IRS Rules Bitcoin Property Not Currency.

The IRS ruled that virtual currency, such as Bitcoin (BTC),  is not considered currency, but property for U.S. federal tax purposes. In other words, it does not have legal tender status in any jurisdiction. 

“The Internal Revenue Service (IRS) is aware that “virtual currency” may be used to pay for goods or services, or held for investment. Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value. In some environments,it 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.

Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” virtual currency. Bitcoin is one example of a convertible virtual currency. Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, Euros, and other real or virtual currencies. For a more comprehensive description of convertible virtual currencies to date, see Financial Crimes Enforcement Network (FinCEN) Guidance on the Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies (FIN-2013-G001, March 18, 2013)

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.

Really? Does the IRS really expect everyone who buys a cup of coffee with digital "currency," like BTC, to track capital gains? What a bureaucratic nightmare! However, I'm sure the IRS has no problem creating more administrative bureaus to deal with tracking virtual "currency" transactions. Not to mention, the burden on virtual "currency" users. But as Oscar Wilde said, "The bureaucracy is expanding to meet the needs of the expanding bureaucracy."

Links:

What the IRS Bitcoin Tax Guidelines Mean For You

Are the IRS Capital Asset Rules Realistic for Small Transactions?

Fiat Link - watch the world's currencies flow into BTC in real time.

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Bread and Circus Soceity

With each passing day, We, the People are being crushed under the weight of an overreaching, militarized, and corrupt government that's growing exponentially, yet, most of us remain blissfully ignorant thanks, in large part, to the mainstream media, the gatekeepers who are the primary source for disseminating political, cultural, and economic ideas, but at the same time, beholden to their corporate owners.

As long as this--corporate media deception-- is allowed to continue, the political strategy, "bread and circuses" will never die. The reason? It's-- the game plan that allows the elite to do as they please uncontested by the population--as dependable as the sunrise. Especially in today's technologically distracted world of low cost infotainment and trivialities. It's rare that anyone even notices that elected officials do the exact opposite of their pre-election promises, or realize that the ruling class has become so powerful and corrupt, much more loyal to multinational corporations than to its citizen. 

“If language is not correct, then what is said is not what is meant; if what is said is not meant, then what ought to be done remains undone; if this remains undone, morals and arts will deteriorate; if morals and arts deteriorate, justice will go astray; if justice goes astray, the people will stand about in hopeless confusion. Hence there must be no arbitrariness in what is said. This matters above everything." -- Confucius

Increasingly, we are spending more time in virtual reality, which is basically a technological extension of the humankind and/or mind, rather than in the natural environment and/or unmediated reality (At least I know I spend far too much time in virtual reality, and I'm pretty sure I'm not alone).  This further enables modern day bread and circuses to blur the line between fabrication and reality, creating a vicarious modus operandi in which  people prefer quick entertainment, smoke and mirrors, and imagery to first hand participation and effort in discerning matters of substance.

“Already long ago, from when we sold our vote to no man, the People have abdicated our duties; for the People who once upon a time handed out military command, high civil office, legions–everything, now restrains itself and anxiously hopes for just two things: bread and circuses.” -- The Roman poet Juvenal (circa 100 A.D.)

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How Secure Is Cyberspace?

From CERT:

Cyberspace has become so woven into the fabric of our society that it's almost impossible to separate the "real" world from virtual reality without experiencing enormous loss qualitatively and quantitatively.

We shop, bank, pay bills, communicate, learn, research, plan, organize, collaborate, store photos, entertain ourselves, support ourselves, etc. in cyberspace. Our growing dependence on the virtual world presents risks and security challenges we've never seen before, so much so that securing cyberspace has become crucial to our everyday lives as well as our national security. Our nation is becoming more and more dependent on it for operating its critical infrastructures such as transportation, communication, finance, energy distribution etc. Currently our nation's vulnerability to attack and susceptibility to disaster is much too high.

The Committee on Improving Cybersecurity Research in the United States, responsible for publishing "Toward a Safer and More Secure Cyberspace" which can be read online for free, presents a better understanding of why cyberspace is as vulnerable as it is, and the research on new technologies and policies and their effective implementation to make things safer.

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But what about 'money' that's virtual?

NEW YORK (CNNMoney.com) -- In case you haven't noticed, Second Life is booming, and its economy has boomed too - putting the virtual reality world in the crosshairs of tax authorities, experts say.

Entrepreneurs have flocked to Second Life - a computer-based 3-D virtual world where users create their own, well, second lives - in pursuit of making real money. So-called residents can buy and sell goods for Linden dollars, an in-world currency that can be converted into real U.S. dollars.

Second Life is a virtual world that anyone with a broadband Internet connection can enter. Users download software and create an avatar - a cartoon-like character that they control with their mouse and keyboard that represents them in the digital world.
When users login to Second Life, they begin the in-world experience. Using the software's tools, they can create objects and communicate with other virtual residents via instant messaging and voice services.

At least one user claims the virtual world has minted her a millionaire - and economic activity is humming along. Users of the virtual world injected about $1.6 million into Second Life in the last 24 hours alone, according to Linden Lab, the creator of Second Life.

Under current tax law, it's clear that earnings in real U.S. dollars generated within virtual realities are reportable to the IRS. If a Second Life real estate mogul cashes out of her in-world property portfolio, she's liable to pay income tax on any profit that's been exchanged into real greenbacks - just as an eBay (Charts) seller is responsible for reporting income generated from an online sale.

Tax law is murky, however, when it comes to dealings that occur solely within Second Life or other computer-simulated environments. For instance, is a transaction that occurs only in Linden dollars and doesn't involve any real-world, dollar exchange taxable?

Questions like that have the tax community buzzing about the issue, said Paul Caron, a professor at the University of Cincinnati who edits the TaxProf Blog.

The issue has also attracted the interest of the Joint Economic Committee of Congress, which said last fall that it was studying issues related to the economies of virtual realities like Second Life and World of Warcraft, an online role-playing game.

Results of the study - due to be released before the end of the month - suggest that "as long as virtual activity stays within the virtual economy, it shouldn't be taxable," said Christopher Frenze, executive director of the JEC, which conducts policy research on economic issues facing Congress

But there is a valid argument that even profits that come from, and stay in, the virtual world are taxable, according to Bryan Camp, a professor at Texas Tech University School of Law. "As soon as you start looking at what's going on in these worlds, they look a lot like real economic transactions," he said.

Even if profit isn't realized in real dollars, there's still an exchange of items of economic value. In the real world, if someone trades goods or services without the exchange of real money - also known as bartering - that's a taxable event, Camp noted.

Given all the attention paid to the topic, the IRS eventually will have to respond to the situation, said Caron. "I think it's on the IRS's radar screen in a way it was not six months ago," he said.

When asked about the agency's position on collecting taxes from virtual economies like Second Life, an IRS spokesman offered the following comment via e-mail: "Any time someone wins a tangible prize or award, the value is reportable as taxable income. An accumulation of 'points' would not result in tax consequences, but redeeming or selling them for money, goods, or services would."

Edward Castronova, a professor at Indiana University who heads the Synthetic Worlds Initiative, a research center focused on online communities like Second Life and World of Warcraft, doesn't see taxes on virtual-only transactions coming anytime soon.

But "in the next three or four years, we'll likely see it. In the next 10 years, there's no question about it," he said. "If you look at these transactions, they're huge."

For its part, Second Life operator Linden Lab isn't concerned about looming tax regulations on virtual economies, at least not yet.

"Given the reassuring statements from the JEC, it's pretty clear this is a moot point," a spokesman for San Francisco-based Linden said. "Linden is focused on what it does best - scaling technology and building Second Life's platform."

Stay tuned.

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