I.R.S. Says Bitcoin Should Be Considered Property, Not Currency
Source: dealbook.nytimes.com
The Internal Revenue Service may have just taken some of the fun out of Bitcoin. But that may mean that the virtual currency is growing up.
The I.R.S. announced on Tuesday that it would treat Bitcoin, the computer-driven online money system, as property rather than currency for tax purposes, a move that forces users who have grown accustomed to operating under the government’s radar to deal with new tax issues and reporting requirements.While that may seem like an expensive headache, some financial experts view the move as a way to push Bitcoin further away from the fringes and into the mainstream financial system.
“It’s getting legitimacy, which it didn’t have previously,” said Ajay Vinze, the associate dean at at Arizona State University‘s business school. The ruling, he said, “puts Bitcoin on a track to becoming a true financial asset.”
While many users already treat Bitcoin like a currency, the I.R.S. made it very clear that “it does not have legal tender status in any jurisdiction.”
The industry had been expecting the government to come out with some sort of guidance on Bitcoin, so the announcement on Tuesday did not come as much of a surprise. But some users worry that treating it as an investment could discourage the use of Bitcoin as a payment method. If a user buys a product or service with Bitcoin, for example, the I.R.S. will expect the individual to calculate the change in value from the date the user acquired Bitcoin to the date it was spent. That would give the person a basis to calculate the gains — or losses — on what the I.R.S. is now calling property.
“People might just be tempted to hoard rather than spend, because as soon as they spend they would be liable to incur capital gains taxes,” said Pamir Gelenbe, the co-founder of the CoinSummit conference and a partner at Hummingbird Ventures, a venture capital firm that recently invested in the online Bitcoin exchange Kraken.
The I.R.S.’s decision would treat Bitcoin as property subject to capital gains taxes. Long-term capital gains taxes are capped at 20 percent, a more favorable rate than the top rate of 39.6 percent on federal income taxes. Individual traders in the currency markets — the British pound, for example — are expected to treat gains or losses as regular income for tax purposes.
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Read the full article at: nytimes.com
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