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According to an article I read on Law360 (paywalled), Facebook's Libra could never be successful as envisioned because the tax reporting burden on it will be too high. Essentially, users will constantly need to track the value of their Libra vs the US dollar to report their taxes accurately in US dollars.

Here's an excerpt:

Users hoping to pay for everyday transactions with Facebook Inc.'s planned cryptocurrency could be required to keep near-constant tax records, a major impediment to the company's dream of establishing a convenient worldwide digital currency.

If tax authorities were to consider Facebook's Libra an asset — as most do digital currencies now — then they would likely consider any exchange to be a realization of gain or loss, requiring taxpayers to keep records and potentially pay capital gains tax. To create a cryptocurrency “as widely accepted and as easy to use as possible” that “people can use with confidence and convenience in their everyday lives,” as Facebook has promised, the company would need either to create an unprecedented tax compliance program for its users, or to persuade tax authorities around the globe to change how they treat cryptocurrencies.

My question is, why can't Libra just be classified like any "points" offered by a company or group of companies? For example, I earn Starbucks points and I don't calculate the value of a Starbucks point in US dollars every time I get a coffee.

  • This is like asking why a llama can't be considered a small dog and taken on a commuter train - they're just not the same thing, of course it can't be classified that way. – Nij Sep 1 at 0:57
  • @Nij, actually it all depends on the definition of what's allowed. If what's allowed are 4 legged domesticated mammals, then llamas would be included. If the language simply says "dogs are allowed" then that would likely include wolves. So what you might think is obvious actually isn't – CodyBugstein Sep 1 at 1:09
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    "Dogs are allowed" would exclude wolves, they are not the same animal. For the same reason, Libra is not a bonus points system, so it can't be treated as one. – Nij Sep 1 at 5:41
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It's always amazing to me why some people find it so difficult to understand, just because the word "crypto" is involved. It goes like this:

Cryptocurrency is an asset, like any other asset. It's also a currency, but that part can be ignored for this purpose.

Buying an asset, any asset, is (usually) not a taxable event. "Buying" in this case consists of exchanging US$ for the asset, just to be clear.

Selling an asset, any asset, is (usually) a taxable event. Exchanging an asset for another asset is (usually) also a taxable event. So exchanging a cow for two sheep is a taxable event.

The taxable event consist of being deemed to have sold the cow for an "amount realized" equal to the value of two sheep. That amount, less the cost of the cow (the "adjusted basis") is taxable gain (or loss), short or long term - depending on how long the cow was held before the exchange.

The outcome is the same if you replace the two sheep with several hundred cups of coffee or several hundred hamburgers; the outcome is still the same if you replace the cow with any currency (other than the US$), crypto- or otherwise.

And that's (almost) all there is to it...

  • This does not answer the question at all. Based on what you are saying, purchasing a cup of coffee with Starbucks Rewards is a taxable event, yet we know it's not – CodyBugstein Aug 1 at 19:37
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    @CodyBugstein - Purchasing a cup of coffee with Starbucks Rewards is a taxable event if the purchase takes place at McDonald's. The fact that the IRS may not be able (or willing) to enforce it, doesn't change the answer. – Jack Fleeting Aug 1 at 20:08
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    I'm not sure why this answer has be voted down as it seems to me the correct answer. In the US at present, cryptocurrencies are simply a type of asset. If you sell your Libras for more than you paid for them, you'll typically owe taxes on the profit. If you sell your collection of Starbucks Reward points for more than you paid for them, that would be taxable as well. If you can figure out some way to launder money using Rewards points, then the FBI will take an interest in them too, just as they have with gift cards. – Charles E. Grant Aug 1 at 22:41
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Market liquidity.

Starbucks points and the like are not currency: they won't be accepted by sellers of goods and services, let alone you won't be able to transfer them.

Libra is currency.

By the way, Libra is not cryptocurrency as it is not truly decentralised, neither is it based on blockchain.

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    @Cody: Not until Starbucks points are welcome in other shops; but then, depending on how many other shops, yes. – Tim Lymington supports Monica Aug 1 at 16:26
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    @CodyBugstein you can trade bitcoin on many exchange platforms. Not the case with Starbucks points etc. – Greendrake Aug 1 at 21:43
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    @CodyBugstein rewards points and miles are explicitly nontransferrable. Airlines control their customers' frequent flyer accounts and do not permit the transfer. – phoog Sep 1 at 0:54
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    @CodyBugstein and by doing so, they breach the ToS with the airline program. Bonus programs like the star-alliance miles are "If you buy something, I will mark it down as partial payment for an item of your choice later", something to sweeten the deal so to say. What you gain as reduced price or as bonus is based on how much you bought. In the eyes of the IRS, you already have paid for this item with each of the other purchases, it is part of the actual transactions. Libra is clearly not structured this way. – Trish Sep 1 at 2:21
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    @CodyBugstein perhaps I'm a bit naive, but how does that even work? I've got a bunch of airline miles in an account with the airline. I can only spend them on things the airline allows me to spend them on. I don't understand how I could possibly give them to someone else, let alone sell them. – phoog Sep 1 at 3:06

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