Re: the cost of untracability?

[tcmay@got.net (Timothy C. May)]

At 7:53 PM 4/7/96, Jim Gillogly wrote:
>jim bell <jimbell@pacifier.com> writes:
>>FWIW, I think that there is no capital-gains-type tax on currency
>>conversions.  In other words, if I take dollars and buy yen today, and the
>
>I bounced this off a CPA, who said she would be very suprised if this is
>really the case: in general the IRS considers increases in wealth to be
>taxable, and unless there's a specific exclusion for currency transactions
>that she doesn't know about, she suspects this is not the case.  As a
>conceptual counterexample she points out that you are responsible for any
>profit you make from selling your car for more than you pay for it (but,
>as you might expect, you don't get to take a loss if you sell it for less).

I think your CPA is clearly misinformed, or one of us has misunderstood the
conditions under which her statement is true.

For example, I read a fair number of corporate earnings reports, and can
assure you that many companies report gains and losses on currency
conversions. (Many companies use derivatives to hedge themselves against
fluctuations in foreign currencies....)

Similarly, if I consult the "Wall Street Journal" I find page after page of
listings for currency prices, futures on currency prices, derivatives
involving said currencies, and so on. I can easily be a "currency
speculator" by calling my broker.

It may come as a surprise to this CPA (and Jim Bell, from his later
message), but gains in this market are taxable, and losses can offset
gains, subject to the usual mumbo jumbo rules.

It is certainly true that if one converts $300 into yen for a trip to
Japan, to have to buy a few beers for cash (Tokyo is expensive), and upon
returning to the U.S. their has been some slight gain (yes, a "profit"),
that the IRS is not interested. This is a matter of practicality, given
that such minor conversions are usually done in cash form, are too small to
worry about (minimal gains...a few bucks in the example shown, and usually
more than erased by the conversion rate differential).

Try speculating _seriously_ in the dollar-yen conversion rate, through the
various options listed in financial newspapers, and then telling the IRS
that a $100,000 profit, say, is not taxable because of what a CPA said.

--Tim May

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