The IRS Says Bitcoins Legit, Now Pay Your Bitcoin Taxes

The IRS Says Bitcoins Legit, Now Pay Your Bitcoin Taxes

 

You know Bitcoin isn’t going away when the IRS wants their cut too. Or maybe it will be another trip up for the thus-far-unregulated cryptocurrency. Not too long ago, a major bitcoin exchange (Mt. Gox) that handled 70% of all bitcoin trading, according to the WSJ, “lost” 850,000 bitcoins because they, um, got hacked. If Forbes says that 200,000 bitcoins is worth $116 million dollars then…. Then I imagine quite a few people are curled up in a ball somewhere crying over digital currency. It’s a volatile currency and now bitcoin taxes are being thrown on top of it.

 

Now the IRS isn’t recognizing Bitcoin as “currency” yet. Victor Fleischer of The New York Times writes that defining it as a currency implies that it’s “accepted as legal tender in a country or jurisdiction” and that’s still up for debate. Not everyone is buying their groceries with it yet. So it’s not quite legit in that light, but IRS wants those bitcoin taxes so they’re classifying bitcoins as taxable “property”.

 

The I.R.S. on Tuesday released guidance indicating that Bitcoins and other so-called virtual currencies that do not have the status of legal tender in any jurisdiction would be treated as property, not currency, for tax purposes. The guidance also indicates that Bitcoin transactions are subject to the same information reporting and withholding requirements as similar transactions in dollars. (The New York Times)

However, there’s a couple problems with the IRS creating “bitcoin taxes.” One, it goes against the spirit of Bitcoin:

To the extent that Bitcoin’s success depends on anonymity and on avoiding the burden of government regulation, this I.R.S. guidance is an unwelcome blow. Bitcoin users are not accustomed to telling their counterparties who they are, let alone what their Social Security number is. (NYT)

And two, if Mt. Gox wasn’t a hint, the Bitcoin market is still unstable:

Determining the value of a Bitcoin is more subjective than determining the value of a foreign currency. Taxpayers are supposed to convert the value of Bitcoin into dollars by looking up the exchange rate at the time of their transactions.

But the Bitcoin market is not as stable and efficient as the market for foreign currencies. Different online exchanges list different prices.  (NYT)

There are some heavy hitters (like the Winklevoss twins of Facebook fame) in the Bitcoin game, but they’re also those like Warren Buffett warning investors to stay away from bitcoins. Then again, when IRS wants in on the game, it’s hard to deny that there just might be something here.

However, bitcoin taxes, ehhhh, don’t you think it’s a bit early? Should the IRS even be getting involved? Give us your thoughts in the comments below or on Facebook.

 

(Photo courtesy of Fabian Figueredo, via Flickr CC BY-SA 2.0)

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