US government will treat Bitcoin as property for tax purposes

The US 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.

The IRS guidance will provide certainty for Bitcoin investors, along with income-tax liability that wasn’t specified previously. Purchasing a $2 cup of coffee with Bitcoins bought for $1, for example, would trigger $1 in capital gains for the coffee drinker and $2 of gross income for the coffee shop.

Volume of transactions
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 partner at Hummingbird Ventures.

“It’s challenging if you have to think about capital gains before you buy a cup of coffee,” he said.

Charles Allen, chief executive officer of BitcoinShop, an online marketplace, said he would like to see the IRS reconsider its decision as virtual currencies 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.

– Bloomberg