Thread by @jtfoust

Libra and Taxes: I’ve seen some questions about this, and I’ve spent WAY too much time reading the tax code lately, so here’s a short thread on the topic.

In brief: Libra faces many of the same issues as Bitcoin and other cryptos.

There really aren't good answers on the federal income tax implications of transactions involving Libra. A decade in, we still don't have IRS guidance answering basic questions about the taxation of transactions involving bitcoin, let alone any of the newer blockchain networks.

The only IRS guidance issued to date, in 2014, applies only to "convertible virtual currencies", of which Bitcoin is the only example provided. It is probable but uncertain that the IRS will consider Libra to be a convertible virtual currency as well.
irs.gov/pub/irs-drop/n…

As I wrote in @coincenter's report, "A Duty to Answer", the 2014 guidance fails to provide clarity on many basic aspects of determining the tax impact of a transaction involving convertible virtual currency (CVC).
coincenter.org/entry/crypto-t…

So, even if the IRS does consider Libra to be a CVC, we still wouldn't know for sure what methods are permissible for calculating fair market value, calculating and tracking basis, or substantiating the value of donations of Libra, to list just a few of the open questions.

But one thing you can be pretty certain of is that Libra transactions will not qualify for the de minimis exemption afforded to foreign currency transactions by 26 U.S.C. 988(e).
law.cornell.edu/uscode/text/26…

Which means users of Libra will need to keep track, individually, of each Libra token they acquire as well what their adjusted basis in that token is (i.e., what they paid for it, or what its fair market value was at the time they received it, plus or minus various adjustments).

Then, every time they spend Libra, they will need to specifically identify the particular tokens they spent and compare their adjusted basis in those particular tokens to their current fair market value in order to calculate if they have realized a gain or loss…

...then determine whether the Libra spent was a capital or noncapital asset in their hands, calculate the commensurate tax burden they have incurred, and include it when they file their annual tax return.

For. Every. Transaction.

There are a lot of obstacles for Libra to overcome if it is going to achieve its global ambitions, but a major one will be the borderline-insanely-onerous tax treatment it and other cryptocurrencies currently receive.

The report mentioned above focuses on what the IRS could (and should) do to clarify and rationalize the tax treatment of cryptocurrencies, but extending a de minimis exemption to them would likely require congressional action.

On this, Libra faces the same challenges as Bitcoin and other permissionless cryptos, and we have long advocated for a cryptocurrency de minimis exemption that parallels the exemption provided to foreign currencies by 988(e)
coincenter.org/entry/bitcoin-…

Last Congress, we worked with Reps. Jared Polis and David Schweikert to introduce the Cryptocurrency Tax Fairness Act, which would create a de minimis exemption for cryptocurrencies that parallels the de minimis exemption afforded to foreign currencies.
coincenter.org/entry/reps-pol…

Rep. Polis has left Congress, but we are working with Rep. Schweikert and other members to get that bill reintroduced. We are also continuing to advocate for the IRS to provide badly needed guidance on the open questions that are within its purview.
coincenter.org/link/the-irs-h…

"Why wouldn't Libra be currency for tax purposes?" is a question that has come up a few times. The answer is that the 2014 IRS guidance uses FinCEN's definition of "currency", which says, inter alia, currency must legal tender "in the country of issuance"

https://twitter.com/masterofzoom1/status/1141045557038731264