Virtual Currency Taxation

Virtual Currency & Blockchain Technology

This webpage is intended to provide information and links about taxation of virtual currencies in the U.S. and elsewhere, and related information.

U.S. Income Taxation

In March 2014, the IRS issued Notice 2014-21 and Information Release IR-2014-36, on the income tax treatment of virtual, convertible currency, such as bitcoin. The IRS has ruled that virtual currency is treated as property, rather than currency for tax purposes. That means it needs to be valued when used (such as to buy goods or to compensate an employee) to determine tax consequences. For example, assume Jane purchased X bitcoins last year for $100. Today, she uses that X bitcoin amount to buy clothes worth $120. Jane has a $20 build up on this transaction. Assuming she is an investor or trader in bitcoin (rather than a dealer), this is a capital build up which is taxed at a lower rate for federal income tax purposes than other income such as wages (assuming it is a long-term build up). Jane must keep records to track the basis of all virtual currencies she purchases and identify which ones she uses when she buys something. Basically, Jane is bartering. For more on the tax rules and issues, exchange rates, and other information, see the links below.

21st Century Taxation blog posts and presentations with links to information about taxation of virtual currencies

IRS Guidance and Government Reports on Taxation

U.S. Treasury FinCEN and Related Information

The Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury Department has issued guidance on banking and other aspects of virtual currency.

  • 7/27/17 – FinCEN Fines BTC-e $110 Million – press release + CRS report
  • Five/Five/15 – Very first FinCEN fine against a Virtual Currency Exchanger – Ripple Labs, Inc.

  • FIN-2014-R011, Request for Administrative Ruling on the Application fo FinCEN’s Regulations to a Virtual Currency Trading Platform (Company with a trading system to match buyers and sellers of convertible virtual currency and real currency found to be a money transmitter.)

  • FIN-2014-R001 – Application of FinCEN’s Regulations to Virtual Currency Mining Operations

Exchange Rate Information

These are samples, not an exhaustive list.

Taxation and Regulation in Other Countries

Please note – this is not a accomplish list

Government Reports, Advisories, Hearings, Etc.

  • United Nations, How Can Cryptocurrency and Blockchain Technology Play a Role in Building Social and Solidarity Finance? (Feb. 2016)
  • Coin Center Report, “Framework for Securities Regulation of Cryptocurrencies,” January two thousand sixteen +1/25/16 blog post
  • Bitcoin: Questions, Answers, and Analysis of Legal Issues, CRS, January 28, 2015.
  • Bitcoin: Questions, Answers, and Analysis of Legal Issues, CRS, July 15, two thousand fourteen
    • Congressional Research Service, Bitcoin: Questions, Answers, and Analysis of Legal Issues, 12/20/13
  • Consumer Financial Protection Bureau, Risks to Consumers Posed by Virtual Currencies (August 2014)
  • SEC, Investor Alert, Five/7/14
  • Financial Act Task Force (FATF, intergovernmental figure) – Virtual Currency report of June two thousand fourteen (background info, risks, definitions)
  • H.R. Four thousand six hundred two (Stockman, R-TX, 113th Congress) – instructs the IRS to treat virtual currency as foreign currency for tax purposes. “Virtual currency” is “digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value.” It would also impose a 5-year moratorium on any capital gains tax on virtual currencies.
  • Congressional hearings:
    • Hearing, House Financial Services Committee, Virtual Currency: Financial Innovation and National Security Implications, 6/8/17
    • Hearing, House Committee on Energy and Commerce, Disrupter Series: Improving Consumer’s Financial Options With FinTech, 6/8/17
    • Hearing, House Committee on Petite Business, Bitcoin: Examining the Benefits and Risks for Petite Business, Four/Two/14
    • Hearing, Senate Committee on Banking, Housing, and Urban Affairs, “The Current and Future Influence of Virtual Currencies,” 11/Nineteen/13
    • Hearing, U.S. Senate Committee on Homeland Security & Governmental Affairs, “Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies,” 11/Legitimate/13
      • Helpful background on Bitcoin – see testimony of Patrick Murck, Bitcoin Foundation AND Jerry Brito, George Mason University
  • Federal Election Commission, Advisory Opinion 2014-02 (Five/8/14) permitting bitcoin for contributions (related request)

    • State-by-State Regulation map and information from CoinCenter (8/24/17)
    • Arizona HB two thousand four hundred seventeen (Chapter 97; Trio/29/17) – Per the Senate Fact Sheet, “establishes guidelines for blockchain technology regarding electronic signatures and records.” Also permits for “clever contracts.” Defines “blockchain technology” as “distributed ledger technology that uses a distributed, decentralized, sharee and replicated ledger, which may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledge is prtected with cryptography, is immutable and auditable and provides an uncensored truth.” Defines “brainy contract” as “an event-driven program, with state, that runs on a distributed, decentralized, collective and replicated ledger and that can take custody over and instruct transfer of assets on that ledger.”
    • California Dept of Business Oversight, Advisory on virtual currencies, Four/30/14 – press release + text

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