via www.forbes.com for comments email the author at Wood@WoodLLP.com
The complete IRS Notice 2014-21 includes these key points:
Q-1: How is virtual currency treated for tax purposes?
A-1: As property.
Q-2: Is it currency for determining if a transaction results in foreign currency gain or loss?
A-2: No.
Q-3: If I receive virtual currency as payment, must I include its fair market value in income?
A-3: Yes, report the fair market value in U.S. dollars on the date you receive the virtual currency.
Q-4: What is the basis of virtual currency received as payment for goods or services?
A-4: The fair market value in U.S. dollars on receipt.
Q-5: How do I determine the fair market value of virtual currency?
A-5: If it is listed on an exchange and the exchange rate is established by market supply and demand, convert it into U.S. dollars at the exchange rate.
Q-6: Do I have gain or loss on an exchange of virtual currency for other property?
A-6: Yes. If the fair market value of property received exceeds your adjusted basis of the virtual currency, you have taxable gain. You have a loss if the fair market value of the property is less than the adjusted basis of the virtual currency.
Q-7: What type of gain or loss do I have on the sale or exchange of virtual currency?
A-7: It depends on whether the virtual currency is a capital asset in your hands.
Q-8: If I “mine” virtual currency, do I have income from mining?
Q-8: If I “mine” virtual currency, do I have income from mining?
A-8: Yes, when you successfully “mine” it, the fair market value is income.
Q-9: Is an individual who “mines” virtual currency as a trade or business subject to self-employment tax?
A-9: Yes.
Q-10: Is virtual currency received by an independent contractor for services self-employment income?
A-10: Yes.
Q-11: Is virtual currency paid by an employer for services wages?
A-11: Yes.
Q-12: Is a payment made using virtual currency subject to Form 1099 reporting?
A-12: Yes.
Q-13: If a person in business pays virtual currency worth $600 or more to an independent contractor for services, is a Form 1099 required?
A-13: Yes.
Q-14: Are payments in virtual currency subject to backup withholding?
A-14: Yes, just like other payments made in property. Get a taxpayer identification number (TIN) from the payee.
Q-15: Are there IRS information reporting requirements for a person who settles payments made in virtual currency on behalf of merchants that accept virtual currency from their customers?
A-15: Yes, if certain requirements are met.
Q-16: Will taxpayers be subject to penalties for having treated a virtual currency transaction in a manner that is inconsistent with this notice prior to March 25, 2014?
Q-16: Will taxpayers be subject to penalties for having treated a virtual currency transaction in a manner that is inconsistent with this notice prior to March 25, 2014?
A-16: Yes, you can be penalized, but you can also ask for waivers.
You can reach me at Wood@WoodLLP.com. This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.
