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35 Va. Tax Rev. 88 (2015-2016)
The Internal Revenue Service and Bitcoin: A Taxing Relationship

handle is hein.journals/vrgtr35 and id is 90 raw text is: Virginia Tax Review THE INTERNAL REVENUE SERVICE AND BITCOIN: A TAXING RELATIONSHIP Elizabeth E. Lambert* First there was gold, then paper, then plastic, and now bitcoin. Bitcoin is a new, widely-accepted virtual currency that is currently being used by businesses as a method of payment to minimize costs. But, no matter the form of currency a business or individual chooses to use, where there is money, there are taxes. The Internal Revenue Service has now recognized bitcoin as property for tax purposes but has failed to implement proper val- uation methods to effectively regulate and tax bitcoin transactions. Because the bitcoin market is unregulated, the Internal Revenue Service's promul- gated methods of reporting the bitcoin at fair market value, and the related record keeping, will discourage bitcoin users from reporting their transac- tions. Other countries have developed different approaches for taxing bitcoins that have potential benefits. To be competitive internationally, the United States needs to create an effective and efficient way for taxpayers to report and for the Department of the Treasury to tax bitcoin transactions. This article examines an area so far unexplored in the literature: how bitcoins are used and acquired, how other countries handle bitcoins, how the United States plans to tax bitcoins, and why that approach is destined to fail. In doing so, the article offers suggestions both to improve taxpayer compliance and to ensure that the United States does not lose in the global marketplace. TABLE OF CONTENTS 1. INTRODUCTION .............................................89 II. WHAT IS BITCOIN? ..........................................91 *Master of Laws in Taxation Candidate (2016), University of Florida Levin College of Law; J.D., Mercer University School of Law (magna cum laude, 2015). I would like to especially thank Professor Linda Jellum, Ellison Capers Palmer Sr. Professor of Tax Law at Mercer University School of Law, for the countless conversations and insights that helped shape this article. Additionally, I would like to thank Christopher Steele, Associate of the firm of Chamberlain Hrdlicka, Atlanta, Georgia, for his thoughtful questions and conversations about the topic. Finally, I would like to thank David Greenberg for his help. The article was improved by each of their contributions. Any remaining errors are mine alone. 88 88 [Vol. 35.1:88

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