Taxation private currency ?

[FortuneCookie]

Fellow paulbots,

I have a question regarding taxation and representive private currencies. I know this is illegal for gold and silver but lets say I run a farm and make my own currency that is backed up by my potatoos. So a 5 P$ (Potatoo Dollar) bill ammounts for 5 potatoos at my farm. Now one P$ equals the value of one potatoo and people in my area start using this bill as alternative currency. Now one crazy village is not something the feds will care about but let's say people get so fed up with the actual dollar that more and more people start to use my potatoo dollar (assuming I can back up each bill in circulation).

Is this form of private representive currency legal and if so are there taxation protocols? Because somewhere this is a form of direct trade and can direct trade be taxed?

Just interested

Thank you for your time

Fortunecookie

 

[Mundane]

Barter exchanges are taxable so I see no reason why this scenario would not be. Don't know about legalities but we use a private currency here on one of the local islands here in Canada and perfectly legal and taxable.

 

[oyarde]

Not sure how the IRS could determine how many potato dollars I was not turning in .... ??

 

[KCIndy]

Not sure how the IRS could determine how many potato dollars I was not turning in .... ??

Probably use the same basic method the SOBs use for our normal fiat currency: make up a number to their liking, then threaten to imprison or kill you until you cough up the cash.

 

[oyarde]

I see ....

 

[Mundane]

Probably use the same basic method the SOBs use for our normal fiat currency: make up a number to their liking, then threaten to imprison or kill you until you cough up the cash.

Also via a net worth audit. I had an over zealous auditor pull that on me. What a nightmare of an experience:
http://www.cookco.us/networth_audit.htm

 

[oyarde]

I do not think anyone could value my net worth , except my land and my 401k ??

 

[Mundane]

I do not think anyone could value my net worth , except my land and my 401k ??

They can place any value on your worth they choose, taking into consideration many, many more variables than you have mentioned. Whether or not it's accurate is a whole different issue. You are guilty unless you can prove otherwise in such cases. The onus is on you to prove them wrong, not vice versa.

 

[FortuneCookie]

So to make the potatoo dollars legal I have to report it to the IRS? What should I report to them?

 

[Mundane]

So to make the potatoo dollars legal I have to report it to the IRS? What should I report to them?

I'm not an accountant, but I would assume the procedure would be the same as reporting income earned in a foreign currency. In reporting an income earned in a foreign currency, you must convert the currency to US dollars. As the originator or the administrator of the potato currency, you would want to publish the conversion rates of the currency based on the fluctuating market rates of the potato (or however, you decide to peg it) in US dollars to ensure everyone understands the value of the currency. Otherwise, you are opening yourself up to potential IRS nightmares.

 

[oyarde]

They can place any value on your worth they choose, taking into consideration many, many more variables than you have mentioned. Whether or not it's accurate is a whole different issue. You are guilty unless you can prove otherwise in such cases. The onus is on you to prove them wrong, not vice versa.

so , might I assume I am under attack ?

 

[oyarde]

I'm not an accountant, but I would assume the procedure would be the same as reporting income earned in a foreign currency. In reporting an income earned in a foreign currency, you must convert the currency to US dollars. As the originator or the administrator of the potato currency, you would want to publish the conversion rates of the currency based on the fluctuating market rates of the potato (or however, you decide to peg it) in US dollars to ensure everyone understands the value of the currency. Otherwise, you are opening yourself up to potential IRS nightmares.

What about fake potato dollars ? The County where I grew up , was flooded one year recently with fake parking passes at the County fair ....

 

[Mundane]

What about fake potato dollars ? The County where I grew up , was flooded one year recently with fake parking passes at the County fair ....

If the currency is easy to counterfeit, that's not a currency I would want to deal in.

 

[Mundane]

so , might I assume I am under attack ?

You would assume right.

 

[Mundane]

So to make the potatoo dollars legal I have to report it to the IRS? What should I report to them?

You might want to view the site of this island currency that is successfully run in Canada. Even the banks accept it there and they have pegged it to the Canadian dollar. Their currency is backed in Canadian currency, silver, gold and other liquid assets. While their purpose is more about promoting the island economy than a statement against the national currency, it's an interesting story and pretty paper:

http://www.saltspringdollars.com/

 

[FortuneCookie]

You might want to view the site of this island currency that is successfully run in Canada. Even the banks accept it there and they have pegged it to the Canadian dollar. Their currency is backed in Canadian currency, silver, gold and other liquid assets. While their purpose is more about promoting the island economy than a statement against the national currency, it's an interesting story and pretty paper:

http://www.saltspringdollars.com/

Allright thank you I heard Ron Paul however talking about the illegality of alternative currencies to the US Dollar, so I was wondering whether it was possible or not. Altough now I think of it he's probobly talking about gold and silver being legal tender rather the illegality to use them as currency.

 

[mrsat_98]

Because somewhere this is a form of direct trade and can direct trade be taxed?

Just interested

Thank you for your time

Fortunecookie

Sure its taxable, if your ok with being subject to the Trading With the Enemy Act.

 

[Acala]

In the USA in the past, merchants have issued their own tokens that circulated as money (see "hard times tokens" and "merchant tokens"). The problem you run into is, as others have suggested, taxation. The IRS will consider any exchange of any asset, or token, to be an exchange for profit and tax the proceeds accordingly. Capital gains on your assets and tokens will be calculated in terms of dollars. So if (or should I say when) the value of the dollar collapses and your silver trades for $1000 an ounce, you will be expected to pay tax on the $950 in capital gains when you trade the silver for other goods. The same would go for the tokens. Only official government money escapes capital gains taxation.

 

[FortuneCookie]

In the USA in the past, merchants have issued their own tokens that circulated as money (see "hard times tokens" and "merchant tokens"). The problem you run into is, as others have suggested, taxation. The IRS will consider any exchange of any asset, or token, to be an exchange for profit and tax the proceeds accordingly. Capital gains on your assets and tokens will be calculated in terms of dollars. So if (or should I say when) the value of the dollar collapses and your silver trades for $1000 an ounce, you will be expected to pay tax on the $950 in capital gains when you trade the silver for other goods. The same would go for the tokens. Only official government money escapes capital gains taxation.

So every trade with the currency or token should reported?

Also the feds can't track digital certificates can they? I realy hate tax paperwork.

 

[oyarde]

Some of my trades may go unreported , but I grow my own potatoes .....