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Revealed: What the US taxman really thinks of crypto-cash Bitcoin

Essential reading if you want to pay your staff in BTC, for instance

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The US Internal Revenue Service (IRS) has laid out a formal set of policies for how it will handle Bitcoin and other virtual currencies for tax purposes.

In a guide (PDF) released Tuesday, the IRS said that it would be considering cryptocurrencies to be property, and as such would be subject to US laws regarding the transfer and holding of property in calculating taxes.

"The Internal Revenue Service is aware that 'virtual currency' may be used to pay for goods or services, or held for investment," the IRS said in prefacing its sixteen point guide on virtual currencies.

"In some environments, it operates like 'real' currency -- i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance -- but it does not have legal tender status in any jurisdiction."

According to the IRS, the ruling allows employers to report wages paid to both employees and contractors as property transactions. This will allow employers and business owners to log and report wages paid out in virtual currency through either a form W-2 (as salary) or a form 1099 (for contract work).

The rulings would apply to transactions in which currency valued at $600 or more was exchanged, the same threshold applied to property transactions under IRS rules.

The ruling will also prevent users from reporting virtual coins in a currency gain or loss as they could foreign currencies. Users will, for tax purposes, value the currency for tax reporting purposes based on the market value at the time the transaction took place (so a virtual currency transaction taking place last summer would be based on currency value at the time rather than a currency's current trading price.)

Additionally, the IRS said that it will classify companies who facilitate Bitcoin (and other virtual currency transactions) as third-party settlement (TPSO) organizations for tax purposes, placing a classification on the brokers who help conduct virtual currency transactions between merchants and end-users.

The classification comes as many Americans are preparing to file their federal and state income taxes ahead of the 15 April filing deadline.

Government classifications of cryptocurrencies have been a matter of debate and speculation in recent months. Bitcoin in particular has seen prices rise and fall with the release of government decrees and classifications regarding the virtual currency.

Bitcoin markets reacted to the IRS release with little outrage or surprise. The Coindesk Bitcoin Price Index remained (relatively) stable over the course of the day before and after the announcement. The Bitcoin Foundation has yet to offer its two cents (or .00003BTC) on the matter. ®

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