Carl Mullan is DGC’s founder, former editor and publisher of DGCMagazine with more than 50 past issues online. His new book, The Digital Currency Challenge – Shaping Online Payment Systems through US Financial Regulations, is now available on Amazon.
As cybercommerce begins it will lead inevitably to cyber-money.— James Davidson, The Sovereign Individual, 1996
The hype surrounding Bitcoin has gone off the charts in the past year. For those of us who have been involved with digital currency systems since the 1990’s, it is interesting to see how people caught up in the hype think Bitcoin is wonderful but in many cases cannot clearly see the reason why. Other enthusiasts think that Bitcoin is the ultimate solution for all payments.
Last month the GAO, Government Accountability Office, produced a report on ‘Virtual Currencies’ and tax compliance. The report urges the IRS to look into the use of virtual currencies and release guidelines on taxation of income earned via these currencies.
The report correctly notes that virtual currency transactions are similar to cash or barter transactions. There are no third parties involved whose responsibility it is to report the transaction and transactions of this sort making “underreporting, mischaracterization, and evasion” much easier.
This does signal that the IRS will be keeping a closer eye on the Bitcoin economy, but there is nothing terribly surprising here; the IRS wants a share of your income…however you earn it.
FATCA or the Foreign Account Tax Compliance Act was enacted in March 2010 to improve tax compliance involving foreign financial assets and offshore accounts. The law requires foreign banks to report U.S. account holders to the IRS and in 2014 the IRS will start penalizing foreign banks for failing to comply.
Forbes’ Robert W. Wood explains that this could have serious consequences for Americans living abroad.