Digital Assets Development: IRS Characterizes Bitcoin as Property, Not Currency


On Tuesday, the IRS issued Notice 2014-21, in this Notice, the service announced that it would treat Bitcoin or other virtual currency as property for tax purposes. The IRS reasoned since the virtual currency is not regulated by any government, it would not be treated as currency.

As a result of the announcement, it is clear that when someone uses or receives bitcoins, it is as if the person (i) used property to pay for goods or services, or (ii) received property in payment for those goods or services. For example, if a person bought a particular amount of bitcoins for $100.00 and then used it to buy $200.00 worth of services, there would be a $100.00 gain on the transaction.

Some of the questions answered in the announcement include clarification that virtual currency is not treated as currency for purposes of determining whether a transaction results in foreign currency gain or loss, that a taxpayer who receives virtual currency as payment for goods and services must include the payment in gross income for purposes of income and employment taxes, and that the basis of virtual currency received as payment for goods or services is equal to the fair market value of the virtual currency in U.S. dollars as of the date of the receipt. The fair market value is determined by an exchange rate, if one is available. The announcement also provides that if a taxpayer ‘mines’ virtual currency as a trade or business, any income earned is income subject to self employment taxes. 

Written by:

Published In:


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Davis Brown Law Firm | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.