The Internal Revenue Service Takes a Position on Bitcoin

8
8
+

 Without regulatory observers, it may promise to be cash and property in the exact same time.

 

The Internal Revenue Service recently issued guidance on the way that it is going to treat bitcoin, and any other stateless electronic competition. The brief response: as property, not money. Bitcoin, as well as other virtual currencies which could be changed for legal tender, will now be treated in many instances as a capital asset, and in several scenarios as stock.

 

Though this choice is not likely to cause much turbulence, it's worth noting. Now the IRS has formed a call, investors and bitcoin enthusiasts can move forward with a more precise understanding of what it is that they are (almost) holding. A bitcoin holder who would like to obey the tax law, rather than evade it, now understands the best way to achieve that.

 

I believe the IRS is right in deciding that bitcoin isn't cash. Bitcoin, and other virtual currencies like it, is too shaky in worth in order for it to practically be called a kind of money. In this age of floating exchange rates, it is a fact the worth of nearly all monies changes from week to week or year to year relative to any specific standard, while it is the dollar or a barrel of petroleum. However a crucial characteristic of cash will be to serve as a store of value. The worth of the cash itself shouldn't change dramatically from day to day or hour to hour.

 

Bitcoin completely fails this test. Purchasing a bitcoin is a high risk investment. Any yield on a bitcoin holding comes only from a change in the bitcoin's value.

 

Whether the IRS' choice will help or damage present bitcoin holders depends on why they needed bitcoins in the very first place. For all those expecting to profit straight from bitcoin's changes in value, this really is great news, as the rules for capital gains and losses are comparatively favorable to citizens. This depiction also carries on the manner some high profile bitcoin enthusiasts, including the Winklevoss twins, have reported their gains in the lack of clear guidance. (While the brand new treatment of bitcoin is appropriate to previous years, fee aid might be accessible to citizens who are able to show reasonable cause for their standings