IRS to Treat Bitcoins as Property, not Currency for Tax Purposes

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IRS to Treat Bitcoins as Property, not Currency for Tax PurposesThe Internal Revenue Service announced on Tuesday that it will view Bitcoin as property to determine tax payable, using the same rules that it applies on barter and stock transactions.

The IRS guidance has now made things clearer for investors in Bitcoin, and specifies the income-tax liability. Buying a $2 hamburger with Bitcoins acquired for $1 will result in $1 capital gain for the buyer and $2 of total income for the seller.

The IRS, having to make a decision on whether to treat Bitcoins as property or currency, opted for property. This resolution could result in lower transaction volumes done with the virtual currency, according to Pamir Gelenbe, a partner with Hummingbird Ventures.

“It’s challenging if you have to think about capital gains before you buy a cup of coffee,” added Gelenbe as reported by Bloomberg.

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However, the CEO of BitcoinShop Inc, an e-commerce platform, Charles Allen hopes IRS will reconsider its decision as more digital currencies like Bitcoins develop.

 “The implications this decision will have on the Bitcoin ecosystem are far reaching, and will be burdensome for both individual users of Bitcoins, Bitcoin-focused business and for the general adoption of virtual currencies,” he said, adding that Bitcoin users will adapt to the rules.

Bitcoin is the most popular virtual currency, and it relies on a public ledger to file transactions carried out under pseudonyms. It allows sales and purchases to be conducted without relying on a third party such as Western Union or Visa Inc.

One Bitcoin was priced $584.35 in late afternoon in New York, based on the CoinDesk Bitcoin Price Index. This is slightly 0.3 percent lower than today’s session high.

 To contact the reporter of this story; Jonathan Millet at john@forexminute.com