IRS Names Bitcoin Property, Not Currency

Where the IRS stands on the classification of Bitcoin and the purchases made with it has been ambiguous. There are a lot of questions surrounding the virtual currency, not the least of which is how it factors in tax matters. While Bitcoin operates like real currency in some situations, the fact still stands that it has no legal recognition as currency in any jurisdiction. In spite of this contradiction, the IRS has clearly stated, “In general, the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.” As such, the IRS recently declared in Notice 2014-21 that such currencies and their transactions will be treated as property, rather than currency, for federal tax purposes. For in depth details, visit the IRS notice listed above or the Journal of Accountancy.