Iraqi Dinar Updates

Taxes Q&A

Below is the beginning of a compilation of answers to the questions dinar holders have in the areas of tax implications, charitable giving, corporations, trusts, various types of investments and more.

These answers are coming from the groups of tax attorneys, tax accountants, and financial/investment advisors I have teamed up with, many of which hold dinar themselves.

This page will be updated, as they provide me with information.

The first question and answer, falling under the area of taxes, comes from a tax attorney located in the headquarters of the IRS in Washington DC, who consulted the National Taxpayers Association on behalf of a fellow dinar investor.

TAXES

QUESTION:

My client bought some Foreign Currency (Iraqi Dinars). There is a chance that fairly soon, the value will increase greatly. If so, I want to understand the tax implications when he cashes them back into USD. He is asking me if there is a way he can report them under IRC 1256 to take advantage of the savings using the 60/40 rule?

ANSWER:

The conversion of foreign currency into US dollars is subject to the foreign currency provisions under §988. Gain or loss on the conversion is generally treated as ordinary gain or loss. The individual is not dealing in foreign currency contracts, and electing the end of year mark-to-market provision each year. IRC 1256 could be applied if dealing in foreign currency contracts as opposed to a currency exchange.

This summary is applicable only for the facts as presented at the time and cannot be used as a precedent for any position for which the facts vary.

DONATING DINAR

ASSUMING CAPITAL GAIN PROPERTY TREATMENT BY THE IRS:

Short-term Capital Gain Property: The contribution deduction allowed for charitable gifts of appreciated short-term capital gain property (i.e., capital assets the taxpayer has held for 12 months or less) is limited to the taxpayer’s basis in the property (basis is equal to the purchase price of the asset)[IRC Sec. 170(e)(1)(A)]. This rule applies regardless of the type of charity to which the property is contributed

Long-term Capital Gain Property: The contribution deduction allowed for gifts of appreciated long-term capital gain property (stocks, mutual fund shares, real estate, etc.) to charities (other than to certain private foundations) (long-term capital gain property is property held for more than one year) is the fair market value.

So if you donate dinar, before or after RV, that you have held for 12 months or less, the deduction is what you paid for it. Once you have held it form more than one year, the deduction if the fair market value at the date of the donation.

BUSINESS ENTITIES:

Sub-chapter S corporations and multi-member LLC’s are “flow through entities”. This means that income from the entity flows through to the personal tax returns of of the shareholders or members, respectively. In other words, these entities themselves pay no tax. A capital gain, for example, would flow through from the S corporation or LLC to the shareholder or members personal tax return.

There are specific rules regarding the treatment of charitable contributions of appreciated property from partnerships (which is how multi-member LLC’s are taxed) and S corporations that affect the members’ or shareholders’ basis in the entity.

A single member LLC is a disregarded entity (unless it elects to be taxed as an S corporation for tax purposes) and its activity is reported on the personal tax return.

Generally speaking, property transferred to a corporation during incorporation or to a partnership retains the same holding period as in the hands of the contributing shareholder or partner and the basis is the same as it was in the hands of the contributing partner or shareholder. No gain is recognized on the transfer.

However, this does not apply to a partnership that is an investment company (more than 80% of the assets are portfolio-type investments). With an investment company partnership, gain or loss, if any, is recognized at the time of the contribution of the property to the partnership.

You could potentially deduct in a business entity the ordinary and necessary business expenses related your dinar investment that you might not otherwise be able to deduct. Finally, there may be valid and compelling legal reasons to hold assets in such an entity, but I am not qualified to comment on what those reasons might be.

A “C Corporation” would not be good choice to hold appreciated assets because capital gains are taxed at regular corporate rates. Furthermore, cash taken out as dividends after the sale of the appreciated assets would then also be taxable on the shareholder’s personal tax return.

The choice of the proper business entity is a very important one and you should consult both tax and legal professionals when making the decision.

TAX MITIGATION

There are investments available only to accredited investors and advanced tax planning techniques and strategies that can be used to reduce the tax burden. These are best addressed on an individual basis and should be integrated with your overall financial and estate plan.

DISCLAIMER

While the authors have used their best efforts in preparing the above information, they make no representations or warranties with respect its accuracy or completeness and disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by the authors. The advice and strategies contained herein may not be suitable for your particular situation. You must perform your own research with pertinent tax authorities to address specific situations. The authors shall not be liable for any loss of profit or any commercial damages, including but not limited to special, incidental, consequential, or other damages.

The authors have no responsibility or liability to any person or entity with respect to any loss or damage caused or alleged to be caused, directly or indirectly by the information contained above. Readers are cautioned that this information is not intended to provide tax, legal or accounting advice. If such services are required readers are advised to seek the aid of competent professionals. No assurance is the authors or speakers that subject matter contained herein is complete, authoritative or all-inclusive.

Interpretations of Internal Revenue and Department of the Treasury publications are subject to various clusions and the results may differ when the facts are applied to individual taxpayers or situations. Accordingly, professional advice and reference to the applicable law must be obtained for specific cases. No assurance is given by the authors that subject matter contained herein is complete, authoritative or all-inclusive. Therefore information presented should be relied upon only as an additional reference source, and independent research with the authoritative law is required for specific situations.

IRS Circular 230 Notice: Any US tax advice included in this written or electronic communication was not intended or written to be used,
and it cannot be used by a taxpayer, for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code
or applicable state or local tax law provisions.