The IRS just issued tax guidance for bitcoin and other virtual currencies. They classify bitcoins as property, instead of a currency, where tax rules of stocks and barter will apply. It seems, as always, that Wall Street wins and people lose.
It essentially means Wall Street has a new asset class to exploit at low capital gains rates, and retail businesses get the benefit of low transaction fees of the Bitcoin payment system without extra accounting; but everyday people who use it as a currency must report every single transaction for tax collection.
According to Bloomberg:
The U.S. government will treat Bitcoin as property for tax purposes, applying rules it uses to govern stocks and barter transactions, the Internal Revenue Service said in its first substantive ruling on the issue.
Today’s IRS guidance will provide certainty for Bitcoin investors, along with income-tax liability that wasn’t specified before. Purchasing a $2 cup of coffee with Bitcoins bought for $1 would trigger $1 in capital gains for the coffee drinker and $2 of gross income for the coffee shop.
The IRS, faced with a choice of treating Bitcoins like currency or property, chose property. That decision could reduce the volume of transactions conducted with the virtual currency, said Pamir Gelenbe, a venture partner at Hummingbird Ventures, which invests in technology businesses.
“It’s challenging if you have to think about capital gains before you buy a cup of coffee,” he said.
This will require that all bitcoin users maintain extensive records of the dollar price of bitcoin when they acquired them compared to their value when they spent them. It is effectively a ban on using bitcoin as currency. Maybe one of the government’s cronies is already working on an IRS-version of a bitcoin wallet to track the movements of their livestock; but right now, with today’s technology, it would be impossible to use bitcoin as a currency and comply with these guidelines.
It will be comical to watch the IRS attempt to enforce this, but it’s still very ominous and can lead to arbitrary harm to peaceful bitcoin users, but not to Wall Street or other businesses. Does this really surprise anyone?
Read the entire IRS guidance here.
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