Let’s applaud the Internal Revenue Service for issuing fresh guidance on the agency’s application of the tax law to virtual currencies.
I was nodding along until reaching the discussion of “mining” virtual currency:
When a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income.
You’ll be taxed upon the creation of bitcoin, says the IRS. Mining bitcoins is a reward in exchange for providing services required to operate the bitcoin payment network.
Taxing fiat currency when received in exchange for providing services is a fundamental principle of U.S. taxation. But here, the IRS has explicitly said that bitcoin is property, and not foreign currency, under the tax code.
If I receive property, such as a car, in exchange for providing legal services, I have to pay tax on the fair market value of the car upon receipt.
But what if I build a car for people to drive? When would I have to pay tax on that? Not until I sell or exchange it.
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