Abstract
The IRS recently dealt a blow to Bitcoin enthusiasts by ruling that Bitcoin and other similar currencies should be treated as property-and not foreign currency-for income tax purposes. As a result, those who use bitcoins to purchase goods or services must report gain or loss on each transaction if the bitcoins have changed value between the time they were acquired and spent. Treating Bitcoin as a foreign currency would have permitted individuals to take advantage of the $200 personal-use exemption and required taxpayers to adopt a formulaic system for tracking the basis of commingled bitcoins. The IRS 's decision seems correct as a matter of positive law, but laws can always be changed. In this Article I consider whether Bitcoin should be treated as a foreign currency for income tax purposes. I conclude that tax authorities should adopt a foreign currency definition that excludes bitcoin and similar currencies because (1) a broad definition could create significant administrative and line-drawing problem , and (2) the government has little interest in promoting alternate currencies. Nor should authorities extend the personal-use exemption to virtual currencies. In contrast, authorities should extend the basis rules applicable to foreign currency to virtual currencies to prevent taxpayers from using the basis rules to improperly reduce their tax obligations.
Recommended Citation
Chodorow, Adam
(2023)
"Bitcoin and the Definition of Foreign Currency,"
Florida Tax Review: Vol. 19:
No.
1, Article 6.
Available at:
https://scholarship.law.ufl.edu/ftr/vol19/iss1/6