IRS Not Revealing Hand While Keeping Straight Face on Bitcoin

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( — October 9, 2014) Portland, OR — 

IRS criminal investigator are not ignoring those who use digital or virtual currency in order to evade taxes.

According to Rebecca Sparkman, director of operations policy and support at the IRS’s Criminal Investigation (CI) unit, “We do have computer experts who are seizing crytocurrency. We have broken passwords. We have ways of following it.”

However Sparkman did confirm that, “There’s nothing illegal about virtual currency. It’s how you use it or if you decide not to report it.”

Digital currencies, such as Bitcoin and Litecoin, are treated by the IRS just like any other currency. If you receive it in connection with selling goods or services, it’s taxed at fair market value.

Currently the IRS is also evaluating whether capital gains rules should be applied to digital currency due to the fact that it may appreciate in value in some situations.

Sparkman also added that taxpayers should be aware that the IRS is able to trace bitcoin all the way back to its inception. Both Sparkman and Andrew Keyso, IRS Associate Chief Counsel (Income Tax and Accounting), said the IRS is continuing to study the role of bitcoin in virtual “exchanges” and whether those should be treated as financial institutions for tax purposes.

This issue has been further exacerbated by the reporting requirements under the Foreign Account Tax Compliance Act (FATCA) and other requirements that taxpayers report their overseas assets.

The question as to how virtual currencies should be treated under existing rules is on in which the IRS has not waded into or published an opinion.


Sources: Dan Pilla September 2014 Newsletter

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