Monday, May 19, 2014
As we have entered an era where technology is supreme, it is increasingly important for estate planners and tax advisers to be aware of their client’s valuable digital assets. New assets are being created that only exist in the digital world, including virtual currencies such as Bitcoin and Dogecoin.
Of all 200 available virtual currencies, Bitcoin is the most renowned and widely used. The IRS recently issued Notice 2014-21 to describe how they will apply U.S. tax principles to virtual currency. Generally, the IRS treats virtual currency as property for tax purposes, valued in U.S. dollars. Thus, the virtual currency has a tax basis and a person realizes a gain or loss when the currency is exchanged for other property. However, it is not treated as a currency that could generate foreign currency gain or loss for federal tax purposes.
See Jim Lamm, Estate Planning and Tax Issues for Bitcoin and Other Virtual Currencies, JD Supra Business Advisor, May 15, 2014.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.