The Tax Holy Grail for the Whale Investors- Orginal Post was incorrect
Upon further review, I need to apologize to the users of Steemit, the advice posted in my original article is incorrect and will be deleted. I will leave this posting up so that the correct interpretation of the law can be found.
Courtesy of /u/deeyanda:
" read that to mean the cost basis is increased by the amount of gain the transferor recognizes on the transfer.
As I understand it, in a 351 exchange, the transferor recognizes zero gain, but instead defers recognition until the corporation sells the asset.
However, if the corporation also gives the transferor other property or money in addition to stock, the transferor recognizes a gain in the amount of the value of the non-stock property or money.
351(b). (b) Receipt of property If subsection (a) would apply to an exchange but for the fact that there is received, in addition to the stock permitted to be received under subsection (a), other property or money, then— (1) gain (if any) to such recipient shall be recognized, but not in excess of— (A) the amount of money received, plus (B) the fair market value of such other property received; and (2) no loss to such recipient shall be recognized.
Per §362(a), that gain is added to the corporation's basis.
Example:
Ernie Ethholder buys 100 ETH at $10 apiece, a total basis of $1,000 or $10/ETH. He wants to contribute them to CryptoCorp, his corporation, when ETH is worth $300. He may do it by a 351 exchange, in which he recognizes no gain and the company keeps his basis.
Ernie has stock; Ernie pays $0 cap gains; CryptoCorp has 100 ETH at a total basis of $1,000, or $10/ETH.
If CC gives E CC stock plus $9,000
E recognizes $9,000 in capital gains; CC has 100 ETH at a total basis of $10,000, or $100/ETH.
I am not a tax lawyer, but I deal with tax issues enough to have a rudimentary understanding of them.
/u/MoneyMuscles can check the math."
I would also like to thank /u/MoneyMuscles, /u/deeyanda, /u/panek, /u/majorpaynei86, and /u/thundergun427 for providing the correct interpretation of the law and being so diligent in their efforts to protect the investors on this subreddit from bad tax advice .
I will refrain from posting any other tax advice until I am 100% certain that it is within the confines of the IRC, All of my comments on this post that are incorrect will be deleted so that they do not confuse any other investors going forward.
I’m Daniel Winters, and I’m a tax accountant.
The author’s analysis @adrewski is COMPLETELY INCORRECT, and will likely result in additional tax due, NOT savings.
Under Internal Revenue Code Section 362(a)(2), the property contributed to the corporation has the SAME COST BASIS as for the individual who contributed the property! So, now the gain would be taxed at the 35% corporate tax rate. Individual tax rates for long term cap gains are 15% or 20%. So, this could easily result in paying 35% tax, instead of 15% or 20%.
Please DO NOT carry out a transaction as recommended by the author of this post under any circumstances. Honestly, is it realistic that you could just contribute appreciated property to a corporation, then the gain magically disappears? That is NOT how it works. Daniel Winters, M.S. Taxation. Link and quotes from Internal Revenue Code below.
https://www.law.cornell.edu/uscode/text/26/362
(a)PROPERTY ACQUIRED BY ISSUANCE OF STOCK OR AS PAID-IN SURPLUS
If property was acquired by a corporation—
(1)
in connection with a transaction to which section 351 (relating to transfer of property to corporation controlled by transferor) applies, or
(2)
as paid-in surplus or as a contribution to capital,
then the basis shall be the same as it would be in the hands of the transferor, increased in the amount of gain recognized to the transferor on such transfer.
(b)TRANSFERS TO CORPORATIONS
If property was acquired by a corporation in connection with a reorganization to which this part applies, then the basis shall be the same as it would be in the hands of the transferor, increased in the amount of gain recognized to the transferor on such transfer.
I'm a CPA and an attorney. @danielwinters is absolutely correct and OP is simply wrong. Don't follow OP's suggestion.
Can you and the other lawyer join forces and post a blog showing people how to go about doing taxes on Steem winnings or earnings?
And is there any way to pay someone to compile all the transactions and do it for a fee? Someone can make a fortune on Steem just offering that service to all Steem users.
No capital is gained until you convert to fiat am I correct?
If you are in the US, that is incorrect.
meep
You are correct, I am deleting the original article
So much misinformation and disinformation being spread. What exactly is the correct way to pay your taxes on Steem or any other cryptocurrency but particularly Steem? Do I have to hire a CPA just to figure out how to properly pay taxes and would the CPA even know?
I'm downvoting becasue this post contains demonstrably incorrect information.
This will be a conversation people will be having with their accountants. Awesome stuff.
If your accountant doesn't know about this already, it is time to find a new accountant.
Agreed and this stuff is awesome
Some questions from Reddit:
"If the corp then cashes out and pays you, then wouldn't that just count as normal income then? Seems like this would change it from a capital gains income to a normal income which would be a bad thing."
"If the corp then cashes out and pays you, then wouldn't that just count as normal income then? Seems like this would change it from a capital gains income to a normal income which would be a bad thing."
Any thoughts?
If it is an s corp and they sell the property, and recognize a capital gain it flows back to the shareholder as a capital gain, anything sold under the basis it would be treated as a distribution of capital back to the shareholder.
Yet another question:
"CPA here, I'm pretty sure this would only work if the C- Corp was substantive. That is you could not create a shell C-Corp that only held the crypto that you contributed. The IRS would likely "pierce the corporate veil" and treat the C-Corp as if it it did not exist."
Thank you! I'm following you. I'm in Canada but I will check for these kind of information here in Canada from people knowledgeable about cryptocurrencies and taxe revenue stuff.
Thats is extremely interesting.
These are great posts for helping quell the fears of those who are "money on the sidelines".
I'm very interested to see how the tax codes morph in response to crypto. I can only imagine there will be a huge wave of both loop holes and new regulation as people dig into these details!
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