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Wednesday, November 23, 2016

IRS on the Hunt for Bitcoin Users

Bitcoin is the most popular of the virtual currencies. In Notice 2014-21, the IRS advised that such currencies are not money, but property, for tax purposes. Two implications of this are that persons who use Bitcoins to purchase things are treated as having sold the Bitcoin on the purchase date for the value of what they purchased – this will usually generate gain or loss to the buyer, and persons who receive Bitcoins are treated as receiving property worth the daily exchange value of Bitcoins on the date of receipt.

Likely suspecting that many taxpayers dealing in Bitcoins may inadvertently not be reporting their transactions as described above, or indeed are intentionally using Bitcoins to not report income, the IRS has issued a John Doe summons to Coinbase, the largest Bitcoin exchange firm in the U.S. seeking the records of all customers who bought virtual currenty from the company from 2013 to 2015. This is a warning that the IRS is enhancing its enforcement efforts in regard to Bitcoin transactions.

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