The US Internal Revenue Service said on Tuesday that bitcoins and other virtual currencies are to be treated, for tax purposes, as property and not as legal tender currency.
"General tax principles that apply to property transactions apply to transactions using virtual currency," the IRS said in a statement, meaning that bitcoins would be taxed as ordinary income or as assets subject to capital gains taxes, depending on the circumstance.
Bitcoin started circulating in 2009. Its present market value is around $8 billion, with up to 80,000 transactions occurring daily, according to accounting firm PricewaterhouseCoopers.
Recent incidents have brought the currency under regulatory scrutiny, such as the bankruptcy of Tokyo-based Mt Gox bitcoin exchange. Unlike conventional money, bitcoin is generated by computers and is independent of control or backing by any government or central bank, which has led to calls for more guidance on US tax treatment.
The IRS statement deals a blow to bitcoin "miners," who unlock new bitcoins online. The IRS said miners must include the fair market value of the virtual currency as gross income on the date of receipt.
This change "is a disincentive to start looking for bitcoins," said John Barrie, a partner with law firm Bryan Cave LLP, who advises charities that receive bitcoins as donations.