U.S. Officials Scrutinize Bitcoins As Other Governments Apply Tax Rules

The price of bitcoins recently reached a record high of $675, up from its price of only $12 one year ago. As the price soars and more people begin to use the digital currency in all manner of transactions, the Senate Committee on Homeland Security and Government Affairs is examining whether they should intervene and start setting rules and regulations regarding Bitcoins.

Are-bitcoins-taxableThe digital Bitcoin, which as of recently was not recognized as a legitimate currency by any government, first gained attention when criminals began to use it in drug deals, illegal trades, and human trafficking. Given the anonymity that Bitcoins afford users, federal officials are also concerned that, in addition to violent crimes, the currency may also be used to violate federal tax law. The chances of this occurring may be heightened as other international governments begin to adopt the untraceable currency as legitimate.

For instance, the German Finance Ministry recently classified the Bitcoin as a “unit of account”, meaning that it can be used for tax and trading purposes in the country, according to the Progress report. Additionally, the Canada Revenue Agency also released new guidelines about the treatment of Bitcoins with regard to taxes, noting that since digital currency can be traded like a commodity, any resulting gains can be treated as taxable income or capital for the taxpayer.

As the Internal Revenue Service intensifies its campaign against offshore tax evasion, the recognition of bitcoins as a legitimate form of currency may complicate investigations surrounding hidden income and reporting. However, some federal officials believe that by formally acknowledging bitcoins as legitimate, the anonymity feature may be eliminated, which may help eliminate crimes committed with the currency.

“One of our biggest challenges is striking the right balance between the costs and benefits of regulation,” Jennifer Calvery, the Treasury Department’s head of the financial crimes unit, told CNN.

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Frank Brunetti has been practicing law for over thirty years in the areas of estate and wealth preservation, tax planning for business entities and complex tax matters. He is admitted to the New Jersey and New York Bars as well as the United States Tax Court. Mr. Brunetti provides representation in federal and state tax matters, IRS controversies, estate and business planning and guidance for the preparation of wills and trusts as well as the administration of estates. For more information, please visit Frank Brunetti's full biography at Scarinci Hollenbeck

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