactions initiated by you as provided for in this Agreement.
  • 79Au19779Au197 Posts: 4,047 Gold ✭✭✭✭✭
    @SpontaneousOrder

    Since the US government does not and will not classify gold as money, and instead classifies it as a "collectible", it is in the same category as baseball cards, Hummel figurines, Swarovski crystal, antiques, classic cars, etc.

    To my knowledge I am not required to report my foreign holdings of these collectibles.



  • SpontaneousOrderSpontaneousOrder Posts: 231 Bronze ✭✭✭
    The IRS FBAR Reference Guide offers some examples of what constitutes a "financial account." In addition to bank accounts, they list:

    - Securities accounts such as brokerage accounts
    - Commodity futures or options accounts
    - Mutual funds or similar pooled funds (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions)
    - and others.

    I'm no expert, but to me GoldMoney, Inc. sure looks like a financial institution, and a BitGold account sure looks like a financial account. But if you think the IRS and FINCEN will agree with your strict interpretation of their rules, then, hey, go for it and don't file. I'm not going to take that chance. The penalties for non-compliance are severe and can run into hundreds of thousands of dollars. I'd prefer a world where I wouldn't have to notify the government of the whereabouts of my savings, but GoldMoney isn't in the US, so I have to file the two forms. It is what it is.

    BTW, the tax tool is also mentioned in the recently updated BitGold Terms of Service:
    "1.h. TAX: … The BitGold Platform will provide you with a tax tool for calculating your yearly gains or losses from the purchases, sales, and spending transactions that have occurred within your account."
  • 79Au19779Au197 Posts: 4,047 Gold ✭✭✭✭✭
    edited February 2016
    @SpontaneousOrder

    Your points are well taken. Luckily for me this discussion is academic, as it will be a while at my current contribution rate before I hit the lower limit (without converting a portion of my 401k). Luckily for you it is a concern. B) I don't know about FINCEN, but I do understand your position on IRS compliance. The penalties for non-compliance are severe and the rewards for not reporting are trivial. But that is how they control us isn't it … by fear. Fear of the penalties. Fear of the IRS. Fear of the government.

    "Where the people fear the government you have tyranny. Where the government fears the people you have liberty."
    John Basil Barnhill, 1914 (often attributed to Thomas Jefferson)

    You made me smile at the line "your strict interpretation of their rules."

    Just to be clear, this is a discussion not an argument.



  • wdstk46wdstk46 Posts: 7 Tin ✭
    A "Financial Asset" is defined by U.S. law as follows:

    U.C.C. § 8-102 (9), financial asset, means:

    (i) a security;

    (ii) an obligation of a person or a share, participation, or other interest in a person or in property or an enterprise of a person, which is, or is of a type, dealt in or traded on financial markets, or which is recognized in any area in which it is issued or dealt in as a medium for investment; or

    (iii) any property that is held by a securities intermediary for another person in a securities account if the securities intermediary has expressly agreed with the other person that the property is to be treated as a financial asset under this Article. As context requires, the term means either the interest itself or the means by which a person's claim to it is evidenced, including a certificated or uncertificated security, a security certificate, or a security entitlement.

    In other word, an intangible asset. The website uslegal.com comments: "Financial assets are also known as investable assets. Unlike real estate or gold that are tangible assets, financial assets are non-physical in nature."

    The IRS states: "The objective of FATCA is the reporting of foreign financial assets..."

    Further, the IRS at https://www.irs.gov/Businesses/TypesofForeignAssetsandWhetherTheyareReportableonForm-8938 specifically EXCLUDES gold holdings. Please note at the bottom of that list "Precious Metals Held Directly"

    I am not an accountant nor am I an attorney but it seems pretty clear from both the United States Code and the IRS information for tax filers that clients of BitGold are not required to file under FATCA. If in ANY doubt, consult a professional.
  • ElectrumElectrum Posts: 43 Copper ✭✭
    Beyond the flawed logic in @SpontaneousOrder post, she is forgetting that BitGold Corp, unlike GoldMoney is a Canadian company and that Canadian companies are not subject to FATCA reporting requirements.
  • SpontaneousOrderSpontaneousOrder Posts: 231 Bronze ✭✭✭
    edited February 2016
    @wdstk46: yes, you don't have to file for "precious metals held directly." But metal in a BitGold account (or GoldMoney holding) is NOT held directly. Held directly would mean you have your own vault outside the US or something similar - that you have direct control over. You cannot directly access the gold held for you by BitGold.

    @Electrum: the U.S. government demands that all companies throughout the world comply with the U.S. financial reporting requirements. That's the way they roll. GoldMoney (the part in the British Channel Islands, before the merger with BitGold) expended a great deal of time and energy deciding whether or not to comply with all the U.S. regulations. Finally, the British Channel islands authorities decided that all financial institutions located there would need to comply, as have most other financial institutions located outside the U.S. GoldMoney contacted us, and we had to fill out various forms and submit new ID documents attesting that we were U.S. citizens and agreeing that GoldMoney could send our account info. to the U.S. government every year as required. Non - U.S. citizens had to provide proof that they were citizens of another country to escape the reporting requirements.

    If a foreign financial institution does not comply with U.S. regs., then U.S. residents are subject to a 20% (IIRC) withholding tax of all funds deposited with that institution, and again there are penalties for non-compliance.

    If you have spotted flaws in my logic, could you please be more specific, as I want to make certain I'm doing what the U.S. gov. requires.

    And BTW, I am a "he" not a "she."
  • 79Au19779Au197 Posts: 4,047 Gold ✭✭✭✭✭
    edited February 2016
    @Electrum can you provide a reference regarding "Canadian companies are not subject to FATCA reporting requirements"

    @wdstk46 the definition of "Financial Asset" you cited certainly seems to support my observations.

    @Roy Sebag you spent years establishing the legal status of BitGold within the context of Canadian bailment law. This is obvious from the detail of Section 1 of the Terms Of Service. Would you care to add your insights on the questions and comments in this thread and my original thread?
  • 79Au19779Au197 Posts: 4,047 Gold ✭✭✭✭✭
    @SpontaneousOrder

    Erring on the side of caution has rarely been a wrong decision. In this case the negative aspects of being wrong far outweigh the positive aspects of being right.

    I think that the "she" comment was based on the avatar, which could by considered gender-ambiguous.

  • rohanibuang61rohanibuang61 Posts: 2,379 Gold ✭✭✭✭✭
    @SpontaneousOrder @79Au197 @wdstk46 @Electrum As @79Au197 mentioned ""Where the people fear the government you have tyranny. Where the government fears the people you have liberty."
    John Basil Barnhill, 1914 (often attributed to Thomas Jefferson) , mind controls over citizen is on the making globally.

    If Government wrongdoings spending people money, disclosing false data and reports are none of the citizen business. so why fear as on own hard earn money is our money and furthermore most Governments are directing themselves to collapse too.
  • SpontaneousOrderSpontaneousOrder Posts: 231 Bronze ✭✭✭
    If you look at the FBAR form, Item #13 "Country/Region," Canada is listed along with all the other countries.
    The FBAR instructions make no mention of an exception for Canadian companies.
    Neither do the Form 8938 instructions.

  • SpontaneousOrderSpontaneousOrder Posts: 231 Bronze ✭✭✭
    Here are some more details about reporting capital gains for U.S. citizens (I verified this info. with my tax accountant):

    - I've heard back from BitGold support concerning the "tax tool" a.k.a. "tax application." Turns out that what this means is not an actual app or tool. It means the tax basis information provided in your selected currency on your statements and in the transaction list.

    - Since BitGold will not be providing form 1099-B, Americans must file Form 8949 Sales and Other Dispositions of Capital Assets (instructions are here) and check box (C) … transactions not reported to you on Form 1099-B. This form has a separate line for each sale, and separate sections for short term gains/losses (less than a year between purchase and sale) and long term gains/losses (more than a year). The totals from the Form 8949 are included on Form 1040, Schedule D, filed with the rest of your tax return by April 15th.

    - Since this is not a mutual fund, average cost basis may not be used. Individual lots have to be chosen for each sale.

    - Sales and purchases of gold don't necessarily match up. For instance, I could buy 10 grams (lot #1), and 13 months later buy 15 more grams (lot #2). Then a month after that sell 13 grams. On the Form 8949 that sale would need to be two separate rows: 10 grams from lot #1 in the long term section, and 3 grams from lot #2 in the short term section. 12 grams would be left over from lot #2 for the next sale.

    My accountant suggested I should make a spread sheet to list all the purchases, and color-code or otherwise record which pieces of which lots are being sold. But since I'm a retired software engineer, I often experience an uncontrollable urge to write some code when I encounter a problem like this, so maybe I'll try that instead of using Excel.

    I'm sure this all seems very annoying and stressful, especially if you've never had to report capital gains before! But actually from what I've read it's even more cryptic in some other countries (India for example). So it's just another hassle to deal with at tax time. Learn how to do it, and move on.
  • solargoldsolargold Posts: 115 Copper ✭✭
    @SpontaneousOrder
    Hopefully there will be something more instructive and user-friendly re: tax tool. See this thread:
    http://community.bitgold.com/discussion/593/where-is-the-tax-tool
  • 79Au19779Au197 Posts: 4,047 Gold ✭✭✭✭✭
    @SpontaneousOrder @solargold @Melanie @Roy Sebag

    Of course this concerns US citizens only. The following thoughts come to mind:
    1. As of now the "Payments" part of Payments and Savings in Gold is not available in the US.
    2. Once Payments do become available the tax reporting for business accounts and personal accounts may be onerous
    3. Frequent large deposits and infrequent larger redemptions will reduce the number of transactions and thus the hassle of reporting
    4. Since BitGold charges 1% in each direction fewer large transactions generate the same fees as smaller frequent transactions
    5. BitGold needs to find ways to make it easier for US customers to deal with the reporting requirements. One way is to provide deposits and redemptions by specific GAU amount in addition to specific currency amount.
    6. What are the consequences of physical gold redemption? How is this reported?

    @SpontaneousOrder if you do write code you might consider selling it. Maybe even to BitGold? B)



  • QuercusQuercus Posts: 2 Tin ✭


    3. Capital Gains/Losses

    All BitGold (and GoldMoney) sales/redemptions must be reported as capital gains/losses on your tax return. Since this is not a mutual fund, average cost basis may not be used, so gains & losses must be reported on a specific lot by lot basis (each individual transaction is a separate lot). The IRS assumes FIFO (First In, First Out) as the default choice for which specific lots are being sold, meaning that when a redemption takes place, it is assumed that the oldest lot or lots remaining in the account are being sold. Although I think you could use a different method (highest price first, lowest price first, last lot first, or selected order) I'm going to keep it simple and use FIFO. Whatever method you choose, I think you have to stick with it next year, at least for all lots remaining in the account from the previous year.


    Thanks @SpontaneousOrder for all that research.

    I'm not looking forward to figuring this out come tax time. I mean, I guess it depends on how you make your purchases and redemptions of gold. But personally, I dollar-cost average in small amounts. Now I see that may be a mistake because I will have to figure the gain for each lot if I sell.

    I really wish we could use average cost basis... but, if wishes were fishes we'd all swim in riches.
  • SpontaneousOrderSpontaneousOrder Posts: 231 Bronze ✭✭✭
    @Quercus, you're welcome. I'm a great believer in dollar cost averaging too. As I gradually convert my fiat into gold, I'm not going to let the tax issues scare me away from doing it the right way.

    It was a lot of work to set up an Excel spread sheet and enter all my old transactions, but now that I'm caught up, it only takes a minute to enter the info. for each new transaction. As long as I keep up with it and don't put it off, it's no big deal, just another chore. Instead of logging into online banking and paying a credit card bill, I open my spreadsheet and record the capital gain on the sale of gold to load my Bitgold card.

    I believe Bitgold clients in most countries have to pay capital gains tax on gold sales. It's not just in the U.S. So most of us will need to do something similar.
  • UvasUvas Posts: 650 Silver ✭✭✭✭
    @79Au197

    Just curious, what sort of evidence would you require to come to the conclusion that redeeming your gold in a bar is not a taxable event?
  • 79Au19779Au197 Posts: 4,047 Gold ✭✭✭✭✭
    edited April 2016
    @Uvas

    An official statement from the BitGold legal team, not just comments from @Roy Sebag to Peter Schiff would help.

    I believe that the pickup a 1kg bar from vault is a non-taxable event.

    I specifically recall @Roy Sebag in the Toronto Town Hall stating that physical gold redemption via Dillon Gage was the equivalent of selling your gold and buying from a dealer. For this reason I believe that any physical redemption that is NOT picking up a 1kg bar from the vault to be a taxable event.

    @Uvas please see video below at 1:08
  • M11SM11S Posts: 1 Tin ✭
    If anyone is interested in the dubious nature of the US federal tax structure, there's a book called The Federal Zone that provides a detailed analysis of who is required to pay Federal income taxes. With the premise of people being state citizens not federal citizens. Legally, the US is quite similar to the EU in that the people are citizens of their respective state not citizens of the Union. If you are at all interested in this concept I would consider reading this book.

    There's a free PDF and online copy here: http://www.supremelaw.org/fedzone11/index.htm
    And info about the author on the home page.

    Looking forward to using bitgold once these tax issues are settled!

    P.S. The IRS even seized the 6th edition! But never filed charges of fraud.
  • RocketDogRocketDog Posts: 258 Bronze ✭✭✭
    I would like to thank @79Au197 for sending me to this thread from another thread. These are interesting and frustrating discussions to be sure.

    I do think that we have had more clarification that our accounts are "Holdings" of physical gold not financial assets.
    See the more recent discussion based on a question posed by @Wackadoodle:
    community.goldmoney.com/discussion/2576/what-about-this-from-f90221-that-must-be-filed-with-the-irs-is-this-acurate#latest

    The way I understand it is that each separate vault would contain a separate "Holding". If this is true, or if a person is willing to assume it is true for their own tax reporting purposes, then a lot of creativity can be had by filling up certain holdings on certain years, maintaining each of them below the reporting limit, timing them with no withdrawls for the appropriate time (2 years?) to have long-term capital gains etc. Imagine this: having one holding that you do regular business out of (probably NY if you are USA citizen) and you spread your savings to other holdings around the world and do not withdraw it until for a long time. Maybe you withdraw it while traveling in foreign countries and it never becomes a dollar?

    Unfortunately, what the US Government is taxing us on is the devaluation of the dollar, not the increase in value of our gold. It really makes NO SENSE at all to tax it other than the government will get their claws on our property one way or another.

    Unfortunately, a lot of people will get scared and cave into the government and report things they don't need to and thereby set a precedent of reporting/filing making it harder for the holdouts to prove that the reporting is not required by law.

    I LIKE that Goldmoney does not issue that much in the way of financial reporting. They should not, because they are NOT a bank. This also helps maintain the stance that it is a physical asset, not a financial asset.

    I personally, will not assume I have to file a single thing that they don't specifically state in the tax code. There is not much else they can take from me. I understand that they can make me very uncomfortable. But I am already uncomfortable at the thought of having to work and be taxed at the speed of business (about 3 jobs worth) for the rest of my life and still have no savings to show for it.

    We need to be cool and calculated and not let our fears take this potentially great new savings and commerce tool away from us by just handing it over to the government with our own actions.
  • SpontaneousOrderSpontaneousOrder Posts: 231 Bronze ✭✭✭
    Update: since Goldmoney now has a U.S. subsidiary that has registered with FinCEN, I now believe that the FBAR and Form 8938 no longer need to be filed for Goldmoney Personal (formerly BitGold) or Business accounts - only for Goldmoney Wealth holdings.
  • canarywolfcanarywolf Posts: 10 Tin ✭
    @M11S I'm aware of the book. You can also get a passport without a SS# and declare state Citizenship (rather than federal) that way – and that is rubberstamped and ackowledged by the US Dept of State. Some are doing it. Are you a state Citizen by status? If so, I'd be curious to hear about the journey.
  • justin77justin77 Posts: 2 Tin ✭
    im new and i have only deposited around $1000. I did redeem 1 10g cube and the rest is just sitting in my account. I am assuming based on reading everything, that I do not have to worry about taxes since my amount is small and I have not sold any? Correct? TIA
  • 79Au19779Au197 Posts: 4,047 Gold ✭✭✭✭✭
    @justin77

    1) please consult your tax advisor
    2) refer to https://www.irs.gov/uac/reporting-capital-gains
    3) refer to http://finance.zacks.com/pay-taxes-selling-gold-2282.html

    One opinion voiced in the past on this forum is that redemption of a 10g gold cube does NOT constitute as taxable event. Other opinions suggest that they are. Based on the fees you have paid to redeem the gold cube, it is possible that you have incurred no capital gain. Logic suggests that no capital gain need not be reported - BUT I am not a tax lawyer.

    This link is a direct response from @Roy Sebag on the tax status of redeeming a 10g gold cube
    http://community.goldmoney.com/discussion/comment/7484/#Comment_7484
    5) So now you decide to redeem your physical interest. If you redeem a 1kg Bar or a 10 gram cube, you are redeeming a direct allocated physical interest. In other words, you didn't sell anything and there is NOT a taxable event. You have simply decided to take possession of metal which you bought and which you through the BitGold platform had been storing with Brinks. It was always your metal the moment you crossed that denomination trigger (10 grams, 1kg or 400oz).
  • justin77justin77 Posts: 2 Tin ✭
    @79Au197 Thanks for the reply! :smile:
  • Dash4CashDash4Cash Posts: 1 Tin ✭
    So just to get this straight, A US citizen that has bought gold in 2016 but has NOT redeemed it in any way, would not have to report anything to the IRS, correct?

    Thanks
  • SpontaneousOrderSpontaneousOrder Posts: 231 Bronze ✭✭✭
    @Dash4Cash I believe that to be correct.
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