The IRS has spoken:  Bitcoins are property, not currency.This was hardly a surprise, but it has some important implication that tells us a lot about what it takes to make a currency work.For a payments geek, the real lesson from the IRS Bitcoin ruling is that for a currency--or any payment system--to work, its units must be completely fungible.One reason dollars work really well as a currency is that one $20 bill is entirely fungible with another $20 bill.This means that when I pay, I don't have to make a decision about which $20 bill to use (unless I have some idiosyncratic attachment to the crisp ones or the like).It means that when I accept a payment, I don't care which $20 bill I am given, in part because I know that my ability to spend that $20 bill will not depend on which $20 bill it is.If payment were in, say, camels, then it would probably matter a great deal which camel were tendered.And we know that's not going to make for a very good payment system.So what does this have to do with Bitcoin?

The IRS ruled that Bitcoin and other virtual currencies are property, not currency.This means that they are subject to capital gains taxation.And that means that Bitcoins are not fungible.The price at which a particular Bitcoin was acquired (and this is traceable) determines the capital gains on that particular Bitcoin when spent.bitcoin hashrate hardwareIf I spend Bitcoin A, which I bought at $10, but is now worth $400, I’ve got a very different tax treatment than if I spend Bitcoin B, which I bought at $390.bitcoin sidebar gadget(Poor Satoshi--he's got a lot more capital gains than most...)how to set up pooled bitcoin mining in windowsThis means Bitcoins are not fungible, and that makes it unworkable as a currency.litecoin economics

If I have to figure out which particular Bitcoin in my wallet I want to spend and what the tax treatment will be, Bitcoin just doesn't work as a commercial medium of exchange.Bitcoin still works as a speculative medium, but Bitcoin's claim has always been to being more than the latest iteration of the trading sardines--it aspired to be a commercial medium.uk tax treatment of bitcoinI don't see that happening now.c span bitcoinFiling Payments Refunds Credits & Deductions News & Events Forms & Pubs Help & Resources for Tax Pros News Essentials The Newsroom Topics Multimedia Center Noticias en Español Radio PSAs Tax Scams The Tax Gap Fact Sheets IRS Tax Tips myRA: Retirement Latest News Home IRS Virtual Currency Guidance : Virtual Currency Is Treated as Property for U.S.

Federal Tax Purposes; General Rules for Property Transactions Apply IR-2014-36, March.25, 2014 WASHINGTON — The Internal Revenue Service today issued a notice providing answers to frequently asked questions (FAQs) on virtual currency, such as bitcoin.These FAQs provide basic information on the U.S.federal tax implications of transactions in, or transactions that use, virtual currency.In some environments, virtual currency operates like “real” currency -- i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance -- but it does not have legal tender status in any jurisdiction.The notice provides that virtual currency is treated as property for U.S.General tax principles that apply to property transactions apply to transactions using virtual currency.Among other things, this means that: Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.

Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply.Normally, payers must issue Form 1099.The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.Further details, including a set of 16 questions and answers, are in Notice 2014-21, posted today on IRS.gov.Follow the IRS on New Media Subscribe to IRS Newswire Our Agency Know Your Rights Resolve an Issue Other Languages Related SitesBarron's BigCharts DJX Dow Jones Newswires Factiva Financial News Mansion Global MarketWatch Newsmart NewsPlus Private Markets Risk & Compliance WSJ Pro WSJ Conference WSJ Video Big Decisions Business Spectator Checkout51 Harper Collins New York Post PropTiger REA Storyful The Australian The Sun The Times Barron's BigCharts DJX Dow Jones Newswires Factiva Financial News Mansion Global MarketWatch Newsmart NewsPlus Private Markets Risk & Compliance WSJ Pro WSJ Conference WSJ Video Big Decisions Business Spectator Checkout51 Harper Collins New York Post PropTiger REA Storyful The Australian The Sun The Times Barron's BigCharts DJX Dow Jones Newswires Factiva Financial News Mansion Global MarketWatch Newsmart NewsPlus Private Markets Risk & Compliance WSJ Pro WSJ Conference WSJ Video Big Decisions Business Spectator Checkout51 Harper Collins New York Post PropTiger REA Storyful The Australian The Sun The Times As the bitcoin industry embarks on an outreach campaign with U.S.