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A Whole New World: Income Tax Considerations of the Bitcoin Economy

39 Pages Posted: 16 Feb 2014  

Benjamin W. Akins

Georgia Gwinnett College, School of Business

Jennifer L. Chapman

Georgia Gwinnett College

Jason M. Gordon

Georgia Gwinnett College Business School

Date Written: November 7, 2013

Abstract

In recent years, the use of virtual economies has skyrocketed. These virtual economies include their own virtual currencies, the most well-known of which is the “bitcoin.” There are an estimated 11 million bitcoins in use today, valued at up to $237 per bitcoin in 2013. Because these bitcoins can, in some circumstances, be used to purchase goods or services with a monetary value or where they can be converted to legal tender, the proper income tax treatment of bitcoin transactions presents both compliance and substantive questions for the IRS. To date, there remains little legal or academic guidance on the use of bitcoins, or the taxation of bitcoin transactions. This article explores the current state of the law as it relates to bitcoins as well as proposed methods for applying existing federal income tax laws to the virtual economy. Based upon the current state of the law and the information available on the various systems through which bitcoins may flow, the article sets forth a series of recommendations as to the proper federal income tax treatment of bitcoin transactions and suggests methods for addressing the compliance issues related to these transactions.

Keywords: Bitcoin, Virtual Currencies, Taxation, Income Taxation, Finance, Banking

JEL Classification: H20, H24, H25, K34

Suggested Citation

Akins, Benjamin W. and Chapman, Jennifer L. and Gordon, Jason M., A Whole New World: Income Tax Considerations of the Bitcoin Economy (November 7, 2013). Pittsburgh Tax Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2394738

Benjamin W. Akins (Contact Author)

Georgia Gwinnett College, School of Business ( email )

1000 University Center Lane
Lawrenceville, GA 30043
United States

Jennifer L. Chapman

Georgia Gwinnett College ( email )

1000 University Center Lane
Lawrenceville, GA 30043
United States

Jason M. Gordon

Georgia Gwinnett College Business School ( email )

1000 University Center Lane
Lawrenceville, GA 30043
United States

HOME PAGE: http://www.ggc.edu/

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