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USA - Bitcoins Taxed as Property!

Topic Update:

The Internal Revenue Service made its first pronouncement saying it will treat bitcoin and other virtual currencies like property such as stocks, and not currency, giving a potential boost to investors but imposing extensive record-keeping rules. The rule generally would impose capital-gains taxes, rather than higher regular tax rates, on investors' profits.

The announcement brought cautiously favorable reaction from the fledgling industry. But some experts predicted problems for bitcoin as well as for the IRS in enforcing the reporting and withholding requirements in the guidance.

And in general, many bitcoin payments made by a business exceeding $600 in value—such as for rent, salaries, and wages—would be subject to information reporting to the IRS and to the payee.

The IRS also said taxpayers may be subject to penalties for failure to comply with tax laws. The notice also applies to prior years.

Mark Williams, a Boston University finance professor, said the IRS ruling "reduces the positive economics for bitcoin owners and miners," and could reduce liquidity in the bitcoin market and trim the number of miners or push them offshore.

Omri Marian, a tax expert and assistant professor of law at the University of Florida, said the IRS requirement to report some bitcoin transactions worth more than $600 could be difficult to comply with because many bitcoin transactions are anonymous. And if bitcoin businesses are forced to withhold taxes, that could limit their appeal, he said.

The IRS offered clarity about the tax treatment of virtual currencies, but it also left some questions open. For example, the Securities and Exchange Commission and other agencies are still studying whether bitcoin should be regulated, according to U.S. officials.

Our short discussion for this meetup will focus on the new designation for BTC by the USA as a property not a currency. Putting bitcoin and other virtual currencies in the same category as stocks or bonds in some instances, the IRS said in a statement: "General tax principles that apply to property transactions apply to transactions using virtual currency."

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