Capital Gains or Income?

[Venture Capitalist]

Hi...this is my first post, but I have been reading and learning from this forum for quite some time. I thank all of you for the valuable information I have gleaned from your many posts. This is the first time I have been involved with major cash currency exchange, however, it is my understanding that buying dinar and then later exchanging it for dollars is reportable as income at the rate at which you exchange it, minus your original purchase price.

For instance, if I purchased 1 Million NID for US $800, and then later it hit 1:1 and I exchanged it, I would make a profit of US $999,200. I would have to report an income to the IRS of $999,200 for that year. There are no rules regarding keeping it as an investment for over a year in order to have long-term capital gains (15%) vs. short-term capital gains (33%). It doesn't matter how long you have had it, three days or three years, it is considered a "cash transaction" and not an "investment" by definition.

I am NOT stating this as fact...it is just my understanding based on what I read on the IRS website and from talking to a few others. Has anyone else thought about this or received more definitive information? I am hoping someone much smarter than me will know for sure. Any thoughts?

Thanks, VC

[hilljack13]

Hi...this is my first post, but I have been reading and learning from this forum for quite some time. I thank all of you for the valuable information I have gleaned from your many posts. This is the first time I have been involved with major cash currency exchange, however, it is my understanding that buying dinar and then later exchanging it for dollars is reportable as income at the rate at which you exchange it, minus your original purchase price.

For instance, if I purchased 1 Million NID for US $800, and then later it hit 1:1 and I exchanged it, I would make a profit of US $999,200. I would have to report an income to the IRS of $999,200 for that year. There are no rules regarding keeping it as an investment for over a year in order to have long-term capital gains (15%) vs. short-term capital gains (33%). It doesn't matter how long you have had it, three days or three years, it is considered a "cash transaction" and not an "investment" by definition.

I am NOT stating this as fact...it is just my understanding based on what I read on the IRS website and from talking to a few others. Has anyone else thought about this or received more definitive information? I am hoping someone much smarter than me will know for sure. Any thoughts?

Thanks, VC

There are several post about this debate...but you should find it will be reported as a capital gains tax. Foreign currency exchange that you get more than $200 back (or gain) will be capital gains. It is listed in one of the IRS pubs and posted on here somewhere...I will look for it.

[CaddieMan]

There are several post about this debate...but you should find it will be reported as a capital gains tax. Foreign currency exchange that you get more than $200 back (or gain) will be capital gains. It is listed in one of the IRS pubs and posted on here somewhere...I will look for it.

This is funny that this came up. I went to see my CPA just yesterday and we talked about my taxes coming up in 2006.(I always go in early because all the weird deductions you can take off by living on the road) Anyway the reason why I use this CPA is because he is very good at knowing all the strange deductions one can have. He saved me $4500 the first year I used him. I asked him on this trip about the Iraq dinar and how I heard that it would be a short term capital gain. He said it would have to be taxed as income at a % determinant on how much you cashed out in that year I think anything over $350,000 is 33% tax rate.

[v1rotv2]

It is only treated at the income rate for the first year. After that it is a long term capitol gain at the 15% rate. If you have held the dinar for more than 12 months you owe only 15% minus the original investment. The clock starts when you purchase the dinar and ends when you convert. The beauty is that you control the clock.

[CaddieMan]

It is only treated at the income rate for the first year. After that it is a long term capitol gain at the 15% rate. If you have held the dinar for more than 12 months you owe only 15% minus the original investment. The clock starts when you purchase the dinar and ends when you convert. The beauty is that you control the clock.

Where did you get your info?

[Bishop]

It is only treated at the income rate for the first year. After that it is a long term capitol gain at the 15% rate. If you have held the dinar for more than 12 months you owe only 15% minus the original investment. The clock starts when you purchase the dinar and ends when you convert. The beauty is that you control the clock.

how would the irs know how long we've had the dinar in our hands?

[Javabear]

how would the irs know how long we've had the dinar in our hands?

With the IRS the burden of proof is on the taxpayer. If they ask for proof of long term capital gains, you must be able to show it. If not they could say that you bought your dinar yesterday.

[investorino]

With the IRS the burden of proof is on the taxpayer. If they ask for proof of long term capital gains, you must be able to show it. If not they could say that you bought your dinar yesterday.

...yes but so could you two days after the R/V. Therefore you wouldnt be liable for any CG - this would work in your favour.

:D

[Bishop]

With the IRS the burden of proof is on the taxpayer. If they ask for proof of long term capital gains, you must be able to show it. If not they could say that you bought your dinar yesterday.

thx for the info!

[Javabear]

...yes but so could you two days after the R/V. Therefore you wouldnt be liable for any CG - this would work in your favour.

:D

What is your basis for that? We are talking US tax law here.

[Steverenos]

I have been looking into this and found this -

Article submission by Robert A. Green, CPA, to Futures magazine for the April 2004 issue.

Currency traders face complexities and nuances come tax time. Currency futures are treated like other types of futures; your accounting is a snap and you enjoy lower 60/40 blended tax rates. However, cash forex can be an accounting nightmare and you face higher ordinary tax rates unless you “elect out” of IRC 988 for 60/40 treatment. Click here (http://www.greencompany.com/EducationCenter/GTTRecCurrency.shtml#futuresmag) to read the entire article.

http://www.greencompany.com/EducationCenter/GTTRecCurrency.shtml

This might help - but always get your own advise from a trusted source, there is alot of opinions floating out there - I say pay your fair (FAIR) share and enjoy the rest.

[Steverenos]

Also don't forget you just can't open an account in a foreign country and not report it.

Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1)
Form TD F 90-22.1 (http://www.irs.gov/app/scripts/exit.jsp?dest=http%3A%2F%2Fwww.fincen.gov%2Ff9022-1.pdf) must be filed if you had any financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country. You do not have to file the report if the assets are with a U.S. military banking facility operated by a U.S. financial institution or if the combined assets in the account(s) are $10,000 or less during the entire year.
You must file this form by June 30 each year with the Department of the Treasury at the address shown on the form. Form TD F 90-22.1 is not a tax return, so do not attach it to your Form 1040.
In addition, you may be liable for filing Form 3520 or Form 3520-A if you made contributions to or received income from a foreign trust or received a gift from a foreign person.

http://www.irs.gov/businesses/small/international/article/0,,id=96796,00.html

Not trying to rain on anyones parade; just providing info do with what you will - But it seems to me the IRS has you coming and going - It would make sense to minimize the dollar amounts you pay to them, Maybe form a LLC, or Small corporation and log the transactions under you corporate veil.

[bloptaptap]

how can you prove when you purchased the dinar? i dont get a receipt

[Javabear]

I have been looking into this and found this -

Article submission by Robert A. Green, CPA, to Futures magazine for the April 2004 issue.

Currency traders face complexities and nuances come tax time. Currency futures are treated like other types of futures; your accounting is a snap and you enjoy lower 60/40 blended tax rates. However, cash forex can be an accounting nightmare and you face higher ordinary tax rates unless you “elect out” of IRC 988 for 60/40 treatment. Click here (http://www.greencompany.com/EducationCenter/GTTRecCurrency.shtml#futuresmag) to read the entire article.

http://www.greencompany.com/EducationCenter/GTTRecCurrency.shtml

This might help - but always get your own advise from a trusted source, there is alot of opinions floating out there - I say pay your fair (FAIR) share and enjoy the rest.

This is for Forex traders where they never get long term periods.

[Javabear]

how can you prove when you purchased the dinar? i dont get a receipt

I'm hoping my passport stamps will be enough. People in the military might need a copy of their orders or something to document that they were in-country.

[investorino]

What is your basis for that? We are talking US tax law here.

Basis really is proof - and it doesnt matter if its us tax law or UK - who is going to prove when you purchased your dinar? How will the IRS or the Inland Revenue going to know whether you bought your dinar before the R/V or after???

What is to stop you from saying I bought my dinars after the R/V? Okay we all know we bought ours before any R/V but how will the taxman know? Therefore how can it be classed as income or capital gains if there is no proof either way?

Okay I agree chances are we are all gonna get screwed either way, but its going to be interesting to see exactly how they handle the situation, and until there is a firm precedent, and I will try to look into exactly what happened with the Kuwaiti dinar, Afghan currency etc for one, we will not know either way.

So the question is :

What happened when the Kuwaiti dinar R/V - did any foreign investors get screwed for income or CG tax then?

[Steverenos]

True but if you look to the Internal revenue code ...

(e) Application to individuals

(1) In general

The preceding provisions of this section shall not apply to any
section 988 transaction entered into by an individual which is a
personal transaction.

(2) Exclusion for certain personal transactions

If--
(A) nonfunctional currency is disposed of by an individual
in any transaction, and
(B) such transaction is a personal transaction,

no gain shall be recognized for purposes of this subtitle by reason
of changes in exchange rates after such currency was acquired by
such individual and before such disposition. The preceding sentence
shall not apply if the gain which would otherwise be recognized on
the transaction exceeds $200.

(3) Personal transactions

For purposes of this subsection, the term ``personal
transaction'' means any transaction entered into by an individual,
except that such term shall not include any transaction to the
extent that expenses properly allocable to such transaction meet the
requirements of--
(A) section 162 (other than traveling expenses described in
subsection (a)(2) thereof), or
(B) section 212 (other than that part of section 212 dealing
with expenses incurred in connection with taxes).
http://frwebgate1.access.gpo.gov/cgi-bin/waisgate.cgi?WAISdocID=890188369867+13+0+0&WAISaction=retrieve

It talks about both sec 988 and sec 1256 and personal foreign currency transactions.

Talk to your CPA about the end results of each. No matter how you slice it, the IRS still gets a cut.

[trusty]

If I have a bank account at Warka and there is a RV..it's not a capital gain until I convert it to USD account...right?

What I am getting at is... the 1 yr LTCG would be from time I acquired the IQD until I converted it back to USD. If you needed a few more months to finish year leave it in the dinar account. The fact that it RVed isn't relevant until it is converted back to USD...right?

I don't know I am just asking?

HELP

Trusty

[hilljack13]

If I have a bank account at Warka and there is a RV..it's not a capital gain until I convert it to USD account...right?

What I am getting at is... the 1 yr LTCG would be from time I acquired the IQD until I converted it back to USD. If you needed a few more months to finish year leave it in the dinar account. The fact that it RVed isn't relevant until it is converted back to USD...right?

I don't know I am just asking?

HELP

Trusty

I would also like to know that if it is converted back to USD but still in Iraq is it taxed? Is it taxed only when it is brought back to the US????

[CaddieMan]

Ok boys and girls if you cash in up to $326,450.00 you will be paying 33% in fed taxes in the U.S. and another 5 to 7% for state Period! Trust me the government will get theirs ( or get you it is your choice ) The government will consider it INCOME for that year that you cash out.

Now that being said there are always around tax laws that are legal. Pay the money and get a good CPA. he will save you thousands!!!!!!!!

[v1rotv2]

The evidence of date of purchase can be as simple as a log entry or journal. In my case I have my personal log book and a copy of my company's schedule showing my travel dates, times and places. It is hard sometimes getting receipts or receipts with dates. I can show that I traveled to a country where the dinar is traded and what dates I did. Many of my fellow pilots are doing logs or journals. At the KWI airport, the money exchanger gives a piece of paper with just the USD, rate and the total dinars, no date.

If you can show, reasonably the date or dates you purchased the dinars you have very gound ground on which to stand. My advise, for those that do not recieve receipts for thier purchase, start a log showing what, when, how and from whom you made your purchases.

[hilljack13]

Ok boys and girls if you cash in up to $326,450.00 you will be paying 33% in fed taxes in the U.S. and another 5 to 7% for state Period! Trust me the government will get theirs ( or get you it is your choice ) The government will consider it INCOME for that year that you cash out.

Now that being said there are always around tax laws that are legal. Pay the money and get a good CPA. he will save you thousands!!!!!!!!

Where does 33% come from? According to the IRS the max is 28%

[v1rotv2]

The short term tax rate mirrors the ordinary income rate. If you have a short term capitol gain and ordinary income that totals the amounts that require 28% tax rate thats what you will pay. If the total of both is equal to the amount of the 35% tax bracket that is what you will pay.

[Javabear]

Basis really is proof - and it doesnt matter if its us tax law or UK - who is going to prove when you purchased your dinar? How will the IRS or the Inland Revenue going to know whether you bought your dinar before the R/V or after???

What is to stop you from saying I bought my dinars after the R/V? Okay we all know we bought ours before any R/V but how will the taxman know? Therefore how can it be classed as income or capital gains if there is no proof either way?

Okay I agree chances are we are all gonna get screwed either way, but its going to be interesting to see exactly how they handle the situation, and until there is a firm precedent, and I will try to look into exactly what happened with the Kuwaiti dinar, Afghan currency etc for one, we will not know either way.

So the question is :

What happened when the Kuwaiti dinar R/V - did any foreign investors get screwed for income or CG tax then?

Ok, let's say you show up to your local tax office for your audit and you say "No, I didn't report gains on Iraqi Dinar because I bought it for personal use after the r/v." The auditor then says "Ok, show me where you got $5 million USD in cash to buy it with." Then while you're busy tripping over yourself trying to come up with an answer he initiates a complete audit to determine whether to charge you with tax evasion or money laundering.:shhh:

[emile]

why don't you just cash in small amounts at a time. in the uk you can cash in upto 10k and only need to show id. therefore get a few people to go round and cash in a bit at a time. also if you buy nid for personal use then it's not taxed if it happens to gain in value as you didn't buy it as an investment.

[investorino]

Ok, let's say you show up to your local tax office for your audit and you say "No, I didn't report gains on Iraqi Dinar because I bought it for personal use after the r/v." The auditor then says "Ok, show me where you got $5 million USD in cash to buy it with." Then while you're busy tripping over yourself trying to come up with an answer he initiates a complete audit to determine whether to charge you with tax evasion or money laundering.:shhh:


okay, so heres the plan:

take out a $5mil loan using the dinar as equity, pay back the loan early - the bank/loan co. makes money through early payment penalty. If taxman asks where have you got this money from - you say a loan - and you have loan documents to prove it.

Taxman should not be interested whether the loan is subsequently paid back or not - and there you go, tax evasion 101.

disclaimer:
Well, I would NOT recommend anyone really do this,:no: unless of course a taxman says this is a good idea;) , I am, like many of us clutching at straws.

I'm pretty sure were all gonna get stung, but there must be some way of getting round the tax issue - I for one see the Iraqi property market booming in the next 10yrs - recent news stating that affordable housing projects are being implemented fuel my expectations, so my real plan? Cash out some dinar, leave the rest in Warka - wire money to a reputable real estate co. to manage a property portfolio -BUY TO LET - once the economic/political situation has stabilised the free market economy will take off so fast that it will eclipse Croatia. Remember Croatia? War ravaged 10yrs ago, the property market is now booming. Remember Germany post WWII hyperinflation - the people who kept their wealth had it in property rather than the wheelbarrows of cash.

So how about a new slant on this - how do we stand on tax if we reinvest the newly revalued currency in something else rather than convert it?

[investorino]

why don't you just cash in small amounts at a time. in the uk you can cash in upto 10k and only need to show id. therefore get a few people to go round and cash in a bit at a time. also if you buy nid for personal use then it's not taxed if it happens to gain in value as you didn't buy it as an investment.

I agree, but I also think that the UK banks will become more regulated when the penny drops Gord could make a mint. There is however nothing to stop us roadtripping round European banks willing to give us large amounts of £cash. It all depends on 1.max conversion of each bank, 2. whether the bank is obliged to report certain transactions. So if the bank asks you for your name and address "for reference purposes" chances are its to inform that taxman.

[hilljack13]

why don't you just cash in small amounts at a time. in the uk you can cash in upto 10k and only need to show id. therefore get a few people to go round and cash in a bit at a time. also if you buy nid for personal use then it's not taxed if it happens to gain in value as you didn't buy it as an investment.

To bad you cant buy it for personal use in the USA. And if we get a good r/v its gonna be really hard to pull out 10k at a time with 1-2 mil sitting in a bank...gonna take a while too...we are greedy people:D

[trusty]

Couple of questions:

1. If I have a bank account at Warka and there is a RV..it's not a capital gain until I convert it to USD account...right?


What I am getting at is... the 1 yr LTCG would be from time I acquired the IQD until I converted it back to USD. If you needed a few more months to finish year leave it in the dinar account. The fact that it RVed isn't relevant until it is converted back to USD...right?

2. Even If I converted the RVed dinars back to USD and left it in Iraq would it be taxable?

I don't know I am just asking?

HELP


Trusty

[Javabear]

Couple of questions:

1. If I have a bank account at Warka and there is a RV..it's not a capital gain until I convert it to USD account...right?


What I am getting at is... the 1 yr LTCG would be from time I acquired the IQD until I converted it back to USD. If you needed a few more months to finish year leave it in the dinar account. The fact that it RVed isn't relevant until it is converted back to USD...right?

2. Even If I converted the RVed dinars back to USD and left it in Iraq would it be taxable?

I don't know I am just asking?

HELP


Trusty

1. The gain is not taxable until you "realize" it. When you convert from NID to USD to have realized the gain.

2. Even if the money is still in Iraq it is taxable by the IRS.

[v1rotv2]

Couple of questions:

1. If I have a bank account at Warka and there is a RV..it's not a capital gain until I convert it to USD account...right?


What I am getting at is... the 1 yr LTCG would be from time I acquired the IQD until I converted it back to USD. If you needed a few more months to finish year leave it in the dinar account. The fact that it RVed isn't relevant until it is converted back to USD...right?

2. Even If I converted the RVed dinars back to USD and left it in Iraq would it be taxable?

I don't know I am just asking?

HELP


Trusty

Not until you convert the funds into USD do you occur capitol gains, on that point you are correct. However, it makes no difference where you convert just that you do. So yes you would be responsible for short term gains even if you left the funds abroad. You are suppose to report.

[v1rotv2]

Javabear, you are correct. It does not matter where you convert just that you do.

[trusty]

1. The gain is not taxable until you "realize" it. When you convert from NID to USD to have realized the gain.

2. Even if the money is still in Iraq it is taxable by the IRS.

Thanks Javabear for responding.
One remaining question:

After the RV, in your opinion, could I leave it in IQD account to complete the 366 day, to take advantage of LTCG, before converting to USD?

Trusty

[Javabear]

Thanks Javabear for responding.
One remaining question:

After the RV, in your opinion, could I leave it in IQD account to complete the 366 day, to take advantage of LTCG, before converting to USD?

Trusty

That's the beauty of the whole thing. You control the calendar. As long as you don't convert before a year and a day is passed you are eligible for LTCG.

[CaddieMan]

Thanks Javabear for responding.
One remaining question:

After the RV, in your opinion, could I leave it in IQD account to complete the 366 day, to take advantage of LTCG, before converting to USD?

Trusty

You guys are not learning Long term..........Short term it does not matter! It will be considered income

TAX RATE 2005
0.............................14,600 10%
14,600......................59,400 15%
59,400......................119,950 25%
119,950....................182,800 28%
182,800....................326,450 33%
326,450.....................AND UP 35%

TAX RATE 2006
0..............................15,100 10%
15,100.......................61,300 15%
61,300.......................123,700 25%
123,700.....................188,450 28%
188,450.....................336,550 33%
336,550.....................AND UP 35%

[hilljack13]

You guys are not learning Long term..........Short term it does not matter! It will be considered income

TAX RATE 2005
0.............................14,600 10%
14,600......................59,400 15%
59,400......................119,950 25%
119,950....................182,800 28%
182,800....................326,450 33%
326,450.....................AND UP 35%

TAX RATE 2006
0..............................15,100 10%
15,100.......................61,300 15%
61,300.......................123,700 25%
123,700.....................188,450 28%
188,450.....................336,550 33%
336,550.....................AND UP 35%

Not trying to start an argument but i dont think its gonna be income at all, It has been posted and according to the IRS its still a capital gain and it is to be reported that way. Unless i am missing something and capital gain is considered income.

[hilljack13]

1. The gain is not taxable until you "realize" it. When you convert from NID to USD to have realized the gain.

2. Even if the money is still in Iraq it is taxable by the IRS.

So if its up to me when I "realize" its a gain then when the r/v comes along, i email warka and say put the money back into my USD account. If I dont ask how much they put in and they dont tell then when do you "realize" its a gain..Report now what you have in USD before the r/v then after a year has passed and you have to report again then you check and thats when you realize you have a gain, thus the lesser tax. :confused: :confused: :confused:
(I think its a good thought anyway)

[lonelyintexas]

I talked with the IRS today and asked this question since it is being discussed.
She related to me that it is in fact considered as a capital gain. So the rules
apply to just whether it is short or long term considering how long you hold the dinar before converting. Hope this helps.
:wave:

[Pip]

FYI, you are only required to report foreign bank accounts that hold amounts of greater than an equivalent of 10,000 USD. Also, the interest is taxable (in any foreign-held account).

[dreamscometrue]

I talked with the IRS today and asked this question since it is being discussed.
She related to me that it is in fact considered as a capital gain. So the rules
apply to just whether it is short or long term considering how long you hold the dinar before converting. Hope this helps.

Thanks ! I was Thinking of doing that myself it may not be a cpa but gives a preety good idea of some options that are possible.

[MunnyBaggs]

how can you prove when you purchased the dinar? i dont get a receipt

Keep all records of your transactions. Keep e-mails exchaned, any e-bay transaction numbers, envelopes, bill of sales, receipts, etc. Anything involved with the transaction should be kept.

[red42]

It is capital gains...

If held less than a year it is capital gains but taxed as income

proof of purchase is the problem

[hilljack13]

It is capital gains...

If held less than a year it is capital gains but taxed as income

proof of purchase is the problem

if its held under one year it is taxed as short term capital gains at a maximum of 28%. please provide a link showing that it is taxed as income.

[red42]

Capital Asset

http://www.turbotax.com/articles/FAQonCapitalGains.html?source=ttcom4home1#3

this might help too

http://invest-faq.com/articles/tax-cap-gains-rates.html

I am NO WAY a expert on this...

It depends on one's intrepretation on What a capital asset is

........................
I could be wrong I don't speak legawansee

[Steverenos]

Caddieman - True but it is considered oridanry income and is subject to capital gains both long term or short term depending on the holding period, date of basis or purchase. greater than 12 months is long term and is taxed at a lower rate of 12%. Lets hope GW gets his tax breaks made permanant.

[Steverenos]

http://frwebgate2.access.gpo.gov/cgi-bin/waisgate.cgi?WAISdocID=954949145770+0+0+0&WAISaction=retrieve

[Javabear]

okay, so heres the plan:

take out a $5mil loan using the dinar as equity, pay back the loan early - the bank/loan co. makes money through early payment penalty. If taxman asks where have you got this money from - you say a loan - and you have loan documents to prove it.

Taxman should not be interested whether the loan is subsequently paid back or not - and there you go, tax evasion 101.

disclaimer:
Well, I would NOT recommend anyone really do this,:no: unless of course a taxman says this is a good idea;) , I am, like many of us clutching at straws.

I'm pretty sure were all gonna get stung, but there must be some way of getting round the tax issue - I for one see the Iraqi property market booming in the next 10yrs - recent news stating that affordable housing projects are being implemented fuel my expectations, so my real plan? Cash out some dinar, leave the rest in Warka - wire money to a reputable real estate co. to manage a property portfolio -BUY TO LET - once the economic/political situation has stabilised the free market economy will take off so fast that it will eclipse Croatia. Remember Croatia? War ravaged 10yrs ago, the property market is now booming. Remember Germany post WWII hyperinflation - the people who kept their wealth had it in property rather than the wheelbarrows of cash.

So how about a new slant on this - how do we stand on tax if we reinvest the newly revalued currency in something else rather than convert it?

That's called money laundering and they put you in jail for it. Try again.

[Javabear]

So if its up to me when I "realize" its a gain then when the r/v comes along, i email warka and say put the money back into my USD account. If I dont ask how much they put in and they dont tell then when do you "realize" its a gain..Report now what you have in USD before the r/v then after a year has passed and you have to report again then you check and thats when you realize you have a gain, thus the lesser tax. :confused: :confused: :confused:
(I think its a good thought anyway)

The gain is realized as soon as the dinar is converted back into your USD account regardless of you actually knowing the amount or not.

[louieknucks]

Wow, I really feel like my head is going to explode with all this IRS info.

[Chaka]

and everone needs to be aware of the AMT

even though I've held dinars for more than 1 year I will not be taxed at 15% of the gain(assume there is one)

the AMT will kick in and push the taxable amount to 26%

advise everyone to check with their own personal advisor but this sucks

[investorino]

That's called money laundering and they put you in jail for it. Try again.

thats kinda stating the obvious :)

As I recall I was clutching at straws....

I think everone who has the sense enough to invest in this in the first place will also realise this forum cannot be a cheap tax advisor - as interesting it is to be in the know about such matters - when the time comes...
GO SEE YOUR TAX ADVISOR

[Javabear]

and everone needs to be aware of the AMT

even though I've held dinars for more than 1 year I will not be taxed at 15% of the gain(assume there is one)

the AMT will kick in and push the taxable amount to 26%

advise everyone to check with their own personal advisor but this sucks

I didn't think the AMT applied to LTCG's. I've been wrong before. I'll check with my tax person and post what I find out.

[Javabear]

thats kinda stating the obvious :)

As I recall I was clutching at straws....

I think everone who has the sense enough to invest in this in the first place will also realise this forum cannot be a cheap tax advisor - as interesting it is to be in the know about such matters - when the time comes...
GO SEE YOUR TAX ADVISOR

Best thing you've said yet!

[hilljack13]

The gain is realized as soon as the dinar is converted back into your USD account regardless of you actually knowing the amount or not.

So it does not matter if you "realize" the gain like the IRS states....Bunch of freakin liars...Then again its uncle sam..dont matter if he lies or not..

[Javabear]

So it does not matter if you "realize" the gain like the IRS states....Bunch of freakin liars...Then again its uncle sam..dont matter if he lies or not..

The IRS uses the term realize as making your gains real. Until you convert, they are un-realized gains. Your gains are on paper, but not in your pocket.

[hilljack13]

The IRS uses the term realize as making your gains real. Until you convert, they are un-realized gains. Your gains are on paper, but not in your pocket.

So it's when the IRS realize that there is a gain...a big tax gain.!!!:mad: :mad: :mad:

[Steverenos]

True but you can become a small corporation and not take in gross receipts of over 7 million US in a three year period and pay no AMT

http://www.irs.gov/instructions/i4626/ch01.html#d0e62

This might be of help

[CHAZOWEN]

That's called money laundering and they put you in jail for it. Try again.
How would the respective Inland revenues know what monies are in Warka/Iraqi/middle eastern bank accounts?
Contrary to what we may think I don't think these banking organisations will be running off telling the respective Inland revenues of what monies we are holding.
I am not totally convinced of the Iraq banking system at present and therefore am still holding cash.However if it does R/V these banks will be offering the best tax avoidance information money can buy,all be it for a fee.
The last thing these banks will want is a run on them,they will want to encourage you to keep money with them,because after all that is how they make money.
So maybe the line to follow is seek advice from the middle eastern banking system after all they do know how to deal with money?

[Javabear]

How would the respective Inland revenues know what monies are in Warka/Iraqi/middle eastern bank accounts?
Contrary to what we may think I don't think these banking organisations will be running off telling the respective Inland revenues of what monies we are holding.
I am not totally convinced of the Iraq banking system at present and therefore am still holding cash.However if it does R/V these banks will be offering the best tax avoidance information money can buy,all be it for a fee.
The last thing these banks will want is a run on them,they will want to encourage you to keep money with them,because after all that is how they make money.
So maybe the line to follow is seek advice from the middle eastern banking system after all they do know how to deal with money?

It's called a tax treaty and you can bet the US and the UK have one with Iraq.

[CHAZOWEN]

It's called a tax treaty and you can bet the US and the UK have one with Iraq.
This is my point we don't really know...besides i think Iraq will do everything it can do to encourage foreign investment and for us to keep our money there...after all this is what this is all about is it not?

[Javabear]

This is my point we don't really know...besides i think Iraq will do everything it can do to encourage foreign investment and for us to keep our money there...after all this is what this is all about is it not?

No it's not. This whole thing is about doing what is best for Iraq. If you think for one second that GWB and Gordon Brown said to Iraq "No, we don't want any information about our citizens who invest in Iraq," you would be sorely mistaken.

[CHAZOWEN]

No it's not. This whole thing is about doing what is best for Iraq. If you think for one second that GWB and Gordon Brown said to Iraq "No, we don't want any information about our citizens who invest in Iraq," you would be sorely mistaken.
So the whole Iraq invasion was about civil rights as opposed to economics...give your head a shake!
So the purpose of gambling in dinar was for helping iraq people as opposed to your own self gain(i make the assumption you have bought some)...give your head another shake.
The Iraqi's will do what's best for Iraq and if that is trying to encourage foreigners to keep money in Iraq then that is what they will try and do.
They don't give a hoot about other countries Inland revenues they have better things to spend their time on like Iraq for example.

[investorino]

No it's not. This whole thing is about doing what is best for Iraq. If you think for one second that GWB and Gordon Brown said to Iraq "No, we don't want any information about our citizens who invest in Iraq," you would be sorely mistaken.

I think we could be pushing ourselves up the list of things that are important. An agreement between nations is likely at this stage if it has significant implications on the nations in question. I feel we are placing ourselves high on the fiscal agenda when in reality we are just a bunch of speculators - ie our nations potential earnings through capital gains tax is small fry compared to the gains that can be made by promoting our companies for projects rebuilding Iraqs political, economic and social infrastructure. This is far more important to our revenue system. So unless anyone knows of an arrangement, is it not presumptuous to assume that one would automatically exist at this early stage?

I dont think enough credit is going to the Iraqi people. If you're assuming they will just hand out personal banking information to any organisation in the UK/US generally I think it is an incorrect assumption. This is likely to be in contravention of many banks data protection initiatives - certainly this will be the case with HSBC when it eventually opens up there, and Warka et al are likely to follow suit if they want to remain competitive in offering equal standards of service. They will want to protect their customers, so like in the UK if personal banking information is required by a third party organisation it is likely it would have to be applied for through a court, and I dont currently know of any way a third party organisation can make an application through an Iraqi court for personal data.

Basically until Iraq has a civil procedures system set up it would be up to banks whether or not to divulge tbeir clients details.

Which is highly unlikely.

[hilljack13]

Ok, I'm just gonna forget about all this tax stuff....heck I work on a military base where they do your taxes for free....They have tax experts so I'll pass it along to them..if we get the r/v in march still got a month to let them look over it..

[a capitalist]

Tax on gains realized in 06 will be payable in 07.

[trusty]

Tax on gains realized in 06 will be payable in 07.


Huuummm..what about quarterly estimated tax?

Trusty

[Javabear]

I think we could be pushing ourselves up the list of things that are important. An agreement between nations is likely at this stage if it has significant implications on the nations in question. I feel we are placing ourselves high on the fiscal agenda when in reality we are just a bunch of speculators - ie our nations potential earnings through capital gains tax is small fry compared to the gains that can be made by promoting our companies for projects rebuilding Iraqs political, economic and social infrastructure. This is far more important to our revenue system. So unless anyone knows of an arrangement, is it not presumptuous to assume that one would automatically exist at this early stage?

I dont think enough credit is going to the Iraqi people. If you're assuming they will just hand out personal banking information to any organisation in the UK/US generally I think it is an incorrect assumption. This is likely to be in contravention of many banks data protection initiatives - certainly this will be the case with HSBC when it eventually opens up there, and Warka et al are likely to follow suit if they want to remain competitive in offering equal standards of service. They will want to protect their customers, so like in the UK if personal banking information is required by a third party organisation it is likely it would have to be applied for through a court, and I dont currently know of any way a third party organisation can make an application through an Iraqi court for personal data.

Basically until Iraq has a civil procedures system set up it would be up to banks whether or not to divulge tbeir clients details.

Which is highly unlikely.

I'll give you this much, I don't know for certain they have a tax treaty, but I suspect they do. If the IRS and whatever the UK agency is sends to Iraq looking for info about investors, the Iraqi's will give it to them. I'm not talking aout just us, I'm also talking about if/when the ISX opens.

[Rumluver]

I am so glad I have mine in a shoe box in my closet. But really if you think about it it is like winning the Lotto. Anything you clear above the $700 you spent is called profit. So after you take your $700 and put it back in your pocket and you still have $300K sitting there, say you pay those Bastards 33% or $99K you still have those other $200K sitting there that you can do anything with and never pay on again. Unless you draw interest off your bank and then the interest would taxable.Or profits from reinvesting. I am thinking of moving to Vegas and becoming a Pro Poker Player. I see it on TV and it looks easy.

[Steverenos]

I am so glad I have mine in a shoe box in my closet. But really if you think about it it is like winning the Lotto. Anything you clear above the $700 you spent is called profit. So after you take your $700 and put it back in your pocket and you still have $300K sitting there, say you pay those Bastards 33% or $99K you still have those other $200K sitting there that you can do anything with and never pay on again. Unless you draw interest off your bank and then the interest would taxable.Or profits from reinvesting. I am thinking of moving to Vegas and becoming a Pro Poker Player. I see it on TV and it looks easy.

Pay your Taxes and Enjoy your profits - Nice concept - however try to minimize your taxes and enjoy more of your profits(gains). Talk to a Professional - Financial advisors , CPA, whomever but seek out help.

HAPPY NEW YEAR TO ALL, my 2006 bring us such problems as to how take a gain.:huge:

[investorino]

I'll give you this much, I don't know for certain they have a tax treaty, but I suspect they do. If the IRS and whatever the UK agency is sends to Iraq looking for info about investors, the Iraqi's will give it to them. I'm not talking aout just us, I'm also talking about if/when the ISX opens.

http://www.cbiraq.org/Binder.pdf

Looking at this document I dont think there is a current agreement between the IRS/Inland revenue and Iraq. The document sets out Iraqi banking law and as I suspected personal information will remain confidential subject to certain exceptions - of those exceptions the taxman is not mentioned, however the scope of the document reveals that if a case is permitted under iraqi law, a court may order the disclosure of financial documents. So if a foreign taxman wants financial information on any customer of a bank in Iraq he would have to apply through the Iraqi court.

cbi banking law section 8 - confidentiality - article 49:

A bank shall maintain confidentiality regarding all accounts, deposits, trusts, and safe deposit boxes of customers. It shall be prohibited to provide information on the aforesaid, directly or indirectly withot the written approval of the relevant customer; or in the event that the customer is deceased, without the consent of the customer's legal representative, or one of the customer's heirs or legatees; or without the decision of a court of law or the public prosecutor in an existing judicial dispute or the existence of one of the cases permitted under this Law. This prohibition shall remain in effect even if the relationship between the customer and the bank ends for any reason

article 50 relates to employee/agent confidentiality

article 51: exceptions - there is no mention of any agreement between IRS/inland revenue and Iraq

article 54 : exchange of information - refers only to supervisory matters preferably based on memornadum of understanding.

[lightrays-dinars]

why don't you just cash in small amounts at a time. in the uk you can cash in upto 10k and only need to show id. therefore get a few people to go round and cash in a bit at a time. also if you buy nid for personal use then it's not taxed if it happens to gain in value as you didn't buy it as an investment.

I thought no matter how many times you cashed in your dinars, you would end up paying 40% CGT anyway. So might as well, cash it all in one go.

[lightrays-dinars]

oh my God, this is getting more and more complicated!

[MEALTICKET]

I am so glad I have mine in a shoe box in my closet. But really if you think about it it is like winning the Lotto. Anything you clear above the $700 you spent is called profit. So after you take your $700 and put it back in your pocket and you still have $300K sitting there, say you pay those Bastards 33% or $99K you still have those other $200K sitting there that you can do anything with and never pay on again. Unless you draw interest off your bank and then the interest would taxable.Or profits from reinvesting. I am thinking of moving to Vegas and becoming a Pro Poker Player. I see it on TV and it looks easy.


Those CBI LAW'S are going to eventually bite many in the behind if you don't know them. Warning this is the first to come. The example above is pretty close to true. But what if we found out the IRAQ DINNAR HAVE TO BE IN A IRAQI ACCOUANT IN ORDER TO BE EXCHANGED! AND EXCAHNGED ONLY THRU A BUSINESS TRANSACTION!!!! GO READ AND THINK ABOUT IT!!!!:shhh:

[lightrays-dinars]

Dont scare and shock our systems!

I am sure once they become exchangeable; we should be able just to go in with our dinars and come out alive with the local currency.

[investorino]

This is interesting:

http://switzerland.isyours.com/e/banking/secrecy/cooperation.html


The distinction between tax evasion and tax fraud has direct consequences in terms of judicial cooperation, since Switzerland only grants judicial cooperation for criminal matters when the foreign proceedings apply to an offense that is also deemed criminal in Switzerland (principle of double jeopardy). Such is the case with tax fraud. The bank secrecy is lifted and the investigation can be carried through to completion. However, Swiss law does not authorize extradition for tax purposes.

On the the other hand, tax evasion constitutes an administrative offense with no criminal repercussions. Switzerland's refusal to grant judicial cooperation for tax evasion is the result of particularities of the Swiss legal system. In accordance with the principle of non-discrimination, foreign nationals are treated in the same way as Swiss nationals and benefit from the distinction established by Swiss law.

[RotaryRevn]

If I have my 1 mil dinar in 5k notes and let's say it revalued at 1-1, I could cash in up to 10k a month and it won't be reported to anyone right? (assuming one day we can cash in at our local banks). Uncle Sam shouldn't know you have dinar so if you were to cash in at small quantities (under 10k a month) would they even know you ever had it?

[Steverenos]

Huuummm..what about quarterly estimated tax?

Trusty

Based on last years tax liabilty

[spectrans]

Based on last years tax liabilty

If you make more, your still responsible to adjust the estimate to reflect the amount your making. Otherwise they can charge you penalties and interest, about 24% :(

[Rumluver]

Pay your Taxes and Enjoy your profits - Nice concept - however try to minimize your taxes and enjoy more of your profits(gains). Talk to a Professional - Financial advisors , CPA, whomever but seek out help.



I have a firm that does my Corp stuff so they will take care of this little problem, but keep in mind that this is found money. If I give you $100 and you have to give 40% away you still have $60 free. I know we all bought the NID but for nowhere near what everyone is talking about selling for. Just my thoughts.

[baz]

I think we could be pushing ourselves up the list of things that are important. An agreement between nations is likely at this stage if it has significant implications on the nations in question. I feel we are placing ourselves high on the fiscal agenda when in reality we are just a bunch of speculators - ie our nations potential earnings through capital gains tax is small fry compared to the gains that can be made by promoting our companies for projects rebuilding Iraqs political, economic and social infrastructure. This is far more important to our revenue system. So unless anyone knows of an arrangement, is it not presumptuous to assume that one would automatically exist at this early stage?

I dont think enough credit is going to the Iraqi people. If you're assuming they will just hand out personal banking information to any organisation in the UK/US generally I think it is an incorrect assumption. This is likely to be in contravention of many banks data protection initiatives - certainly this will be the case with HSBC when it eventually opens up there, and Warka et al are likely to follow suit if they want to remain competitive in offering equal standards of service. They will want to protect their customers, so like in the UK if personal banking information is required by a third party organisation it is likely it would have to be applied for through a court, and I dont currently know of any way a third party organisation can make an application through an Iraqi court for personal data.

Basically until Iraq has a civil procedures system set up it would be up to banks whether or not to divulge tbeir clients details.

Which is highly unlikely. Dont have the letter with me right now, but on Saturday I got from my Spanish bank a letter asking for all my UK Tax details,it went on to explain since July 15 05 all banks have to inform the persons country and inland revenue service of that country of any overseas bank accounts, we all know that Iraq is probaly not in such issues YET,but the tax people have far greater reaches then we have ever dreamed of, so dont presume that your countrys tax man hasent a clue about Iraq/Dinar, they watch E-Bay so they must watch Dinar.

The data protection act only stops you or me finding out information about you or me, it DONT apply to the inland revenue, it DONT apply to crooks, it DONT apply to banks, they all get information on us, as and when they want it, in fact it applies to the very few, it is used as a excuse to stop us being told information when our Q's start to rattle the person you are asking Q's to, in the UK you can find out everthing that you want to know about anybody for the princely sum of about £2.50, so i would think America is about the same.

If you really want to know about a persons details ask the postman he see's everything delivered to your house, and they are the first port of call for any goverment agency wanting details on you. ie;letters from Iraq/Jordan/Middle East.

I will check out my letter again and report the complete details soon. :wave:

[cloaked]

It is only treated at the income rate for the first year. After that it is a long term capitol gain at the 15% rate. If you have held the dinar for more than 12 months you owe only 15% minus the original investment. The clock starts when you purchase the dinar and ends when you convert. The beauty is that you control the clock.

but you could also reinvest it in say real estate or stocks or such to avoid captial gains if you have not held for a year. i doooo believe? :drunk:

[tlagiloi]

The remarks here on capital gains are correct
my wife is an accountant and she told me the same thing
you can report a loss of up to $3000.00 per year....
which is another snag that hasn't been adjusted for inflation

but any profit is shown at the time you convert the currency back
into u.s. dollars.

I haven't gotten an email response from Al-Warka bank yet.
I sent it at 1:30 a.m. MST last Thursday.

I would like to set up an account in iraq, send in some u.s. dollars
keep a few dollars in a savings account there and convert most
into dinars for the long term gamble.

the conversion rate for hard currency isn't worth the % lost to me.
that's like a stock broker getting too much of a cut on my gamble.
there's a rather large possibility the dinar will fail completely and
an entirely new currency be made or...it simply get revalued like
the mexican peso was some time ago.

[OK_Tax_Lawyer]

There has been a lot of partial information and mis-information posted to this thread regarding the tax treatment of investment portfolios containing IQD/NID and the impact of a possible upwards revaluation (R/V) of the Iraqi currency at some indefinite moment in the future.

The fact is that Internal Revenue Code Section 988 (26 U.S.C. §988) treats almost ALL transactions in foreign currencies as ordinary income:

§988 Treatment of certain foreign currency transactions
(a) General rule
Notwithstanding any other provision of this chapter—
(1) Treatment as ordinary income or loss
(A) In general
Except as otherwise provided in this section, any foreign currency gain or loss attributable to a section 988 transaction shall be computed separately and treated as ordinary income or loss (as the case may be). …


Although this statute is very complex, for most everyone reading this thread who will be buying (or who have already bought) Iraqi Dinars speculating on an upward movement of that currency against the U.S. Dollar, your gain will likely be taxed at ordinary income tax rates that apply to you in the year of the gain (typically when you sell or convert your Dinars into Dollars) on all or at least 40% of the gain. This would mean an effective tax rate in the 30+% range for the numbers being bandied about on this forum.

Even if a taxpayer was successful in converting this type of transaction to one taxed at long term capital gains rates (currently 15% federal plus applicable state taxes for those not living in Florida, Texas, Nevada, etc.), at the levels hoped for by those speculators – and I see many on this forum suggesting that a 1:1 level against the U.S. Dollar is not out of line – there will be a number of you who will be staring at a federal tax bill of something close to $150,000.00 or perhaps more, depending on your individual circumstances, including the size of your Dinar portfolio.

I have not seen discussed anywhere on this forum the logical and statutory method of reducing, deferring or even eliminating the tax on all this hoped for gain. The way to control taxes is to utilize the existing provisions of the Tax Code which shelter income.

[thmgroup]

I humbly submit that your information too is not complete. If one reads further within the same subsection of 988, one finds the following:

Source: http://www.techlawreporter.com/toa/codes/usc/titles/TITLE26/26USC988.html

(e) Application to individuals

(1) In general
The preceding provisions of this section shall not apply to any
section 988 transaction entered into by an individual which is a
personal transaction.
(2) Exclusion for certain personal transactions
If -

(A) nonfunctional currency is disposed of by an individual in
any transaction, and

(B) such transaction is a personal transaction,
no gain shall be recognized for purposes of this subtitle by
reason of changes in exchange rates after such currency was
acquired by such individual and before such disposition. The
preceding sentence shall not apply if the gain which would
otherwise be recognized on the transaction exceeds $200.

(3) Personal transactions
For purposes of this subsection, the term ''personal
transaction'' means any transaction entered into by an
individual, except that such term shall not include any
transaction to the extent that expenses properly allocable to
such transaction meet the requirements of -

(A) section 162 (other than traveling expenses described in
subsection (a)(2) thereof), or

(B) section 212 (other than that part of section 212 dealing
with expenses incurred in connection with taxes).

[OK_Tax_Lawyer]

Thmgroup,

While I would like to admit that “you got me on that one”, I don’t think I can this time. The very next phrase of Section 988 after the last one you highlighted specifies that a personal transaction DOES NOT INCLUDE any transaction whose expenses could fit under either Section 162 (ordinary and necessary business expenses) or Section 212 (expenses incurred for production of income).

Please note, I don’t believe it is necessary that there be ANY expenses associated with a foreign currency transaction, nor is there a requirement that any actual expenses be reported or deducted. It is sufficient if there were any expenses that they could have been deducted.

The IRS provides the following example from Regulation §1.988-1:

Example 1. X is a U.S. citizen who therefore has the U.S. dollar as
his functional currency. On January 1, 1990, X enters into a spot
contract to purchase 10,000 British pounds ([pound]) for $15,000
for delivery on January 3, 1990. Immediately upon delivery, X acquires
at original issue a pound denominated bond with an issue price of
[pound]10,000. The bond matures on January 3, 1993, pays interest in
pounds at a rate of 10% compounded semiannually, and has no original
issue discount. Assume that all expenses properly allocable to these
transactions would meet the requirements of section 212. Under
Sec. 1.988-2(d)(1)(ii), entering into the spot contract on January 1,
1990, is not a section 988 transaction. The acquisition of the pounds on
January 3, 1990, under the spot contract is a section 988 transaction
for purposes of establishing X's basis in the pounds. The disposition of
the pounds and the acquisition of the bond by X are section 988
transactions. These transactions are not excluded from the definition of
a section 988 transaction under paragraph (a)(9) of this section because
expenses properly allocable to such transactions meet the requirements
of section 212.

The purchase of the British bond in the above example created a basis in the bond which is a deductible expense, either under Section 162 (if the taxpayer has a business involving the use of British pounds) or under Section 212 (if the purchase of the pounds were necessary for the production or collection of income). For those speculating on Iraqi dinars, the purchase of the dinars in the first place constitutes an absolutely necessary Section 212 expense for the production of future income upon a hoped for future reval. You can’t cash in on the hoped for future reval unless you hold dinars in some capacity prior to the reval, and you have to pay for them somehow. That original payment for the dinars is the Section 212 expense which makes the entire transaction excluded from the personal transaction exemption of Section 988. The purpose of the personal transaction exclusion in Section 988 is to allow U.S. persons to take trips abroad, purchase foreign currency for use on their vacations and not get socked with tax due to changes in the spot rate upon their return to the States.

On audit, I don’t think any CPA, whose client has speculated on Iraqi dinars, will be able to look the IRS auditor in the eye and tell him or her that 1.) there were no expenses incurred in generating the huge sale proceeds (next question by the auditor: “How did your client acquire the dinars in the first place, by gift?”), or 2.) if there had there been expenses they would not have been deductible under either Section 162 or 212. By the way, does anyone think that reporting 7 figures on a Form 1040 in or after the year of the hoped for future reval will not trigger an audit?

That said, perhaps this discussion misses the bigger picture altogether. There are tax sheltered structures which do exist and which are available to all persons with any amount of earned income (and as of Jan. 1, 2006 now include those who earn over $110,000 per year, and who therefore cannot contribute to a Roth IRA). I don’t know why anyone would choose to pay even 15% (the current federal capital gain rate) of the gain on any future reval of dinars when they can defer or eliminate the tax altogether with adequate pre-planning.

[Lux]

What about this thread?

Cash Forex versus Currency Futures (http://www.investorsiraq.com/dinar-exchange-tax/4903-cash-forex-versus-currency-futures.html) by Spinach Muncher


It talks about a 60/40 split on cap gains: short and long term.

This does not look like it will be treated as income.

[lonelyintexas]

Thanks SportsLux,
I remember this being talked about in Sep and Oct. I think we have got it drilled down to a capital gain....Now the question is whether it is a short or long term gain by holding it a year or longer.

[Lux]

Thanks SportsLux,
I remember this being talked about in Sep and Oct. I think we have got it drilled down to a capital gain....Now the question is whether it is a short or long term gain by holding it a year or longer.

It's been spoken of since the forum began. The Oct conversation did pin it down to Cap Gains. We even had MichelleIRS explain it out.

[thmgroup]

The purchase of the British bond in the above example created a basis in the bond which is a deductible expense, either under Section 162 (if the taxpayer has a business involving the use of British pounds) or under Section 212 (if the purchase of the pounds were necessary for the production or collection of income). For those speculating on Iraqi dinars, the purchase of the dinars in the first place constitutes an absolutely necessary Section 212 expense for the production of future income upon a hoped for future reval. You can’t cash in on the hoped for future reval unless you hold dinars in some capacity prior to the reval, and you have to pay for them somehow. That original payment for the dinars is the Section 212 expense which makes the entire transaction excluded from the personal transaction exemption of Section 988. The purpose of the personal transaction exclusion in Section 988 is to allow U.S. persons to take trips abroad, purchase foreign currency for use on their vacations and not get socked with tax due to changes in the spot rate upon their return to the States.

On audit, I don’t think any CPA, whose client has speculated on Iraqi dinars, will be able to look the IRS auditor in the eye and tell him or her that 1.) there were no expenses incurred in generating the huge sale proceeds (next question by the auditor: “How did your client acquire the dinars in the first place, by gift?”), or 2.) if there had there been expenses they would not have been deductible under either Section 162 or 212. By the way, does anyone think that reporting 7 figures on a Form 1040 in or after the year of the hoped for future reval will not trigger an audit?

That said, perhaps this discussion misses the bigger picture altogether. There are tax sheltered structures which do exist and which are available to all persons with any amount of earned income (and as of Jan. 1, 2006 now include those who earn over $110,000 per year, and who therefore cannot contribute to a Roth IRA). I don’t know why anyone would choose to pay even 15% (the current federal capital gain rate) of the gain on any future reval of dinars when they can defer or eliminate the tax altogether with adequate pre-planning.

I believe I would have little trouble making the argument that the transaction was a realized gain on a capital investment rather than income. Re: Section 162 - I don't have a "business involving the use of [Iraqi Dinars]". Re: Section 212 - the "purchase of the [Iraqi Dinars] were [NOT] necessary for the production or collection of income." The difference is in the definition of income vs. increase in the value of my capital, i.e, a capital gain.

I concur, that if the transaction was business-related, it would not qualify for the "personal transaction" exclusion by definition. The original purchase of Iraqi Dinar you suggest in the example is arguably the "basis" of capital, rather than an "expense" related to the "production or collection of income" as one would experience in a business. JMHO

[OK_Tax_Lawyer]

No matter how we may classify the entire transaction, I am convinced the IRS will classify it as ordinary income, for the simple reason that the original expense an investor incurs by purchasing dinars would have been a necessary expense for the production of income, i.e., sale at a profit. Without the original purchase, you have nothing to sell, unless you find a way of selling dinars short (which bets on a reduction, not an increase, of the currency’s value against the dollar).

When an IRS auditor concludes the audit of a dinar investor with a deficiency assessment, there are immediate taxes, penalties and interest due. If you wish to fight the audit, you have to pay the tax, interest and penalty, then sue for a refund in District Court. Or you can take the matter to Tax Court, where the Commissioner of Internal Revenue enjoys a presumption of correctness. Either way, you spend large amounts of money to defend your position, with no guarantee of success.

Has anyone thought of getting a Private Letter Ruling from the IRS on this point? Although a PLR is not binding on the IRS – except in the case of the person who requests the ruling – it is instructive on the way the IRS will view this question.

My whole point is that this is a battle that need not be fought by anyone. Using tax sheltered structures now, before reval takes place, will bypass the whole issue.

[donotdenydinar]

Could you give some examples of tax sheltered structures?

[thmgroup]

No matter how we may classify the entire transaction, I am convinced the IRS will classify it as ordinary income, for the simple reason that the original expense an investor incurs by purchasing dinars would have been a necessary expense for the production of income, i.e., sale at a profit. Without the original purchase, you have nothing to sell, unless you find a way of selling dinars short (which bets on a reduction, not an increase, of the currency’s value against the dollar).

When an IRS auditor concludes the audit of a dinar investor with a deficiency assessment, there are immediate taxes, penalties and interest due. If you wish to fight the audit, you have to pay the tax, interest and penalty, then sue for a refund in District Court. Or you can take the matter to Tax Court, where the Commissioner of Internal Revenue enjoys a presumption of correctness. Either way, you spend large amounts of money to defend your position, with no guarantee of success.

Has anyone thought of getting a Private Letter Ruling from the IRS on this point? Although a PLR is not binding on the IRS – except in the case of the person who requests the ruling – it is instructive on the way the IRS will view this question.

My whole point is that this is a battle that need not be fought by anyone. Using tax sheltered structures now, before reval takes place, will bypass the whole issue.


Following your logic, the purchase of a rental property (expense) would also be subject to ordinary income tax which we all know is incorrect; the capital accumulation is subject to capital gains (assuming of course one holds the investment longer than one year).

[OK_Tax_Lawyer]

Thmgroup said, quote:

Following your logic, the purchase of a rental property (expense) would also be subject to ordinary income tax which we all know is incorrect; the capital accumulation is subject to capital gains (assuming of course one holds the investment longer than one year).
__________________

You have misread what I stated. Rental property (or any other capital asset example you can name) does not have a special statute like Section 988, which converts foreign currency transactions from what would otherwise be capital gains into ordinary income treatment. Logic has nothing to do with tax law. Nor does tax law have to make sense. What is required is a careful reading of what Congress has passed and the President signed into law.

Don't get me wrong, I don't like the result I am putting forward, but I am convinced it is the correct one. You are not required to believe me, nor do I expect you ever will. That is your perogative. I just want other readers of this thread to know that a difference of opinion exists on this issue. Ultimately each will have to decide how best to proceed for himself or herself based on the best tax advice they can get.

Grace and peace.

[Lux]

Could you give some examples of tax sheltered structures?

We split the reponses to a new thread:

http://www.investorsiraq.com/dinar-exchange-tax/13901-dinar-exit-stategies-charitable-remainder-trust.html

[apostle]

Investorino, here's my million dollar question.

Have you found anyone from the Gulf War era of KD and opportunity? Thier situation was the same or so I've heard. I have been looking for someone from that time period for the past 2 years that was there and etc. but no luck. Would be the greatest info.

Caddieman, that's the best and most solid advice I've seen yet. One doesn't want to screw around with the IRS. You don't want to keep looking over your shoulder for years to come and after you've spent it all just to find out "there's a letter in the mail for you honey". Pay the Piper. It's an opportunity of a lifetime, don't mess it up.

[OK_Tax_Lawyer]

Investorino, here's my million dollar question.

Have you found anyone from the Gulf War era of KD and opportunity? Thier situation was the same or so I've heard. I have been looking for someone from that time period for the past 2 years that was there and etc. but no luck. Would be the greatest info.

Caddieman, that's the best and most solid advice I've seen yet. One doesn't want to screw around with the IRS. You don't want to keep looking over your shoulder for years to come and after you've spent it all just to find out "there's a letter in the mail for you honey". Pay the Piper. It's an opportunity of a lifetime, don't mess it up.

Apostle,

I’m a couple of days late in responding to your post, but here are my thoughts.

Prior to reval, talk to a good CPA/tax lawyer who can give you good, solid advice on how you can legally reduce tax. There is a three year statute of limitations on the IRS going back on prior returns – UNLESS YOU FAIL TO REPORT INCOME, IN WHICH CASE THERE IS NO STATUTE OF LIMITATIONS AND THE IRS CAN COME AFTER YOU FROM THEN ON!

The cost of doing proper pre-planning is far less than the tax you would otherwise incur, much less the additional penalty, interest and legal costs of defending an improper position after the fact.

Also, any tax planning should include a fall-back position to have the cash in place should the IRS or Tax Court later disallow the structure you choose.

I will repeat what I have often said in this Forum, there are several ways to legally reduce the tax impact of a reval in dinars, but all of them depend on being proactive in your planning. The IRS will not come to your rescue and allow you to back date a planning structure that you could have used.

Hope this helps.

IRS CIRCULAR 230 DISCLOSURE: Pursuant to recently-enacted U.S. Treasury Department Regulations, attorneys are now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including any attachments and/or enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

[sogrgirl]

never mind, stupid question. i will go READ what you have given us and see if I can answer this myself. if not, be forwarned, I will ask again!!

[OK_Tax_Lawyer]

never mind, stupid question. i will go READ what you have given us and see if I can answer this myself. if not, be forwarned, I will ask again!!

Sogrgirl,

I thought it was a GREAT question, and one many might want an answer to. Don't know if I can answer it completely, but I'll PM you with my thoughts on it.

I'll consider myself forewarned anyway. :)

[sogrgirl]

Sogrgirl,

I thought it was a GREAT question, and one many might want an answer to. Don't know if I can answer it completely, but I'll PM you with my thoughts on it.

I'll consider myself forewarned anyway. :)

:lmao:

alright then, and, I give you permission to post my question if anyone asks about it :D

Your answer was most helpful, too, thank you again!

[RotaryRevn]

FYI, you are only required to report foreign bank accounts that hold amounts of greater than an equivalent of 10,000 USD. Also, the interest is taxable (in any foreign-held account).


ok, so if I have one million dinar in an al-warka account, my account is worth less than 10k usd so I don't have to report this account to the feds......but I will have to report the interest I make every year if they don't know about the account?

Since the interest will be in dinar's, would I need to report it before changing it back into usd? What if the dinar goes down one year and I take a loss, could I report the loss?

I'm confused:no:

[Michelleirs]

Here is alittle more in-depth information regarding capital gains vs. ordinary income. Read it and draw your own conclusions http://a257.g.akamaitech.net/7/257/2422/01apr20051500/edocket.access.gpo.gov/cfr_2005/aprqtr/26cfr1.988-1.htm.

[thmgroup]

OK_Tax_Lawyer - I found a post from Michwlv which seems to support the position that a dinar currency exchange would be subject to capital gains rather than ordinary income:

http://www.investorsiraq.com/161048-post1.html
Thread: http://www.investorsiraq.com/dinar-exchange-tax/13605-irs-ruling-capital-gain-exchange-post161048.html

Accordingly, the foreign currency is a capital asset and any gain or
loss realized on the reconversion by the taxpayer is a capital gain or
capital loss.

This appears to be an IRS ruling on the issue. I appreciate your insight and wisdom. Does this appear correct?

[OK_Tax_Lawyer]

OK_Tax_Lawyer - I found a post from Michwlv which seems to support the position that a dinar currency exchange would be subject to capital gains rather than ordinary income:



This appears to be an IRS ruling on the issue. I appreciate your insight and wisdom. Does this appear correct?

Thmgroup,

I'll look it up. In the meantime, I am pretty sure Alternative Minimum Tax (AMT) will be due by many of the US investors/speculators on this Forum, which si a rate of 26 - 28% (substantially higher than the 15% cap gains rate).

Will report back as soon as I can.

[thmgroup]

Thmgroup,

I'll look it up. In the meantime, I am pretty sure Alternative Minimum Tax (AMT) will be due by many of the US investors/speculators on this Forum, which si a rate of 26 - 28% (substantially higher than the 15% cap gains rate).

Will report back as soon as I can.

Thanks OK! In the meantime, I have created a separate thread for the AMT discussion which may be found here: http://www.investorsiraq.com/dinar-exchange-tax/14572-dinar-exit-strategies-does-alternative-minimum.html

BTW- did you remove your "legal disclaimer" for a reason? Just curious.

[OK_Tax_Lawyer]

Thanks OK! In the meantime, I have created a separate thread for the AMT discussion which may be found here: http://www.investorsiraq.com/dinar-exchange-tax/14572-dinar-exit-strategies-does-alternative-minimum.html

BTW- did you remove your "legal disclaimer" for a reason? Just curious.

Thmgroup,

IRS Circular 230 disclaimers are now required when an attorney might be considered to be giving written legal opinions. On those short responses in which I really chime in and don't offer much in the way of legal substance, I don't really feel the need to further clutter the response. My guess is everyone has read it by now and just skips over the disclaimer -- I know I do.

Also, I keep a copy of every significant response I post on my computer, just to provide a trail, if it is ever needed.

Thanks for opening the thread.

[thmgroup]

Here's another interpretation of 988 suggesting that international investing in foreign currency is subject to capital gains rather than ordinary income:

http://offshorepress.com/offshoretax/otcurrency.htm

Where there are currency gains or losses in connection with a trade or business or with the management or administration of investment assets, the gain is treated as an ordinary gain (rather than as a capital gain) and any loss is generally treated as an expense.

Where currency gains or losses are incurred in connection with the purchase of an investment, the gain or loss on the currency change on realization (usually from selling) is a capital gain or loss and is included as part of the total capital gain or loss on the investment.

Of course this would still appear a moot point as suggested by OK_Tax_Lawyer in the Alternative Minimum Tax thread: http://www.investorsiraq.com/dinar-exchange-tax/14572-dinar-exit-strategies-does-alternative-minimum-new-post.html

[giorgio de tomasino]

:happy26: Income Taxes & Capital Gains are non-existent if you live in Nevada.Income taxes are borne by the Casinos.There are no Corporate/Individual taxes.Just my take on this matter.

[OK_Tax_Lawyer]

:happy26: Income Taxes & Capital Gains are non-existent if you live in Nevada.Income taxes are borne by the Casinos.There are no Corporate/Individual taxes.Just my take on this matter.

Nevada, like many states, has no state income tax or capital gains tax. But Nevada residents still pay federal income/capital gains tax.