Bitcoin used to be something like Schrodinger’s currency. Without regulatory observers, it could be affirmed to be money and property at the same time.
Now, the internal income service has opened the box, and the condition of the virtual currency is established, at least for federal fiscal purposes.
The recently emitted orientation of IRS on how it will treat Bitcoin, and any other stateless electronic competitor. The short answer: as a property, no currency. Bitcoin, along with other virtual currencies that can be exchanged by legal tender, will now be discussed in most cases as an asset of capital, and in some situations as an inventory. Bitcoin holders who are not distributors will be subject to taxes on capital gains in value increases. Bitcoin “Miners”, which unlocks the algorithms of the currency, will have to report their findings as income, as well as the other miners do when extracting more traditional resources.
Although it is unlikely that this decision causing a lot of turbulence, it is worth noting. Now that the IRS has made a call, Bitcoin’s investors and enthusiasts can advance with a more accurate understanding of what they are (virtually) they have. A Bitcoin holder who wants to comply with the Tax Law, instead of evading it, now knows how to do it.
I think the IRS is correct to determine that Bitcoin is not money. Bitcoin, and other virtual currencies, is too unstable in value to be called realistic manner a coin form. In this era of floating exchange rates, it is true that the value of almost all currencies changes from week to week or year to another in relation to any particular reference, whether the dollar or barrel of oil. But a key feature of money is to serve as a value store. The value of money itself should not change drastically from day to day or hour to time.
Bitcoin does not fail this test. Buying a bitcoin is a speculative investment. It is not a place to park its inactive, cash spending. In addition, to my knowledge, no general financial institution will pay interest on Bitcoin’s deposits in the form of Bitcoins. Any return of a Bitcoin exploitation comes only a change in Bitcoin’s value.
If the IRS decision will help or hurt or hurt Bitcoin holders, it depends on why they wanted Bitcoins in the first place. For those with the hope of benefiting directly from Bitcoin’s fluctuations in value, this is good news, since the rule of profits and capital losses are relatively favorable to taxpayers. This characterization also defends the way some high-profile bitcoin enthusiasts, including the twins of Winklevos, have reported their profits in the absence of a clear guide. (While Bitcoin’s new treatment is applicable in recent years, penalty relief may be available for taxpayers who can demonstrate a reasonable cause of their positions).
For those who hope to use Bitcoin to pay for their rent or buy coffee, the decision adds complexity, since the Bitcoin spending is treated as a taxable form of barter. Those who pass Bitcoins, and those who accept them as payment, will have to take into account Bitcoin’s fair market value on the date on which the transaction occurs. This will be used to calculate the gains or loss of gas capital and the base of the receiver to obtain future profits or losses.