updated 04:10 pm EDT, Tue March 25, 2014
Bitcoin miners required to declare earned virtual currency
The Internal Revenue Service has declared that Bitcoin should be classed as property for tax purposes, and not as a currency. The ruling, which clarifies the tax-related standings for its supporters, can be applied to virtual currencies, with the US government agency also stating that owners may need to pay more tax or deduct a loss depending on what happens to the value of the currency as it is owned.
The notice, received by TechCrunch, is relatively straightforward, and effectively treats virtual currencies as the equivalent of stock. Payments made by the currency from an employer to an employee needs to be reported and are subject to federal income tax withholding and payroll taxes, and the gain or loss from its sale or exchange will depend on "whether the virtual currency is a capital asset in the hands of the taxpayer."
People who "mine" for the currency will need to include the value of the newly-minted currency as gross income as of the date of receipt, and can be subject to taxation as if the owner is self-employed.
Bitcoin, and virtual currencies in general, have found it difficult to be accepted by governments around the world, with one Texas federal judge recognizing Bitcoin as a regulatable currency in August last year, and China's central bank warning financial institutions against using Bitcoin in December, citing a potential risk of money laundering. Earlier this month, the Mt. Gox Bitcoin exchange filed for Chapter 15 insolvency in the United States, with another exchange called Vircurex having similar financial problems.