Quatloos!

The IRS has released Notice 2014-21, which describes the income tax consequences of transactions with BItcoin and other "convertible virtual currencies."

The gist of it:

Q-1: How is virtual currency treated for federal tax purposes?

A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.

In other words, transactions in Bitcoin are just like transactions in gold or commodities.

notorial dissent wrote:In other words, if you bought it or mined it for nothing and then let it appreciate the way it has lately, and then sell/convert it, you're in for a big ole whopping capitol gain tax.

That's no real surprise though. This situation was going to break one of two ways, either in favor of the large institutional investors or in favor of the cypher punks who want to was it for currency. No one seems surprised that the IRS choose the Winklevoss twins over ScrewTheFed4Life36, considering that the latter is unlikely to report their taxable transactions even under favorable conditions.

Edit: I wonder if anyone has started rubbing the Gox DB leak against the block chain to find tax evaders. Does the IRS have a "fruit of the poisoned tree" policy for their snitches?

LPC wrote:The IRS has released Notice 2014-21, which describes the income tax consequences of transactions with BItcoin and other "convertible virtual currencies."

See also the petition at Whitehouse.Gov, AMEND IRS NOTICE 2014-2Taxing virtual currency/bitcoin as property stifles new technology&creates untenable requirements My feeling is that is that "convertable" virtual currencies should be treated as if they were (often non-convertable) real currencies, which is a little more complicated than being treated as property. However, is there a place at the Treasury Department for real suggestions as to what should be done?

Arthur Rubin wrote:See also the petition at Whitehouse.Gov, AMEND IRS NOTICE 2014-2Taxing virtual currency/bitcoin as property stifles new technology&creates untenable requirements

The petition does not say why enabling the use of crypto currency is a good idea or important. To me, curbing speculation and abuse in the market also seems like a good goal, and it's obvious that the public will end up spending a lot of money investigating and prosecuting abuses in the Bitcoin marketplace. As a taxpayer I would prefer to have people who care about Bitcoin bear those costs.

Lambkin wrote:

Arthur Rubin wrote:See also the petition at Whitehouse.Gov, AMEND IRS NOTICE 2014-2Taxing virtual currency/bitcoin as property stifles new technology&creates untenable requirements

The petition does not say why enabling the use of crypto currency is a good idea or important. To me, curbing speculation and abuse in the market also seems like a good goal, and it's obvious that the public will end up spending a lot of money investigating and prosecuting abuses in the Bitcoin marketplace. As a taxpayer I would prefer to have people who care about Bitcoin bear those costs.

If Bitcoins were treated like currency for the purposes of taxation, the taxes collected would be higher. Most of the rank-and-file BTC users are about as likely to report on their day-to-day BTC transactions as they are to send love letters to the Federal Reserve Board of Governors. On the other hand, the Winklevii will report on every cent they make (and their accounts can find a way to exclude from income), so they would much rather pay capital gains on property than income tax on currency.