Federal Tax

Taxation of Cryptocurrencies (Portfolio 190)

  • The Portfolio, Taxation of Cryptocurrencies, No. 190, considers the U.S. federal income taxation of the convertible virtual currency known and implemented as Bitcoin

Description

Bloomberg Tax Portfolio, Taxation of Cryptocurrencies, No. 190, considers the U.S. federal income taxation of the convertible virtual currency known and implemented as Bitcoin — specifically, the open source software currently referred to as Bitcoin Core1 or software fully compatible with that reference version — because it was the only convertible virtual currency identified by the IRS in  Notice 2014-21.2Chapter I introduces and discusses certain aspects of Bitcoin. Chapter II addresses the U.S. federal income tax classification of bitcoin. Chapters  III and  IV consider the consequences of trading and investing in bitcoin, and the activities and selected transactions undertaken by investment entities, and foreign and tax-exempt investors. Chapter V identifies some of the issues which pose novel or challenging tax aspects of Bitcoin. Chapter VI outlines information reporting that may apply to bitcoin and similar cryptocurrencies.

This Portfolio endeavors to adhere to the community convention of identifying the reference version of the Bitcoin software as Bitcoin Core and other aspects of the protocol as Bitcoin (upper-case), and its native currency as bitcoin (lower-case). Bitcoin Core may be the master version or inspiration for other cryptocurrencies; however, seemingly unimportant differences between Bitcoin and other cryptocurrencies may result in significantly different federal income tax consequences.

The classification of bitcoin for U.S. federal income tax purposes is the basis for much of the detailed analysis in this Portfolio. A general classification of bitcoin for this purpose is merely a starting point that can be, and is, subject to exceptions. In addition, Bitcoin and its related technologies present new and novel U.S. federal income tax issues; therefore, the views expressed by the author are often based on interpretations that are intended to be (and, hopefully, are) neutral, as well as reasonably correct.

This Portfolio may be cited as Calvin, 190 T.M., Taxation of Cryptocurrencies.

1 The Bitcoin Core GitHub repository is at  https://github.com/bitcoin/bitcoin (last checked Dec. 4, 2018). Note that the lack of a central issuer is a fundamental aspect of cryptocurrency. Therefore, this Portfolio contains several references to peer-edited webpages. While these sources are not typical legal reference material, they provide practical insight and helpful background information on the complicated world of cryptocurrencies.

2  Notice 2014-21.

Table of Contents

I. Introduction
II. Federal Income Tax Classification of Bitcoin
III. Trading and Investing
IV. Selected Issues for Investment Entities
V. Cryptocurrency Issues
VI. Information Reporting

Jim-Calvin
Jim Calvin
Tax Partner
Deloitte Tax LLP
Top