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It's official: trading in virtual currencies in the USA is the same for tax purposes as trading in USD and other currencies.

Publication: 
Nigel Morris-Co...
chiefofficersnet

The USA's Internal Revenue Service has, albeit belatedly, joined its Treasury sibling, FinCEN, in concluding that there really is no material difference between using virtual currencies and USD or other currencies. In a notice issued this week, it's made clear: if you price and are paid for your goods or services in bitcoin or any other virtual currency, you are liable for trading profits in exactly the same way as if you priced them, and were paid, in fiat currencies.

It's not a new concept: years ago, the UK's tax authorities decided that any form of transaction, regardless of the medium in which it was conducted, that generated a profit was subject to income tax. The point at which people's ears pricked up was when it was announced that time banking might be included. The UK has a long history of local currencies, specific to local towns or, even, villages. In fact, it was Finland that introduced taxing time banking transactions in 2014.

The delay in some countries recognising virtual currencies has often been attributed to two things: if governments could make it more difficult to use them, they their growth might be retarded. That's true, to a point. But as the most often expressed reason for that discouragement was the potential use of virtual currencies for illegal activity, in particular money laundering, in some ways that only made their use more appealing: the blunt truth is that people like to "stick it to the man."

The other reason was that governments want to tax trade and if it's invisible, as they mistakenly believe virtual currency transactions to be, they can't see it so they can't tax it.

Some years ago, FinCEN at last worked out the logical position that if, for money laundering purposes, "money" is anything to which people ascribe a value.

The IRS's hopelessly late announcement means that someone has followed that logic to its obvious conclusion: if there's a value, it can be assessed for tax.

It also implies the obvious truth that there is nothing special about virtual currencies. The USA has long waged war on them - in the 1990s, the USA used every weapon in its armoury to destroy virtual currencies as they developed but when crypto-currencies appeared in the early 2000s, the game was up, although the policy of trying to demonise them continued apace. It is interesting that, having failed to deal with the topic intelligently thus far, it is only after Facebook announced its Libra currency, which has the capability to become a global force at least as powerful as the USD, that the IRS has done its job properly and said. in effect, "if you make a profit, it's taxable, no matter how you define the medium of exchange."

The notice appears, unedited, on the next page.

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