If you buy something only sold in cryptocurrencies - for example, a non-fungible token (aka NFT) - is that a potentially taxable event? Suppose I buy one Etherium cryptocurrency coin and then purchase a non-fungible token for one Etherium coin. One cannot buy an NFT using any other currency than a cryptocurrency, but cryptocurrencies CAN be bought and sold in US dollars, so if you don't have sufficient amounts of a cryptocurrency to purchase an NFT, you'd obtain the remainder by either selling something in exchange for cryptocurrency or buying the remainder with US dollars on a cryptocurrency exchange. By using my ETH coin to purchase an NFT, have I just committed a potentially taxable event?
By using my ETH coin to purchase an NFT, have I just committed a potentially taxable event? Yes. When you purchase something with cryptocurrency, this is treated as a barter transaction for income tax purposes. Also, generally speaking, both an ETH coin and an NFT would be considered to be capital assets for tax purposes, just like investment securities like stocks and bonds. When exceptions do not apply (and no exceptions are applicable here), a barter transaction is taxed as if you sold the asset you are relinquishing in the barter for U.S. dollars at a fair market value rate, and then purchased the item you obtained in the barter in cash for that amount of U.S. dollars. If you purchased your ETH coin for fewer U.S. dollars than the ETH coin was worth when you bought the NFT, then you will have a capital gain in the transaction. If you purchased the ETH coin for more U.S. dollars than the ETH coin was worth when you bought the NFT, then you will have a capital loss in the transaction (although, because it is a capital loss, you may not be able to apply this loss to reduce you ordinary income immediately). I do not address sales taxes in this answer. The definition of a taxable sale varies considerably from state to state and the question of whether a purchase of an NFT is a taxable sale is simply an undefined open question in many sales taxing jurisdictions. Also, it is not at all obvious under what circumstances a particular sales taxing jurisdiction would have the authority to tax a particular NFT purchase. This would be a highly fact specific inquiry.
The ultimate question is whether an obviously joke enterprise constitutes a real offering of securities or just performance art (a Ponzi scheme is one of many types of securities fraud). An unregistered offering of securities that does not fall within an exception is per se unlawful under federal law, but a security is generally defined as something offered with at least a prospect of making a potential profit for the investor which is not something that is true of this offering. (And if less than $1,000,000 are sold it might even be within an exemption to securities laws). State securities laws are divided into two categories. Most allow any offering of securities so long as proper disclosures are made and the offer is restricted to the right kind of investors. A minority impose substantive quality standards on offerings and this offering might violate the law in those states (although this still would present the question of whether a known money losing opportunity is really a security since there is no evidence of an intent to potentially make a profit from the investment). I do not believe that California imposes substantive quality of investment standards on public or private offerings of securities. Any deal whether or not it is a security is actionable if it is fraudulent. Normally an element of any claim for fraud is justified reliance upon a representation or upon a failure to disclose information. But, in this case, it is hard to see how anyone could say that they were justified in relying on any representation in making a purchase because they were told that they were being cheated. So, it is hard to see how a fraud claim would be sustained here either. I'm not sure that this cleanly falls into the category of gambling either, even though there is money at stake and the outcome isn't entirely certain. This doesn't really seem like a game of chance to me. Indeed, viewed as performance art, this scheme might even be entitled to First Amendment protection. Ultimately, I would not prioritize a civil or criminal action against this enterprise either from the perspective of a private lawyer representing an investor, or from the perspective of a government enforcement authority. And, while I would be a little nervous about running this enterprise, I wouldn't be quaking in my boots. In a civil lawsuit, any award would probably be minimal, and in a criminal case there would probably be an extremely generous plea offered.
The Secretary of Treasury is authorized and obligated to print United States currency by statute, codified at 31 U.S. Code § 5114. This is an exercise of the enumerated power to coin money: the &quot;coinage clause.&quot; The Legal Tender Cases and the case that you cite (Juilliard v. Greenman, 110 U.S. 421 (1884)) are the leading authority on the scope of the coinage clause. In those cases, the Supreme Court held that the coinange clause grants to Congress the power to issue paper money that is legal tender. That power has not been challenged since. Juilliard v. Greenman: The states are forbidden, but Congress is expressly authorized, to coin money. The states are prohibited from emitting bills of credit, but Congress, which is neither expressly authorized nor expressly forbidden to do so, has, as we have already seen, been held to have the power of emitting bills of credit, and of making every provision for their circulation as currency short of giving them the quality of legal tender for private debts, even by those who have denied its authority to give them this quality. It appears to us to follow as a logical and necessary consequence that Congress has the power to issue the obligations of the United States in such form, and to impress upon them such qualities as currency for the purchase of merchandise and the payment of debts, as accord with the usage of sovereign governments. ... ... we are irresistibly impelled to the conclusion that the impressing upon the Treasury notes of the United States the quality of being a legal tender in payment of private debts is an appropriate means, conducive and plainly adapted to the execution of the undoubted powers of Congress, consistent with the letter and spirit of the Constitution, and therefore within the meaning of that instrument ... The reasoning in this case was not based on the paper being exchangable for metal, so any changes in that regard since will not have affected the outcome. For a deeper history of how this power has been understood, and for an originalist lens on the topic, see Robert G. Natelson, &quot;Paper Money and the Original Understanding of the Coinage Clause&quot;.
In short, because the government is not required to honor your characterization of the transaction. A gift is something given without receiving anything in exchange. In almost all taxable contexts this is not a plausible argument. A judge would almost surely rule for the government that your money transfer was rent and not a gift, for example. And, if you didn't report the income that was found to be rent and not a gift, on an income tax form, you would be assessed serious penalties and might even be charged with criminal tax evasion, since the sincerity of your gift would be in doubt. Also, while in the bare example of an informal roommate arrangement, proof of the existence of a lease in the event of a dispute between the parties might not be necessary, usually contractual documents are in place to protect the rights of both parties to a transaction and those would be inconsistent with a gift characterization. For example, if you sell lumber on credit and it was treated as a gift, you couldn't sue someone who failed to pay for their lumber, and if you sold lumber for cash, it would be a clear quid-pro-quo.
A possessor in good faith owns currency Currency is owned by the person who has it provided they came into possession legitimately. Currency is a small category of goods, known as negotiable instruments, where the person who has it, owns it. Unless, they came into possession in an illegitimate way, such as by stealing it or finding it (and not handing it in to the authorities). If they received it in the course of a legitimate transaction - wages, payment for goods or services, etc. - then they own it even if the currency was previously tainted. Contrast this with, say, a car, where the legitimate owner remains the legitimate owner no matter who is in possession. Now, there are usually laws that prohibit the destruction of currency even if you own it, but that doesn’t change the fact that you own it. For comparison, there are laws against dumping your car in the river but it’s still your car.
You have the legal (contractual) obligation to pay the amount that you owe for your meal. The restaurant can refuse to accept a particular kind of payment, such as check, cash, credit cards (generally or brand-specific), various cash-transfer programs, foreign currency, bitcoin or ridiculous numbers of pennies. There is no requirement that they do today what they did yesterday. If you have in your possession only a Discover card, and if they are unwilling to accept service barter as payment (washing dishes is classical), then you would have a debt to the restaurant which you must pay in a reasonable time, using an acceptable medium (such as cash, unless they don't accept cash). They cannot make it impossible or highly burdensome for you to discharge your obligation (e.g. they cannot demand Krugerrands or Mongolian ᠲᠥᠭᠦᠷᠢᠭ as the alternative payment, unless you are in Mongolia). You were given advance notice of this possibility of non-acceptance, yet you willfully proffered a card that you knew that they were not likely to accept a second time. Your hands were not clean, and if this had gone to court, you could not expect mercy from the court on the grounds that you were surprised that they didn't accept your card.
You can do it using a US non-profit, but you need a lawyer We know it can be done in the US using a non-profit because it has been done. For example, the Clay Institute’s Millennium Prize does exactly what you propose: it pays people who solve unsolved math problems. Similarly, the the Everglades Foundation used a prize to get people to come up with new ways to get phosphates out of the water sources. To do what they did, you need to follow their lead, and set up and run a non-profit (aka, 501(c)(3), named after the relevant provision of the tax code). Because non-profits are tax exempt under US tax law, you have to apply to the IRS to become a non-profit. Speaking broadly, the IRS imposes two requirements on non-profits: 1) It must serve a charitable purpose; 2) It must spend a certain percentage of its money every year doing charitable work. To set up a foundation you have to specify the charitable purpose you will serve (“encourage research in mathematics”), and have a plan to do so (“we will award a cash prize to people who solve important unsolved problems”). If the IRS decides your plan is genuine, then they give you a pass on paying taxes. To make sure you are carrying out your charitable plan, the IRS requires you to spend a certain percentage of your money each year on charitable work. (This is called the &quot;distribution requirement.&quot;) Meeting the distribution requirement may be a problem, since you may not award prizes every year. You may be able to get a general idea about how the IRS deals with such situations by searching on line. At some point, however, you will probably need to talk to a lawyer with experience setting up non-profits. (FWIW, it looks to me as if the Clay Institute meets its yearly spending requirement by supporting lots of other activities that count towards the spending requirement.) One other problem that it seems you won’t have involves giving prizes directly to individuals. For obvious reasons, the IRS is generally suspicious of prizes given to individuals, so they impose restrictions. For example, for the winner to avoid taxes, the prizes have to be for previous work. Where to go for more information: USA.gov has a nice overview of the application process here. The IRS has several publications and websites that you might find helpful: here, here, here, and here. These cover everything from the general rules to nuts-and-bolts details about which forms to use. You can read more about the IRS treatment of prizes here and here. Depending on how comfortable you are with financial statements, you may learn about how these non-profits work by reading their 990 forms. The Clay Institute's forms are here.
The answer to this question would also heavily depend on which country the transaction is occurring. Supreme court of South Korea ruled in July 2009 that exchanging virtual currency for real world currency is legal, even though doing so was against the game's terms of service. Consequently, players cannot be held legally liable for trading their virtual currency into real money if the game is being serviced in South Korea. This however, does not mean the company cannot suspend your account for doing so. Likely, other countries have different laws about this type of transaction, which you should look into. Source: Official ruling of the case (in Korean)