Level 6

Forsage partners own smart contracts and by referral , partners earn Ethereum virtual currency. This would be a Schedule C, as it is actively running business, therefore, all their commission paid in ETH is taxable and Virtual Currency and Smart Cont

Forum|Forum|5 years ago
December 1, 2020
4 replies
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Forsage partners own smart contracts and through referrals , partners can earn Ethereum virtual currency. This would be a Schedule C, as it is actively recruiting and running a business, therefore, all their commission paid in ETH is taxable and subject to self employment income. Am i correct? I read the FAQs in IRS about Virtual currency, just want to confirm here.

A partner can use those ETH commission to buy more contract in order to have more commission opportunities.

I think there is 2 part to this, the commission earned as taxable income, and later on when ETH is converted to dollar or withdrawn, it will result in capital gains depending on basis and market value of ETH.

Am I understanding this correctly?

If one individual owns $100 000 worth of ETH, a US resident, do they need to file FBAR?I don't follow the need for FBAR, is it because it is digital currency?

Smart contracts I think would be intangible assets and can be depreciated as such, can it qualify for section 179? I think it can, again, I am hoping to verify what others think of it. Thank you.

Sorry for the multiple questions, i wanted to keep this info in one file concerning Forsage smart contracts as it is growing rapidly here in US a lot needs a better understanding on tax consequences of this. Thanks

This topic has been closed for replies.

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dbtaxsolutionsAuthor

Level 6

Once a partner buys a contract (level 1 to 12), it's non refundable, you cannot get it back. The only way to get your investment back is to earn commission by referral, and get paid in ETH. I think everything goes in schedule C here, no passive income. So in schedule C,

Revenue (commissions)

Expenses: Depreciation (section 179 of intangible asset, the smart contracts)

If ETH as virtual currency considered as "property" an asset, how is it depreciated? It can't be, so you don't include it in asset worksheet. So you would then use Sch D, can this be linked to that Schedule C so that it is not passive income/rather an active income or is it passive income? I am uncertain as to the commission being taxed as earned income, but if they have not cashed out the ETH, and when they do and somehow it is a loss, it will be a capital loss that will need to be applied to capital gain (not against ordinary income they were taxed on).

Thank you.

qbteachmt

Level 15

The contract might depreciate (it isn't clear what was contracted for), but ETH won't depreciate. It's the Currency, which is a different type of Asset. Tangible goods that "wear out over time" while in use is why they Depreciate = the value is lost a bit by nature of that use.

Currency is Held. It isn't "wearing out." It isn't "in use." It simply exists. All of your money in regular banks is not depreciating.

When you are paid by anything, including Chickens, you use FMV of that payment in exchange for what you were paid for. If I do $500 worth of work, but accept $200 value of ETH, then I got paid $200, not $500. And later, if I trade/convert that ETH for $5,000 US, that is the gain on the trade from $200 basis.

Is that what you are asking?

Don't yell at us; we're volunteers

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dbtaxsolutionsAuthor

Level 6

I get all that. Say I own the Schedule C, and I own the contracts (these smart contracts are right to earn Ethereum through referral. The contracts are life time, I own it. Whether I want to continue with this business or not, it's there recorded on the block chain that I own this contracts, can't resell it.

I guess since there is no resell value, it would just have to be expensed, the contract price could depreciate or appreciate as people buy depending as it is tied to the market value of ETH. But the once I purchased, it's a sunk cost. Smart contract are purchased in level 1 to 12, level 12 can cost $120 000. Level can be $28. (again depending on ETH price but this is close to approximation recently).

The contracts would be asset in which case I can claim section 179?

Commissions earned = Schedule C

ETH sold at appreciated value = Schedule D (can this be linked to Schedule C)? The reason i was asking is if I have a capital lossl since there is capital loss limitation, i would want it to apply to ordinary gain in my schedule C.

FYI, the company is Forsage if you want to look it up and if interested let me know. It is sort of "mining" or earning for ETH through referral base.

Thank you.

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dbtaxsolutionsAuthor

Level 6

Forsage promotes it as passive income, but I think it is "active income" for the commissions, then later on if commissions were held on long position and appreciates in value then sold, then it would be capital gain. that's my take, any ideas?

qbteachmt

Level 15

How it markets itself is Marketing; not Factual. I can call it Quantum Rights, for instance.

"If anything at all, the closest thing my little brain can think of is §197 intangibles with an amortization period of 15 years."

It seems more like Oil & Gas royalty, where the life isn't really know (we were told it's for life) as far as the activity goes. You take a deduction as a flat depletion against income.

It seems you pay to play = paid money to get commissions from others who pay money to get commissions. That screams Ponzi, even over text.

"Forsage promotes it as passive income, but I think it is "active income" for the commissions, then later on if commissions were held on long position and appreciates in value then sold, then it would be capital gain."

The Sched C means you are running a Business.

The Sched D means you have an investment.

Both are part of Form 1040 for that person.

Don't yell at us; we're volunteers

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dbtaxsolutionsAuthor

Level 6

"It seems you pay to play = paid money to get commissions from others who pay money to get commissions" -- this is exactly right. However, once an individual build enough team under her/him, he or she can get what they call "spill over" commission. No body can seem to explain how the spill over commission gets distributed as it is something to do with computer algorithm and it is random. Individuals have earned ethereum commissions without having referred anyone.

I thought about the smart contract as more like a royalty like you said.

I am wondering the same thing whether someone gets 1099 Misc or 1099K.

Still searching on IRS website but no luck yet so far other than the FAQs on virtual currency. Thank you.

itonewbie

Level 15

BTW, the answer to the OP's question about FBAR/FATCA reporting is here: https://proconnect.intuit.com/community/practice-advice/discussion/re-virtual-currency/01/108187

---------------------------------------------------------------------------------Still an AllStar

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begbyj

Level 2

All,

I'm extremely surprised that no one here has mentioned that Forsage is not a legitimate business. It's a pyramid/Ponzi scheme with a standard element from Multi-level Marketing, namely the 'matrix'. The fact it uses smart contracts on the Etherium network is only obfuscation for the scheme. They have no business and no revenue, it's entirely generated from the profits on new 'recruits' and the price increase to Ethereum that has been common over the last year as cryptocurrencies continue to rise.

This scheme has already received a cease and desist order from the SEC in the Philippines where most of the victims originated.

https://www.sec.gov.ph/cdo-2020/forsage-and-forsage-philippines/

Here are some earlier articles on the topic.

https://news.bitcoin.com/despite-warnings-from-regulators-the-ethereum-fueled-pyramid-scheme-forsage-thrives/

https://cointelegraph.com/news/one-month-on-forsage-continues-despite-secs-ponzi-warnings

I'm not sure how you list your income from a Pyramid scheme on your taxes, but it is certainly possible Schedule C would still apply. Then again, it's probably better not to have income from a Pyramid scheme instead.

itonewbie

Level 15

@begbyjDid we not? You may like to read again: https://proconnect.intuit.com/community/tax-talk/discussion/re-forsage-partners-own-smart-contracts-and-by-referral-partners/01/113121#M3930

---------------------------------------------------------------------------------Still an AllStar

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begbyj

Level 2

I apologize, for some reason only the first dozen or so messages had loaded when I wrote this; I did not note there were a few people pointing out the obvious later on. Thank you for doing so. I was just very disheartened to see so much discussion on how to categorize the income from a fraud.

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