Tag Archive for Bitcoin

Target: Los Angeles, California – Think You Can Hide From The IRS? 

The U.S. Attorney’s Office in Los Angeles is taking on a pilot project to pin-point their investigations to the wealthiest zip codes in the L.A. metro area. The idea being that anyone who is selected for investigation in these areas will result in a higher tax liability than those who live in less affluent areas. The government is looking for non-filers, persons engaged in on-line and virtual currency transactions and businesses cheating or delinquent on employment taxes.

Non-Filers

When a taxpayer does not file and the IRS has information statements indicating a filing requirement, the IRS uses the data to file a return on behalf of the taxpayer if there is a projected balance owed. In 2012, the IRS used information statements to file 803,000 returns Read More

Written by | Posted in Income Tax • Individual • IRS • Tax Policy

Virtual Currency Tax Implications – IRS Notice 2014-21

The question of the moment is whether virtual currency is here to stay or simply a passing fad, the 8-track player of modern day finance. IMHO the answer is probably a little of both. For sure private money is here to stay for a while at least, unless of course the Banks and Other Nefarious Financial Institutions (BONFI) truly get “too big to fail” and chose to squash this most excellent way of transacting business underground. The extent to which private money maintains organization going forward as virtual currency is still not fully determined.

Drilling down virtual currency turns out is nothing more than a digital representation of value, like the tulip bulb in 16th Century Holland, that is all that it really seems to be. So tread lightly and if inclined to engage be protected as – like the wild wild west itself – Read More

Written by | Posted in International

Virtual Currencies: The Modern-Day Equivalent of Your Father’s Offshore Bank Account?

In this high tech era of GPS trackers and unmanned drones, new concerns are emerging over the erosion of personal privacy space. A new federal law compels the Federal Aviation Administration to allow drones to be used for all sorts of commercial endeavors – from selling real estate to monitoring oil spills. That same law also makes it easier for local police to send up their own drones. This raises new concerns about how much detail the drones will capture about lives down below. Some advocacy-rights groups are quick to point out that this is nothing more than “routine aerial surveillance of American life.”

But as frightening as it might be to think that you could come face-to-face with a drone taking pictures outside of your third-floor fire escape, there is something even more Read More

Written by | Posted in International

Bitcoin Taxation – Clarity and Mystery

In March 2014, the IRS finally released important guidance on taxation of virtual currency, such as Bitcoin. The key point made in the guidance (Notice 2014-21) is that such currency should be treated as property rather than a foreign currency. That is helpful. I blogged on that earlier (4/1/14).  If you are a tax practitioner and don’t think you need to deal with it, I’d be surprised if none of your clients uses bitcoin. In fact, a new standard question to ask of people you prepare returns for needs to be: Do you own or use a virtual currency, such as Bitcoin? There are also a lot of dollars going into Bitcoin and other virtual currency start-ups – one could be your client.

There are still some significant issues for the IRS to address. I note several in the article. A key one is how to track the use of the virtual currency so you can calculate the gain or Read More

Written by | Posted in International • Tax Tips

Guidance On Taxation of Virtual Currency

There are tax consequences of mining Bitcoin, investing in it or using it to buy or sell goods or services. Prior to the Internal Revenue Service’s release of Notice 2014-21 this week (3/25/14), we didn’t know whether the IRS would treat a virtual currency as currency or property. The IRS has now said – treat it as property. [IRS Information Release IR-2014-36 and Notice 2014-21]

I think that is a good answer. After all, Bitcoin and other virtual currencies are not used as the currency of any government and generally, are convertible to a currency of a government. For example, you can buy Bitcoin with U.S. dollars and convert it back to U.S. dollars. Read More

Written by | Posted in International • Tax Tips

A BIT About Tax Treatment of Virtual Currencies

As many of you know who follow TaxConnections Worldwide Tax Blog, I enjoy dabbling in the uncharted waters of the United States Tax Code. It helps me keep fresh. One of the many areas that this includes is the tax treatment of virtual currencies.

With the most recent run up in the price of Bitcoins there were a handful of very fortunate people that quite literally amassed multi-generational wealth over just a few short weeks cashing out their Bitcoins all the way to $1,000 per coin. You know who you are. May God bless you on your journey that you use this new found wealth for good.

Fortunately in your favor the IRS produced Notice 2014-21 explaining how existing general tax principles apply to transactions using virtual currencies, including Bitcoin. The Read More

Written by | Posted in Individual • IRS

Virtual Currency and Taxes

TaxConnections Blog Post by Annette Nellen about virtual currency.There has been a lot of mention in recent news stories about Bitcoin. Reuters reported this week that the Treasury Department’s financial crimes group (FinCEN) hosted a meeting with the Bitcoin Foundation (“Regulators, Bitcoin group discuss virtual currency,” 8/26/13). USA Today reports that the Senate Homeland Security and Government Affairs Committee began investigating virtual currency a few months back and recently sent letters to some federal agencies to learn how they regulate such currencies (“Government eyes regulation of ‘Bitcoins'” (8/26/13). There have also been recent stories about virtual currencies and Ponzi schemes and money laundering, which obviously leave negative connotations about these currencies although some, like the Bitcoin, are being used for legitimate business transactions.

What is “Bitcoin”? It is a means for transacting business that has its foundation in software code and enough people willing to use it as a medium of exchange. A March 2013 release from FinCEN stated the following regarding virtual currencies (such as Bitcoin): “In contrast to real currency, “virtual” currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction.”

There are a few well known virtual currencies including the Linden dollar in Second Life and Amazon coins. Virtual currencies vary in terms of where they are usable (only in the online game or website), whether they can be exchanged for real currency, and how they are created or obtained. Read More

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