Practical and Practice issues for Professionals who practice in the area of taxation. Moral, social and economic issues relating to taxes, including international issues, the U.S. Internal Revenue Code, state tax issues, etc. Not for "tax protestor" issues, which should be posted in the "tax protestor" forum above. The advice or opinion given herein should not be relied on for any purpose whatsoever. Also examines cookie-cutter deals that have no economic substance but exist only to generate losses, as marketed by everybody from solo practitioner tax lawyers to the major accounting firms.
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.
Dan Evans
Foreman of the Unified Citizens' Grand Jury for Pennsylvania
(And author of the Tax Protester FAQ: evans-legal.com/dan/tpfaq.html)
"Nothing is more terrible than ignorance in action." Johann Wolfgang von Goethe.
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.
The fact that you sincerely and wholeheartedly believe that the “Law of Gravity” is unconstitutional and a violation of your sovereign rights, does not absolve you of adherence to it.
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."
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.
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.
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