Topic: In legal terms, what is bitcoin? Currency? Commodity? (Read 1210 times)
Bitcoin is something totally new. It is not surprising people don't understand it right away.
IRS Press Release, March 25, 2014 (IR-2014-36): http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance
Accompanying Notice (2014-21): http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance
[...] Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” virtual currency. Bitcoin is one example of a convertible virtual currency.[...]
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.
Q-2: Is virtual currency treated as currency for purposes of determining whether a transaction results in foreign currency gain or loss under U.S. federal tax laws?
A-2: No. Under currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.
Accompanying Notice (2014-21): http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance
[...] Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” virtual currency. Bitcoin is one example of a convertible virtual currency.[...]
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.
Q-2: Is virtual currency treated as currency for purposes of determining whether a transaction results in foreign currency gain or loss under U.S. federal tax laws?
A-2: No. Under currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.
The government is indeed struggling to define it.
The same thing happened back in 1993. Is the Internet like a phone, or fax, or a tv, or radio, or mail? Yes, it has similarities to all of the above.
The IRS took the route of defining it as property, and the notice 2014-21 did a mediocre job of understanding it and applying the existing tax laws to it. In my humble, but well researched opinion, they made a mistake in requiring miners to report blocks as income. If someone builds 25 chairs using resources (wood, cloth, glue, nails, labor), those chairs can sit untaxed until they are sold, at which time the revenue is recognized and easily calculated in USD.
One of the reasons the chairs are not taxable at the time of creation is they don't have an established value. You could argue that Bitcoin has an established value, but even that varies from exchange to exchange and minute to minute. This does not take into consideration the other alternatives to Bitcoin of which many don't have a published value.
Even Mining Income from gold mining is considered taxable "At the point of sale, funds received are considered income to the miner."
Source: http://www.irs.gov/pub/irs-mssp/placer.pdf (Chapter 2)
It isn't entirely their fault as Bitcoin is (to steal from an OLD SNL skit) both a dessert topping, and a floor wax. It is a totally new thing, and it is not easily classified.
This should not to be considered tax guidance. I'm just pointing out some inconsistencies that need to be sorted out.
Tron Black
CoinCPA.com
The same thing happened back in 1993. Is the Internet like a phone, or fax, or a tv, or radio, or mail? Yes, it has similarities to all of the above.
The IRS took the route of defining it as property, and the notice 2014-21 did a mediocre job of understanding it and applying the existing tax laws to it. In my humble, but well researched opinion, they made a mistake in requiring miners to report blocks as income. If someone builds 25 chairs using resources (wood, cloth, glue, nails, labor), those chairs can sit untaxed until they are sold, at which time the revenue is recognized and easily calculated in USD.
One of the reasons the chairs are not taxable at the time of creation is they don't have an established value. You could argue that Bitcoin has an established value, but even that varies from exchange to exchange and minute to minute. This does not take into consideration the other alternatives to Bitcoin of which many don't have a published value.
Even Mining Income from gold mining is considered taxable "At the point of sale, funds received are considered income to the miner."
Source: http://www.irs.gov/pub/irs-mssp/placer.pdf (Chapter 2)
It isn't entirely their fault as Bitcoin is (to steal from an OLD SNL skit) both a dessert topping, and a floor wax. It is a totally new thing, and it is not easily classified.
This should not to be considered tax guidance. I'm just pointing out some inconsistencies that need to be sorted out.
Tron Black
CoinCPA.com
The IRS called it a commodity because they were getting blitzed to define it / categorize it.
They will make a nice little virtual currency tax code section in good time.
They will make a nice little virtual currency tax code section in good time.
Hopefully sooner than later, people getting antsy about 15th
The IRS called it a commodity because they were getting blitzed to define it / categorize it.
They will make a nice little virtual currency tax code section in good time.
They will make a nice little virtual currency tax code section in good time.
As of now, governments are struggling so hard to define Bitcoin and other virtual currencies (property,commodity, whatever you want to call it). What about it makes bitcoin so confusing? I can see where they are struggling too (like for example its not a commodity in the typical sense because its used freely and can be used for everyday transactions but its no a currency as its not government tender). Will the governments have to make a new guideline just for bitcoins as it seems to me that bitcoins are a mixture of commodity, currency, etc and will need governments to adapt their guidelines to accommodate this new technology.
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