IRS to Regulate Bitcoin as Property

The U.S. Internal Revenue Service announced last week that it will treat Bitcoin as a form of property for taxation purposes, in what is one of the first major U.S. regulations of the virtual cryptocurrency. As a result of the decision, Bitcoins would be subject to capital gains taxes when sold, Bitcoin miners would be required to report their mined Bitcoins as income, and online exchanges would be required to furnish their users with annual transaction reports. 

The decision seems at odds with the anonymous nature of Bitcoin, which by its nature is decentralized and difficult for governments to regulate. However, it reflects the growing acceptance of the currency as an alternative to traditional legal tender, especially in the venture capital markets where it has found champions like Tyler and Cameron Winklevoss (of Facebook ownership dispute fame). For gamers, however, the decision may hit a bit closer to home as BitCoin seeks to find acceptance as a currency for microtransactions in online social gaming. Under the new IRS regulations, if a user purchased an in-app or in-game purchase using Bitcoin, they would be expected to calculate the difference between the value of the Bitcoins at the time they were first acquired, with the value of the Bitcoins at the time they were spent, in order to calculate capital gains/losses. Game developers seeking to accept Bitcoin as a payment model would also be required to do the same, resulting in a significant increase in time and effort spent to comply with the law, and theoretically making it less likely that U.S. consumers will use Bitcoins as a mainstream currency. And given the wild price fluctuations of Bitcoin, from as high as $1000 to as low as a few cents per coin, the regulations may encourage more hoarding than spending of the currency. 

Would you use Bitcoin or other cryptocurrencies to pay for microtransactions in a game, or even to purchase entire games themselves? Let us know in the comments. 

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  1. 0
    DorthLous says:

    Hundred*s*. And I have no problem with the rest of the article. It's just that saying Bitcoins use to have a price of cents means absolutely nothing. Computers use to cost tens of thousands of last century's dollars and occupy an entire room. Talking about the last few months fluctuations that halved the values over multiple months, sure. That's informative and accurate.

  2. 0
    GamesLaw says:

    It makes sense if you think of it like using Apple stock as a form of currency when you buy something from the corner store. You'd have to keep track of the exact price of what you paid for it, calculate the difference in the price you're currently selling it for, and report that as a capital gain or loss on your taxes.

    With Bitcoin, where there have been daily fluctuations and crashes in the ranges of hundreds of dollars, even as recently as February (and that's not counting Mt. Gox), that would be incredibly tough for users to calculate if the currency is going to be accepted on a mass basis. You're saying that since it reached over $1000 it hasn't fallen under $100. Well, OK, no currency should have a 90% devaluation. But since it's gone over $1000, it has dropped to $500, and currency that volatile is incredibly risky from a perspective of "what is my buying power?" More importantly, for vendors seeking to accept the currency, the risk assessment that they could quickly lose everything if the price of Bitcoin tanks, makes it unlikely they will adopt it en masse.

    And finally let's note that when you're talking about quarterly or yearly tax returns, or long-term capital gains/losses, the entire existence of Bitcoin as a thing anyone even knows about is basically a short time.  

  3. 0
    DorthLous says:

    The article is misleading. While the price changes, it never fluctuated in a short period of time like it is suggested here. Since it reached over 1000$, it never fell under hundreds of dollars. That's like saying Apple stock fluctuated from 7$ to 700$… It doesn't give a good picture and is misleading.

  4. 0
    Neeneko says:

    I suspect indy studios will just use one of those payment processors who immediately convert BTC to local currency, so they can accept the payment method but do not hold onto the BTC themselves.

    Outside that, if there is demand, I imagine someone will make a bookkeeping/wallet app that can automatically track values as it receives and sends out payments.

  5. 0
    GamesLaw says:

    Personally I think is going to harm indies much more than it is going to harm larger, established studios who have boards/investors to report to and likely view Bitcoin as too risky. 

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