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Say Kraken and Bitstamp both issue colored coins for USD, called KrakenDollars and BitStampDollars. Then I find an colored coins exchange where I can trade between the two, and deposit some KrakenDollars. In the eyes of the IRS, these are still dollars I think. Then I start trading between KrakenDollars and BitStampDollars, and make a respectable profit. Then I put my KrakenDollars back into Kraken, and withdraw to my bank account. How on earth should that be taxed? I was just trading between dollars and dollars...

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You trade a bunch of stuff, you wind up with more dollars than you started with, you have a taxable profit.

  • Don't you have to tax each trade based upon the price at the time and whether it's a short term or long term gain/loss? – lurf jurv Jul 6 '14 at 13:47
  • @lurfjurv That's going to depend on your jurisdiction, but often no. That would be a like-kind exchange. – David Schwartz Jul 6 '14 at 23:20

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