Bitcoin Makes Historic First Appearance In US Supreme Court Opinion (ccn.com)

hyperclocker shares a report from CCN: Thursday marked a historic day for bitcoin, as the flagship cryptocurrency made its first appearance in an opinion published by the U.S. Supreme Court. The case, Wisconsin Central Ltd. v. United States, did not involve bitcoin's regulatory or legal status. Rather, it examined whether employee stock options represent taxable compensation under the Railroad Retirement Tax Act of 1937.

That may seem like an unlikely place for a discussion of bitcoin to appear, however, as justices noted in both the majority and dissenting opinions, the case forced them to consider a fundamental question that has also taken on a renewed importance in the decade following the publication of the Bitcoin white paper: "What is money?" "Ultimately, the 5-4 majority ruled that employees should not be taxed for exercising stock options since the action does not constitute 'money remuneration,'" the report adds. "However, writing in a dissenting opinion, Justice Stephen Breyer argued for a 'broader understanding of money' and said that stock options should be classified as taxable compensation."

Comments

The liberal judges used an expanded definition

[Anonymous Coward]

The liberal justices all went with a more expansive definition of money.

All the better to tax you with.

Imagine that.

Re:The liberal judges used an expanded definition

[Joce640k]

There's not much point in taxing it though: Bitcoin is only going downwards.

I guess they might have some taxable income if they bought Bitcoin last December when the lunacy was at it's height. Apart from that? Nope.

Re:The liberal judges used an expanded definition

[Joce640k]

They don't need one though.

Bitcoin 'profits' will only be taxable the moment you convert Bitcoins into real money. When that happens the existing tax laws can be applied.

Hmmm

[rmdingler]

It's a bit confusing, but rest assured, corporate CEOs, that there are ways around paying income tax as long as the wording and protocol are just right.

Non-qualified stock options differ from incentive stock options in two ways. First, NSOs are offered to non-executive employees and outside directors or consultants. By contrast, ISOs are strictly reserved for employees (more specifically, executives) of the company. Secondly, nonqualified options do not receive special federal tax treatment, while incentive stock options are given favorable tax treatment because they meet specific statutory rules described by the Internal Revenue Code...

Re:Hmmm

[Anonymous Coward]

Maybe for CEOs. But for the rest of us, if you've ever been caught in the exercised non-qualified stock option trap, you'll know why they should not be called compensation. Basically the IRS expects you pay taxes even if the value has dropped below the exercise price and you sold in order to stop losses during the qualification period. You can write off the losses later, but only against a few thousand of regular income each year. Pay up now, we'll "give" you the loss later.

Re:Hmmm

[TomR teh Pirate]

No idea why your comment was modded down as you are exactly right. Back in the 90s, hundreds of Sun Microsystems were caught by this trap in which they exercised stock at their low "purchase price" of say $10/share while its fair market value was an order of magnitude greater. The taxes they owed on pieces of paper became the fair market price at time of exercise minus exercise price * number of shares. Then quite suddenly the stock crashed, the IRS came for their taxes the following April, and people who had briefly been theoretical millionaires were instead taxed like millionaires but in fact held nothing of value.

This type of stock option is called an ISO, and they were all the rage as a form of compensation in Silicon Valley, especially during the 90s through 2000s. Many lives were ruined by the taxation of a speculatively valued stock, and the only entity to truly benefit from the sky-high price of those stocks was the IRS. ISOs have since given way to RSUs as they represent a different method of taxation, but I happen to share the court's opinion that stock != money until that stock is liquidated. The value of a greenback is consistent from day to day while stocks, bitcoin, art, etc. are not.

Re:Hmmm

[Anonymous Coward]

That was not the IRS's fault, that was the fault of the morons that on exercising kept the shares. Everyone with half a brain during that period exercised and sold the shares in a single transaction, I had my share of options back then and also watch many people get burnt like you explained, but that was purely their own fault and a decision they made.

Re:Hmmm

[Anonymous Coward]

you are blaming the IRS for a greed based risk that people chose to take. maybe they were poorly informed or just stupid, but this was not some random screwing by the IRS, it was a financial risk/investment they took on themselves and lost. The IRS doesn't get to make decisions for your investment stupidity, nor do they or should they compensate you for your stupidity.

Re:Hmmm

[bloodhawk]

Tax is applied the moment you receive a benefit/payment from your employer. At that point you get to make a decision, Do I take a risk and keep the asset even though I have just incurred a tax debt or do you dispose of the asset and collect your money. those that got burnt chose poorly, though many people also hugely profited from that risk exposure. Personally I always vested my options and disposed of the shares in a single hit, no risk and take the cash. I can then if I choose repurchase the shares or more sanely distribute my exposure across many shares.

Re:Hmmm

[Anonymous Coward]

Many of my friends at VISX back in the day called me greedy when I exercised and immediately sold my stock options. They tried to hold them for the year to avoid the 33% tax rate and only have to pay around 10% well the stock tanked and some paid tax on a million dollars they never actually got.

Re:Hmmm

[Kjella]

Back in the 90s, hundreds of Sun Microsystems were caught by this trap in which they exercised stock at their low "purchase price" of say $10/share while its fair market value was an order of magnitude greater. The taxes they owed on pieces of paper became the fair market price at time of exercise minus exercise price * number of shares. Then quite suddenly the stock crashed, the IRS came for their taxes the following April, and people who had briefly been theoretical millionaires were instead taxed like millionaires but in fact held nothing of value.

1) If you know the tax bill is coming at least sell enough to pay it off while you're still a "theoretical millionaire" even if you want to speculate on the rest.
2) They could have bailed out any time in the same year and have an equally big deductible loss.

I'll admit that once you put yourself in that hole though you got a problem. The IRS will want money on your imaginary profit and you can't effectively use your unrealized loss to cover it.

Re:Hmmm

[Anonymous Coward]

That's a tax valuation problem, not directly related to consumer valuation.

Re:Hmmm

[Anonymous Coward]

No idea why your comment was modded down as you are exactly right.

probably because he seems to be excusing/downplaying the role the individual played in this loss and instead passing the responsibility onto the IRS. No one was forced to keep shares, they did it for purely greedy reasons post exercise thinking they would get even more money. It is not anyone elses problem to compensate you for bad investment decisions.

Re:Hmmm

[Anonymous Coward]

For anyone, stock isn't income until you sell it, at which point you pay taxes on it.

Re:Hmmm

[Anonymous Coward]

For anyone, stock isn't income until you sell it, at which point you pay taxes on it.

completely incorrect. When Stock is received as options or grants they are considered income at the fair market value they are received at. Hence a tax debt is incurred, the smart thing to do at that point is dispose of the shares and be taxed as income, however some try to hold on in the hope of profiting from the lower tax rates or rise in share price.

Re:The liberal judges used an gaypanded definition

[Homosexual Buttsex]

Hydroxide manager

Defining remuneration.

[Anonymous Coward]

Is it really an identity issue (medium of exchange of value), or a compensation issue (barter), because the latter isn't always the former?

Screw this noise

[rsilvergun]

had lots of AOL friends who had stock stolen from them in the 90s when the Time Warner buyout happened. A judge just gave them the middle finger. If the stock has monetary value you pay taxes on it. Hell, if I trade chickens for corn that gets taxed. Why not this?

Re:Screw this noise

[Anonymous Coward]

had lots of AOL friends who had stock stolen from them in the 90s when the Time Warner buyout happened. A judge just gave them the middle finger. If the stock has monetary value you pay taxes on it. Hell, if I trade chickens for corn that gets taxed. Why not this?

Your friends holding AOL shares did not have them "stolen." They received a one-for-one exchange of shares for a new company named AOL Time Warner.

Re:Screw this noise

[Anonymous Coward]

Remember, if the company isn't public you can still be made to pay tax on it (so you can't realize any value at all, until some possible date- and you may never realize it)

So this like trading chickens for a piece of paper that says it might be worth corn at some future date, but no promises - and likely it won't ever be exercisable. Do you think you should be taxed on the piece of paper when you get it, or when (if!) you actually receive the corn?

Quantity?

[Anonymous Coward]

How many Bitcoins did have in their wheel-barrows when they strolled in for visual effect?

I'm not going to be screwed by the IRS???????

[Anonymous Coward]

Wait - what?!?! Does this mean I'm not trapped at my startup? That I can exercise my non-qualifying founders stock and leave - WITHOUT being hit with an AMT tax bill that is double or more of my yearly salary? A bill that I have no hope to pay, so either have to stick around or walk away from my 5 years of "option comp" because of the tax?

I was always boggled by this - I couldn't afford to leave with my stock after being fully vested because on the massive tax bill I would owe on something that had no real value.

Is this true? Can anyone point to any more details? If it's true,I wonder when it will actually take effect?!?

Re:I'm not going to be screwed by the IRS???????

[Anonymous Coward]

Or does exercising screw this? And no, I have no way to sell a single share right now if I sell..

Keyi

[Anonymous Coward]

I'm a high school student. I'm trying to learn well, but the teachers are usually so tedious and uninteresting that I do not listen to half of their chatter. But recently at the lesson of computer science we have studied the digital currency. I thought that this was not like the usual boredom that we were studying, and decided to listen. They told us something about bitcoins and various crypto currency. When I came home, I thoroughly settled for studying this topic. It turned out really interesting! In search of a site for working with crypto currency using a bitcoin tumbler . This site allows you to mix even different crypto-currencies! Even me, the schoolgirl, was able to deal with this. Now I'm going to enter IT-college and, I hope, in the future I will work with the crypto currency.

All cryptocurrencies are scams

[Anonymous Coward]

Are (any) fiat-currency and (any) cryptocurrency really equivalent, as cryptocurrency fans claim?
For example, US Dollar and Bitcoin are really equals?
Value/validity/authorization of US dollar is provided/guaranteed by US Government (and in-turn whole US Public)!
Also, not to mention, US Dollars in any US Bank is insured by US Government!
What authorization/guarantee/insurance is behind Bitcoin? Nothing!
Sorry but that is the end of discussion then!

Why do you think Satoshi Nakamoto is really hiding his identity, if Bitcoin is really such a great innovation?
He is just someone does not like media/fan attention?
Or, could it be really because Bitcoin (and all cryptocurrencies followed it) are actually Ponzi Schemes?
(So he knew very well that law enforcement would come after him sooner or later?!)

If so-called cryptocurrencies are really good innovation, why they attract so many criminals/criminal activity?
Could it really be because, all cryptocurrencies themselves are scams, and that is why they attract all kinds of criminals/criminal activity?

If so-called cryptocurrencies are really currency, why no company/store can use Bitcoin as currency anymore?
Because the price of Bitcoin proved to be extremely unstable to use as a currency?
Would the result be different, if Bitcoin replaced by any other "cryptocurrency"?
Aren't all work the same way?

If so-called cryptocurrencies are really money; isn't people issuing their own money, illegal already, in all countries?
If so then, why they are still not banned in all countries?

Or, they are not actually virtual currency but virtual investment?
But, if they are actually investment, why we need/want them?
What would happen to world economy, if people invested in virtual investments, instead of real investments?

Or, all so-called cryptocurrencies are actually just a modified (made decentralized and paying variable interest) Ponzi Schemes?
(Price of cryptocurrencies would keep increasing in the long term (by their design), so it is equivalent of paying variable interest to all long term investors.)

Also, since all so-called cryptocurrencies are actually financial scams (Ponzi Schemes), that means, they cannot be the solution for any of existing financial problems of our world!

As more and more people invest in cryptocurrencies, it will become harder and harder to ban their trading everywhere (because people invested in cryptocurrencies, would try to stop anyone trying to ban cryptocurrencies)!
All cryptocurrencies need to be banned globally before it is too late!

Hm... Can I go back and re-file?

[Mike Van Pelt]

I exercised some options on pre-IPO (i.e., completely non-tradable) stock back in 2011 because I was planning to leave the company and thought it might IPO.

Alas, it did not, but the IRS considered the difference between my option price and some theoretical measure of what the CEO claimed the stock would be worth then if it were tradable to be income. Which pushed me into AMT Hell.

The company still hasn't IPOed, and its remnants seem to be circling the drain, more or less, as near as I can tell.

I'd sure like to get that money back from the IRS. (Yeah, like getting a steak back from a pit bull...)