YOUR MONEY

Bitcoin – welcome to the real world

The dream of virtual currency, a currency all electronic that is instant in transactions, almost fee free and beyond the range of government interference – and one with total anonymity—has suffered major blows in the last few months as exemplified by the turmoil surrounding bitcoin.

Now, the final stake to the heart may well have come!

 Bitcoin has been banned as a banking currency first by China and then Russia, and more recently the major Mt. Gox exchange went bankrupt – freezing all accounts – when a massive hacker theft was revealed at its exchange as well as elsewhere.  The flaw – either in bitcoin’s encryption software code or exchange computer software – left accounts missing millions  and   without legally recourse!  

They just got ripped off!!!

The volatility in the value of a bitcoin has also been a yoyo ride and should have warned anyone that this was a silly idea—a bubble waiting to be burst!!! 

Now, the government of the United States has stepped in – more specifically, the IRS -  the TAXMAN – and declared bitcoin and virtual currency  subject to taxation. 

(G&M, March 26, 2014, B10, from the Wall Street Journal, “IRS determines bitcoin is not a currency, will treat it like stocks or other property” )

First, the IRS has ruled bitcoin and virtual currencies are NOT money but subject to the same rules and laws as stocks and property.

Under the latter classification, bitcoin and virtual currencies will be subject to:

·        Capital gains (profits/losses)

·        Mandatory transaction record keeping (for IRS audit purposes):  by individuals, exchanges and businesses that accept bitcoin ‘payments’.

·        bitcoin exchange charges and any bitcoin business ‘payment’ is deemed taxable income

·        Bitcoin ‘mining’ and validation/encryption services would be subject to “self-employment taxes”

·        Employees and  contractors paid in bitcoin must declare this as income at fair market value of the coinage (which is not easy with a fluctuating valuation)

·        Employers will be required to report such ‘wages’, withholding and payroll taxes – like any other business

·        Any bitcoin payment by a business over US $600 -- such as rent, salaries, wages, premiums and other compensation would require reporting to the IRS

·        Contractors would be required to file Form 1099

·        FAILURE TO REPORT AND COMPLY WITH TAX LAWS IS A CRIMINAL OFFENSE!!

·        And, finally, the IRS ‘clarification notice’ will be retroactive to PRIOR YEARS!!!!!

 

If the U.S. does this today, expect every government and tax department around the world to jump in tomorrow.

The dream of money free of government interference: free of taxes, free of records and bookkeeping and kept anonymous (i.e., under-the-table black market thinking) is over!!!

 

Remember:  Al Capone, the famous American mobster,  ran wild in Chicago for all of the 1920s  and never served time in prison for alcohol smuggling, prostitution, gambling and outright mass murder – as in the Saint Valentine's Day Massacre, but he could not escape the IRS.