IRS Needs Rules for Virtual Currencies

January 10, 2014 Taxation in USA

WASHINGTON D.C. – The USA does not have any specific rules regarding the taxation of virtual currencies, and the ambiguity could mean that purchases made with the coins could result in capital gains or income tax obligations.

In the Annual Report to Congress released January 9th the head of the Office of the Taxpayer Advocate Nina Olson said that the IRS urgently needs to clarify the rules regarding the taxation of digital currencies.

She noted that while the use of virtual currencies is growing significantly, the IRS still has not issued any specific guidance on tax and filing requirement, leaving users to seek opinions and advice online.

Nina Olson pointed out that there is currently some ambiguity to how virtual currencies are taxed, as if they are regarded as property then spending and receiving them may trigger capital gains, while if they are regarded as “nonfunctional currency” they may trigger income taxes.

She also said that there is no clear interpretation of whether virtual currencies fall under the IRS requirement for taxpayers to declare any “foreign financial assets in excess of $50,000.”

The overall implications of the taxation of virtual currencies may be very wide, as, under some interpretations, spending them at all may trigger a personal tax obligation.

Virtual currencies are gaining rapid popularity around the world, with Bitcoin at the forefront, in both value, reputation and the number of transactions.

All virtual currencies are decentralized are not monitored by any government body, providing anonymity on most purchases.

Photo by: BTC Keychain