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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."
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."
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.
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.
Live today, because you never know what tomorrow brings