Online cryptocurrencies like bitcoin have been around a few years now and every few months they end up in the news, often when the value of one virtual currency spikes or drops.
Two days ago, the IRS issued Noticed 2014-21 which addresses how the IRS will treat virtual currency for tax purposes. The long and short of it is that the Department of Treasury and the IRS do not treat virtual currencies like bitcoin as currency. Instead for purposes of tax they are treated as property. This means virtual currency is not applicable for the various sorts of tax situations that could arise, for example, from the changing relative values of Euros and US Dollars. As property, however, the changing value of virtual currency counts as gains or losses. Virtual currency received as compensation for employment is considered wages. For both purposes, the fair market value in US dollars has to be calculated. The IRS further explained that payments made in virtual currency incur the same reporting requirements as payments made through other means. Failure to treat virtual currency transactions in accordance with the notice may leave taxpayers subject to penalties, the same failing to comply with any other tax laws.
Horowitz Law Offices represents individual and corporate taxpayers before the Internal Revenue Service, Illinois Department of Revenue, and the Chicago Board of Finance. You are welcome to contact us at (312) 787-5533 or email@example.com