Tax Lawyer's Blog

CoinNews.Net reports that uber-Libertarian Congressman Ron Paul [R-TX] has introduced a bill that would,

[E]nd taxes on coins and bullion and repeal legal tender laws. The bill’s lofty goal is to reintroduce a system of competing currencies.

Here’s Paul:

“There is nothing in the Constitution that grants the Congress the power to enact legal tender laws. We, the Congress, have the power to coin money, regulate the value thereof, and of foreign coin, but not to declare a legal tender. Yet, there is a section of US Code, 31 USC 5103, that purports to establish US coins and currency, including Federal Reserve notes, as legal tender.”

Generally, federal law now taxes trade or business currency conversions at ordinary income rates. Paul says that taxing alternative currencies in this way is a hindrance to currency competition. His bill, H.R. 4248, would eliminate taxes on “any coin, medal, token, or gold, silver, platinum, palladium, or rhodium bullion” as well as restrict states from assessing taxes and fees “on any currency.”

Code Section 988 governs the taxation of currency gains and losses and states, in part:

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).

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