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34 Va. Tax Rev. 433 (2014-2015)
Real Taxes on Virtual Currencies: What Does the I.R.S. Say

handle is hein.journals/vrgtr34 and id is 449 raw text is: 









REAL TAXES ON VIRTUAL CURRENCIES: WHAT
DOES THE I.R.S. SAY?

    Nika Antonikova*

    This paper discusses the recent Internal Revenue Service (Service)
guidelines on tax reporting for virtual currencies, such as Bitcoin, and
argues that the Service should define convertible virtual currencies more
narrowly to remove pure game experiences from the regulation. The author
suggests that a more sensible definition can be developed based on the
Government Accountability Office's proposed classification of virtual
currency systems. Virtual currencies in open-flow systems such as Bitcoin
should be treated as foreign currency, those in hybrid systems such as
Second Life or other game worlds permitting real money transactions
should be treated as property, and the Service should decline to tax
transactions in closed-flow systems such as World of Warcraft.

                      TABLE OF CONTENTS


I.    IN TRO D UCTION  ................................................................................ 4 34

II.   VIRTUAL WORLDS, ECONOMIES, AND CURRENCIES ...................... 436

III.  I.R.S. NOTICE 2014-21: MORE QUESTIONS THAN ANSWERS ......... 438
      A. The Definition of Convertible Virtual Currency Is Too
          B ro a d   ....................................................................................... 4 3 9
      B. Treatment ofAll Virtual Currencies as Property Is Not
          J ustified   ................................................................................... 4 4 1
      C. Proposed Information Reporting and Enforcement Regime
          Is Impractical and Burdensome for Taxpayers ....................... 444


 University of San Diego, J.D. Class of 2014; New York University School of Law, LL.M.
 in Taxation Candidate 2015. 1 dedicate this article to my husband, Evgeny Rakhmatulin.
 Thank you for all your love, support, and patience. I hope you enjoy reading this article as
 much as I enjoyed discussing it with you. I would like to thank Brian Galle, Victor Fleischer,
 Joshua Blank, and Sloan Speck for their feedback and guidance on the drafts of this article.

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