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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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