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2013 in Review: States Stepping Up Digital Privacy Protection

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As the year draws to a close, EFF is looking back at the major trends influencing digital rights in 2013 and discussing where we are in the fight for free expression, innovation, fair use, and privacy. Click here to read other blog posts in this series.

As the outcry against NSA spying and electronic surveillance has grown, the need to protect privacy through legislation has never been higher. With law enforcement itching to use aggressive new surveillance techniques from drones to facial recognition to fight crime, privacy is often discarded by the wayside as collateral damage. Ideally it would be Congress that would take the lead in passing privacy legislation, creating uniform standards that protect privacy across the country. And while there were a number of Congressional proposals, none went anywhere in 2013. So while Congress continues to drag its feet, state courts and legislatures have stepped up to protect their citizens' electronic privacy.

This summer, the Massachusetts Supreme Judicial Court ruled, in a case that we filed an amicus brief in, that passengers in a car have an expectation of privacy to be free from persistent GPS location monitoring. Montana and Maine passed legislation that required police to obtain a search warrant before tracking any electronic device. And Texas passed a bill that requires state law enforcement obtain a search warrant before accessing electronic communications like emails from a service provider.

As states placed an emphasis on protecting privacy, we stepped up our efforts to get involved at the state level. We filed numerous amicus briefs in state courts across the country on a whole host of privacy issues. We argued to the Supreme Courts of Rhode Island and Washington that your text messages stored on someone else's cell phone were protected by the Fourth Amendment. We urged courts in Connecticut and Massachusetts to follow New Jersey's lead, and require police obtain a search warrant before getting cell phone tower information. We explained to the Texas high court that unlike a pair of pants, police can't search an arrestee's cell phone without a warrant. And again before the Massachusetts high court, we explained why the Fifth Amendment prohibited a suspect from being forced to decrypt a computer. We got involved in state legislation too, sponsoring an email privacy bill in California that passed the legislature, but was vetoed by Governor Jerry Brown. We also opposed a Massachusetts bill that aimed to expand the state's wiretapping statute.

Early indication suggests 2014 will see more states getting involved to pass privacy legislation. Wisconsin is considering a location privacy bill that would prohibit police tracking a cell phone without a search warrant. Lawmakers in Montana are planning to introduce an initiative to amend the state constitution to protect digital privacy. And we'll be there too, working to convince state courts and legislatures to make privacy conscious decisions, in addition to our federal work. Hopefully 2014 will be the year Congress catches up to the states. 

This article is part of our 2013 Year in Review series; read other articles about the fight for digital rights in 2013.

Related Issues: PrivacyCell TrackingLocational PrivacyRelated Cases: Washington state text message privacy casesCommonwealth v. RousseauCommonwealth v. Augustine
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Bitcoin Tax Accountant FAQ

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Even after a solid year of growth and six months of near constant exposure in the mainstream media, Bitcoin remains a niche area, mostly followed by hard-core techies. Many practitioners won’t go near it for fear of getting caught up in the regulatory uncertainty, while others may genuinely try to help their clients, but recklessly fail to consider the attributes that make Bitcoin unique among taxable assets.

As a Certified Public Accountant who focuses on entrepreneurs and small businesses, I tend to get the same questions and help clients with the same issues on a regular basis. The basis for this article was an adaptation of one such e-mail exchange with a client in December of 2013. It should be clear where I have made a statement of opinion. Nevertheless, I will make this disclaimer up front – my opinions are mine alone and should not be construed as tax or accounting advice in this context. You should always consult a qualified tax professional about your personal situation before taking any tax position and especially before taking a position on an issue as complex as Bitcoin.

I intend to update this article periodically as the regulatory situation evolves and as I receive new questions. Feel free to e-mail me directly at jason@tyracpa.com if you have a question you’d like to see answered here.

Question:  “I am curious to hear your thoughts on a crucial issue that will affect a large number of virtual currency owners/traders…I have heard arguments made for both sides. Assuming Bitcoin is treated as a COMMODITY and not a currency, if someone is constantly trading Bitcoin for fiat on an exchange and REALIZING many gains in the process, would you say these gains should be RECOGNIZED upon each conversion/sale on the exchange, or rather, should they be recognized upon the ultimate wire transfer out of the exchange into your bank account?”

Answer: The standard for “realized” is that you have the legal right to an asset. That is why you have to declare and pay taxes on stock gains, for example, even if you immediately reinvest the proceeds from a sale. There is no statutory or case law basis for the argument that Bitcoins are not “readily available” until converted at an exchange or the argument that the mere possibility of total and permanent loss should postpone recognition of a realized gain. If you receive an asset that has value, the value is realized and taxable at the point you recognize it, whether or not a market readily exists for you to convert that value into dollars. It just so happens that there are enough exchanges operating now to make a market for Bitcoin, so you’d be hard pressed even to argue that you were unable to declare the income because the market value of your asset was not readily determinable.

Question:  “My gut tells me that the former will hold true, as in general the IRS likes to collect as much $ as possible, but I also could see people taking the position that their gains should not be recognized until the $ becomes “readily available” and further that many exchanges have been hacked, gone bankrupt, etc. thus adding evidence to the argument that this $ is not readily available until successfully transferred into your bank account.”

Answer:  The IRS needs to provide guidance on two issues: what kind of asset is Bitcoin and when are Bitcoin exchange gains taxable? Bitcoins received in exchange for goods or services are taxable at the time the transaction occurs and also taxable later if conversion to dollars results in an exchange gain (or loss). This is established conceptually by the definition of gross income in IRC section 61. I think one of the main reasons why people have such a hard time working through the tax issues surrounding Bitcoin is sloppy use of terminology. You won’t find the term “fiat” in the Internal Revenue Code, yet this word is often used by the Bitcoin community to make the argument against taxability generally. That is, by use of the terms “fiat” and “non-fiat”, Bitcoin traders either argue that, since Bitcoin isn’t a fiat currency (in the usual sense) then it doesn’t exist for tax purposes, or if it does exist, that they aren’t engaged in trading them for a profit. Both of those assertions are demonstrably false.

Bitcoin is either a capital asset or a non-capital asset. “Commodities” (or usually the contracts that represent them) are capital assets to investors other than broker-dealers, but non-capital assets to investors who ARE broker-dealers (to whom they are considered inventory). If Bitcoin is recognized as a currency, as I think is likely, then the treatment would be that of ordinary gains and losses. Short term capital gains are also at the ordinary rate, so only if Bitcoins were a capital asset and you could prove that you’d held them longer than one year (tough to do) would the long term rate be implicated.

Question: “Do you think this [IRS] guidance will come any time soon or more importantly before April 15th?”

Answer: The IRS is currently working on regulations for virtual currencies generally, to include Bitcoin. I strongly suspect that Bitcoin will be treated as a “foreign” currency. Bitcoin’s purpose, its function and its major attributes are all shared by currency. The Treasury Department has ruled by way of FinCEN that Bitcoin exchanges are money service businesses and required them to register, which it would not have done if Bitcoin were thought of as a commodity. The payment protocol employed by Bitcoin may be unique and important, but that doesn’t put it in a whole new category of its own. In fact, the only possible justification for treating Bitcoin as a capital asset that I have seen (other than desire to avoid taxes) is that currency is defined by the IRC as being issued by a government or a central bank, but that can easily be amended. Also, there is the tax angle – why give Bitcoin the capital rates if it can just as easily be given the ordinary rates?

I think there is no chance that the rules will be out before April 15th (of 2014) and perhaps not even before the end of 2014. The IRS is hamstrung by finite resources and there’s just too much else going on right now to focus on something as small as Bitcoin unless specifically directed to do so (and maybe not even then). For an example of bureaucratic sluggery (as if you need one), see the SEC’s ponderously long rulemaking process for equity internet crowdfunding under the JOBS Act, which is, at the time of writing, over a year past the Congressionally mandated due date and still not complete. If the Congress goes for wholesale tax reform next year, or if Bitcoin manages to make a powerful friend with incentive to see some solid regulations, then that could change. On the flip side, there are some fairly powerful stakeholders, such as the major banks, that have a vested interest in Bitcoin continuing to look risky and shady.

Question: “If your assumption about it being treated as a foreign currency is correct, that would imply everyone would need to take a mark to market approach at the end of every year to determine your gain, correct? It seems that would be the safe move until they actually address this issue.”

Answer: A cash basis taxpayer wouldn’t mark anything to market. If you were in the business of trading Bitcoins and reported on the accrual basis, you might need to. If you wanted to do this and if you were treating Bitcoin as a capital asset, you could harvest gains each year by selling and rebuying right away, but the wash sale rules might prevent you from harvesting losses that way. While it may seem silly to realize gains (and pay taxes) when you don’t absolutely have to, this might be a good strategy if you believe that your tax rate will be higher in the future.

Image credit to Reddit user mastermind1228, who says that he is “sick of seeing pictures of physical metal associated with Bitcoins…Bitcoin is a network, not a coin.” Image created and owned by Jason Benjamin at http://perfecthue.com/.

The post Bitcoin Tax Accountant FAQ appeared first on Bitcoin Magazine.

2013 in Review: Positive Developments in the Fight to Open Access to Research

EFF's Deeplinks -

As the year draws to a close, EFF is looking back at the major trends influencing digital rights in 2013 and discussing where we are in the fight for free expression, innovation, fair use, and privacy. Click here to read other blog posts in this series.

2013 has been a hot year for the movement to democratize publicly funded research. Legislation was introduced in Congress, and the White House issued a directive in support of making the results of billions of dollars of taxpayer-funded research freely available online. Some universities have started their own open access initiatives, and three states have proposed good legislation—one of which, in Illinois, became law.

The traditional publishing industry is fighting back. They have offered their own "fixes" to the problem of closed access—most notably CHORUS, a journal article database controlled by the publishers themselves. Meanwhile, subscription prices continue to rise, forcing university libraries to pick and choose between journal subscriptions, and creating or reinforcing unnecessary barriers to cutting-edge research—much of which is publicly funded.

Two bills—one good, one bad—relating to open access were introduced in Congress this year. The good bill, the Fair Access to Science and Technology Research Act (FASTR), is step in the right direction. If passed, a great majority of federally funded research would be widely available no more than six months after it was originally published. We urge everyone to sign and share the petition in support of FASTR today.

The other bill that addresses open access this year, the FIRST Act of 2013, is bad news. The bill supposedly promotes open access, but the proponents’ idea of “open access” is absurd. The legislation proposes that research funded by taxpayers can live behind a paywall for up to three years. The public shouldn’t have to wait three years to access the results of the science we make possible.

Meanwhile, the White House has come out in favor of more robust public access policy, requiring federal agencies to create plans to ensure the public can read and analyze their work, without charge. We look forward to reading and commenting on what agencies submitted in response to this directive in 2014.

But the action isn’t all inside the Beltway. California, Illinois, and New York have all introduced promising state-level open access bills in 2013. Several universities are instituting their own open access initiatives. For example, the University of California system adopted a policy that will make academic research freely available in an open digital repository. And the University of Iowa has created a fund to help cover the costs of open access publishing.

To close the year, be sure to add your name to our growing list of supporters petitioning Congress to pass FASTR. And stay tuned as we continue to fight for the right to read, analyze, and build on top of the academic research that we–the public–bankroll with our tax dollars.

This article is part of our 2013 Year in Review series; read other articles about the fight for digital rights in 2013. Related Issues: Open Access
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Inside Bitcoins New Year Press Release

Bitcoin Magazine -

Inside Bitcoins Conference and Expo in Las Vegas drew over 1,500 attendees from all over the world. The show was 15 times the size of the inaugural Inside Bitcoins Conference in NYC in July 2013. Mediabistro has a bright and ambitious future planned for Inside Bitcoins events and will be taking the conference on a world tour in 2014 with stops in Germany, Hong Kong, London, and New York City among other locations. Inside Bitcoins is unique because it the only event to cover the origins, features, value propositions, and future impact of the first decentralized digital currency across all verticals and industries. Beyond banking, also examined is Bitcoin’s history in gaming and its impact on global liquidity for casinos. Inside Bitcoins brings together the entrepreneurs and visionaries who are leading the charge into the future of money to share their successes, their failures and help spark new ideas along the way.  Governmental regulation of cryptocurrencies, financial tech, bitcoin mining, new business models, and the rapidly changing landscape of Bitcoin is all part of the discussion here.

Visit Media Bistro’s Inside Bitcoin Berlin website for more information about their next conference.

The post Inside Bitcoins New Year Press Release appeared first on Bitcoin Magazine.

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