For the last several years, Bitcoin has been world’s hottest digital currency. Initially disregarded by many, the market value of one single Bitcoin has skyrocketed from an initial value of $13 in 2013 to a current market value of thousands of dollars per coin in August 2017. This has potentially left many people who initially dabbled in the currency with massive increases in wealth.
The IRS has taken notice of Bitcoin, not only because of its exponential jump in value over time, but because over a two year period, only 800 people have reported any gains or losses on their tax returns. In an effort to discover unreported gains, the IRS issued summons to force currency exchanges to disclose the personal information linked to all of its customers’ accounts.
The customers of one such exchange, Coinbase, have been waging a battle in court over these summons. This is because one of the appeals of Bitcoin to many users is personal privacy and anonymity. Coinbase essentially argued that the IRS’ request was too broad in its scope. Members of Congress agreed and also sent angry public letters critical of the IRS’ requests.
This legal and public backlash appears to have had an impact on the IRS’ approach. The IRS informed the court that it would now limit its’ summons to the information of customers who have over $20,000 in any type of Bitcoin transaction from 2013-2015. This is now estimated to encompass about 14,000 user accounts instead of half a million. Despite this, there has been no indication that the anonymous Coinbase users who filed their lawsuit or the court will accept the IRS’ new position.
If you own Bitcoin or are considering selling Bitcoin, you should speak with a tax lawyer. The IRS treats virtual currencies, such as Bitcoin, as property. This means that it should be reported for capital gains and losses. To complicate matters, since Bitcoin is a virtual currency that you may be paid in, or that you may use to purchase goods and services, it must be accounted for as income or expenses based on the equivalent dollar value at the time. It is incredibly important to maintain a log of all Bitcoin transactions to ensure accurate tax reporting.
An Attorney Can Help You
Virtual currencies are a relatively new and somewhat complicated are of tax law. Even with the best intentions, it is easy to make inadvertent errors when reporting them to the IRS. I can help you. I have been a tax attorney for over two decades and have a Master of Law Degree (LLM) in Taxation, and a license to practice in the United States Tax Court. Contact The Law Offices of Robert S. Thomas at 847-392-5893 to schedule an appointment or visit our website today.