IRS adds clarity on bitcoin
0In 2009 @luke (then CTO of Woot) told me (then CEO of Woot) that we should explore accepting Bitcoin. I definitely owe him a "hey, good idea" pat on the back. Bitcoin was going places and we would have made some "pushing the envelope" news a few years earlier than Overstock did (a few months back, not that it was even that worthwhile). I told him he was crazy, that we didn't need the IRS breathing down our necks and who knew if it would even be legal. I look forward to future opportunities to be a dullard and screw things like that up.
So this effort in clarity from the IRS was interesting to me, but then confusing again.
http://dealbook.nytimes.com/2014/03/25/i-r-s-says-bitcoin-should-be-considered-property-not-currency
I'd love to get a summary understanding of how "treatment as property" ends up any different than "treatment as currency". Are there tax treatments to defer income realized by favorable currency shifts and this blocks them? Is this a meaningless distinction?
anyone here think paying with Bitcoin is going anywhere?
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@shawn was looking into Overstock's use the other day - it looks like, rather than actually take in Bitcoin and keep it, it's basically that they automatically use Coinbase to change your Bitcoin to US dollars and then take that in.
Maybe that's not much of a distinction, but it did feel a little more clear to me how/why they could do it without that much risk.
On the other hand, apparently Dogecoin is actually going to sponsor a NASCAR vehicle.
I hope that cryptocurrency goes somewhere, but I don't know if Bitcoin is going to be the vehicle to carry it forward or just a footnote in a future Wikipedia entry. With all of the hacks and volatility, I doubt Bitcoin will ever be stable enough to become widely accepted.
@ohjonnyboy, I don't think the Mt. Gox fraud and volatility are connected with bitcoin in any technical or underlying operative way. It's reasonable to say that the bitcoin brand is affected though, which I guess may dissuade many from participating. Still, it's hard to see how another cryptocurrency touts better actual features.
@snapster, I completely agree, but there's still such a heavy stigma surrounding "Bitcoin" as a brand that I don't know if it could ever be widely accepted. Any non-techie friend that I discuss Bitcoin with sees it as this boogeyman currency that's only used to buy drugs and is too dangerous to invest in.
@ripka, any idea what this clarification amounts to from an accounting perspective?
It means that gains/losses are capital gains, not regular income. For example, I buy 1 bitcoin for $100. I hold the bitcoin for a year (to avoid us talking about short-term gains and how they are taxed). In that year, my single bitcoin has risen in value to $1100. If I then buy myself a new refrigerator from BitcoinsRUs Appliance Depot, I owe $200 in tax (20%) on the gain in bitcoin value.
I don't know how this is different if I did the same thing with the British pound. I'm guessing that I don't owe any taxes on those gains until the currency is exchanged, but it beats me.
@fgarriel, I guess the distinction is indeed that currency valuation changes may not be able to achieve capital gain status. TIL.
http://www.law.cornell.edu/uscode/text/26/988
@snapster, you can elect your foreign currencies to be treated as a capital gain (sort of... futures are taxed differently than property) if you declare it (how?) at the time of aquisition/purchase of that currency. So if I exchange USD to GBP while I'm in the UK, and something happens that drastically changes the value (or I've purchased a very large amount of currency), it could be a significant difference.
However, if you're trading currencies as if they were property (e.g., through a futures & commodities broker), I imagine they have a system where every time you trade the right docs are filed that show you intend to declare your gains/losses as capital gains.
A business would face this issue regardless of what currency was used. Any money they make/lose off the rise/fall of the foreign currency they hold would still be subject to tax.
As for me, I'll stick with the good ol' US Dollar. I have enough work to do managing it rather than getting involved in other ones, bitcoin, euros or otherwise. I used to work at a software company cum financial services company, but I'm no expert.
@snapster , from an IRS standpoint it would be treated similar to an investment and you would record gains/losses based on the fluctuation in the value. As a business, I would be more concerned with the fact that the Financial Accounting Standards Board came out in December and stated that there are no generally accepted accounting principles related to digital currency, so the financial statements would not fall under "GAAP" but would rather be other comprehensive basis of accounting. This could impact companies with debt (or any other reason) that require audited or reviewed GAAP financial statements.
Overstock is getting around this by not directly receiving and holding Bitcoin. They are using a third party to immediately exchange the Bitcoin for cash upon the payment. Since they do not hold Bitcoin as an asset, they would be in compliance with GAAP, and I am guessing this allows them to avoid capital gains from the IRS since the acquisition cost would be the same as the sales price.
awesome, great info.
and of course, a day later, NYtimes answers the same questions we just did...
http://dealbook.nytimes.com/2014/03/26/taxes-wont-kill-bitcoin-but-tax-reporting-might/?smid=tw-nytimes