The IRS has an all-out campaign against virtual currencies. As I predicted when Bitcoin first came out, to the dismay of many of its users, bitcoin is not considered “money” for tax purposes. That means any virtual currency is regarded as a commodity where you can have a gain or loss on the value of the virtual currency itself. For example, if the value at the time of acquisition were one dollar and that same virtual currency had a value of two dollars when it was used or sold, that would result in a capital gain of one dollar.
Further, the IRS is taking a firm stance on people and businesses that use bitcoin for the sale of goods and services. That is treated similarly to a barter transaction. That means the value of the virtual currency received needs to be included in gross income. If it is a sales taxable item, a sales and use tax return would need to add that item as well.
The argument that “it is not money so therefore it is not taxable” is wrong and the IRS is beginning both civil and criminal enforcement on this. If you or your business has filed a tax return not reporting your virtual currency transactions, you need to have an amended return prepared immediately. Because this may be criminal, you need a tax lawyer to be in charge of this whole process. If you have any questions about this, please call me at 856-665-2121.
See the IRS Notice: