According to the United Stated Commodity Futures Trading Commission (CFTC), Bitcoin, the “Digital Currency”, is in fact not a currency at all but is officially a commodity, just like crude oil or wheat.
The wording of a recent CFTC’s decision echoes that of an IRS decision last year in which the IRS declared that virtual currencies are in fact “property, not currency.”
The IRS decision had the net effect of clarifying that anyone who received payment in the form of bitcoin or another virtual currency had the responsibility to report this where required and to pay taxes where appropriate.
A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.
Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
OK, so far so good and while this isn’t exactly what advocates of Bitcoin were hoping for, anyone armed with a copy of “Taxes For Dummies” will understand that this is probably fair game.
The bigger difficulty for the digital currency comes from an order filled by the CFTC last week, extract from the CFTC website below;
The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Coinflip, Inc. d/b/a Derivabit (Coinflip) and its chief executive officer Francisco Riordan for conducting activity related to commodity options transactions without complying with the Commodity Exchange Act (CEA) and CFTC Regulations, specifically, by operating a facility for the trading or processing of commodity options without complying with the CEA or CFTC Regulations otherwise applicable to swaps or conducting the activity pursuant to the CFTC’s exemption for trade options. Coinflip is based in San Francisco, California, and Riordan resides in San Francisco.
So what does this mean?
It would now seem that the CFTC has clearly laid down the law by defining virtual currencies as commodities (and not currencies) and any options trading of same falls under its jurisdiction. This decision in combination with the previous IRS ruling may create significant tax headaches for bitcoin users ventolin tablets online. If every bitcoin transaction is worthy of tax treatment over the fluctuation of the market price of bitcoin, the US government is either going to create a near impossible accounting problem or create countless unwitting tax cheats.