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BITCOIN IS NOW A TAXABLE ASSET - IRS Says Bitcoins are Property and Not Currency
Wading into a murky tax question for the digital age, the U.S. Internal Revenue Service said on Tuesday that bitcoins and other virtual currencies are to be treated, for tax purposes, as property and not as currency.
"General tax principles that apply to property transactions apply to transactions using virtual currency," the IRS said in a statement, meaning that bitcoins would be taxed as ordinary income or as assets subject to capital gains taxes, depending on the circumstance.
Bitcoin, the best-known virtual currency, started circulating in 2009. Its present market value is around $8 billion, with up to 80,000 transactions occurring daily, according to accounting firm PricewaterhouseCoopers LLP.
Recent incidents have brought the currency under new regulatory scrutiny, such as the failure of Mt. Gox, a Tokyo-based exchange that filed for bankruptcy after losing an estimated $650 million worth of customer bitcoins.
Unlike conventional money, bitcoin is generated by computers and is independent of control or backing by any government or central bank, which its proponents like, but which also has led to calls for more guidance on U.S. tax treatment.
The IRS supplied that in its statement, which dealt a blow to bitcoin "miners," who unlock new bitcoins online. The IRS said miners must include the fair market value of the virtual currency as gross income on the date of receipt.
This change "is a disincentive to start looking for bitcoins," said John Barrie, a partner with law firm Bryan Cave LLP, who advises charities that receive bitcoins as donations.
NOT LEGAL TENDER
The IRS also said that virtual currency is not to be treated as legal-tender currency to determine if a transaction causes a foreign currency gain or loss under U.S. tax law.
"The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer," the IRS said.
However, when virtual currency is held as inventory or other property mainly for sale to customers in a trade or business, ordinary gains or losses are generally incurred, the IRS said.
Capital gains and losses are taxable and deductible at different rates and amounts than ordinary gains and los
BITCOIN IS NOW A TAXABLE ASSET – IRS Says Bitcoins are Property and Not Currency
Wading into a murky tax question for the digital age, the U.S. Internal Revenue Service said on Tuesday that bitcoins and other virtual currencies are to be treated, for tax purposes, as property and not as […]