In today's era of booming digital economy, cryptocurrency, as an emerging form of finance, has attracted much attention. However, the IRS holds a unique view on Bitcoin, a representative cryptocurrency, and does not consider it to be a virtual currency at all. This position sparked widespread discussion and controversy. Let’s dive into the IRS’s stance on Bitcoin to understand the logic and implications behind it.

The U.S. Internal Revenue Service’s (IRS) identification of Bitcoin is not simple. Although Bitcoin is widely regarded as a virtual currency around the world, the IRS characterizes it as property, not currency. Behind this decision is a series of complex tax regulations and legislative considerations. The IRS believes that Bitcoin is not legal tender, so it does not have the properties of currency and is more suitable to be regarded as an asset, similar to stocks or bonds. This distinction has important consequences when it comes to tax filing and collection.

In terms of tax declaration, individuals or entities holding Bitcoin need to declare the number and value of Bitcoin held in accordance with IRS regulations. Unlike traditional currencies, Bitcoin's value fluctuates significantly, which can lead to complexity and risk in asset valuation. In addition, Bitcoin transaction records also need to be reported according to IRS regulations to ensure tax compliance. This creates additional tax burdens and compliance challenges for individuals and businesses.

In terms of taxation, treating Bitcoin as an asset means that capital gains taxes may be triggered when selling or trading Bitcoin. According to the IRS, capital gains tax applies to profits generated from the sale of assets. Therefore, individuals or entities holding Bitcoin need to consider the potential tax implications when conducting transactions and plan their asset allocation appropriately. This creates additional risk management and tax planning challenges for investors.

In addition, the IRS’s stance on Bitcoin also affects the market development and regulatory environment of Bitcoin to a certain extent. Defining Bitcoin as an asset could lead to stricter regulatory requirements and tax policies than if it were considered a virtual currency. This may affect Bitcoin's liquidity and market acceptance, further affecting its status and role in the financial system.

To sum up, the IRS’s position on Bitcoin is not that it is a virtual currency but an asset. This view has important implications in tax filing, tax collection and market supervision. Investors and all sectors of society need to fully understand this position and plan finances and investments appropriately to ensure compliance and sustainable development in the digital economy era. The future development of Bitcoin will be affected by many factors, among which tax policy and regulatory attitudes will play a key role. We hope that we will pay attention to the dynamics of this field together and explore the development path of digital currency.

The four most famous international exchanges:

Binance INTL	OKX INTL	Gate.io INTL	Huobi INTL
China Line　APP DL	China Line　APP DL	China Line　APP DL	China Line　APP DL

Note: The above exchange logo is the official website registration link, and the text is the APP download link.

The Internal Revenue Service (IRS) has removed reference to in-game currency as an example of redeemable virtual currency on its website. This clarification is important because new tax filings require taxpayers to report their involvement in virtual currencies. February 13, Bloomberg
Tax first reported the move. Official guidance on the IRS website states that Fortnite’s V-bucks and RoboBrick’s Robux are both virtual currencies. Bloomberg
A screenshot of the official website provided by Tax shows a fairly detailed concept of virtual currency, and even mentions blockchain alternatives, such as directed acyclic graphs (DAG).

Source: Bloomberg Tax

Bad examples of virtual currencies

The IRS's definition of virtual currency depends on its ability to "operate like 'real' currency," meaning it needs to be freely transferable between users and easily redeemable for fiat currency.

A spokesperson for Fortnite publisher Impey Games told Bloomberg that none of the above explanations apply to in-game currency:

V-bucks cannot be ‘used by users to conduct digital transactions’ nor can they be ‘exchanged for dollars, euros or other real or virtual currencies’.

Roblox representatives expressed a similar stance, but also noted that Robucks can be redeemed for fiat currency under certain circumstances. The company added that related transactions are automatically submitted to the IRS.

The revised official guide only mentions BTC, removing the previous reference to Ethereum (ETH), which should also have the same definition.

Radical stance on cryptocurrencies

The U.S. tax enforcement agency recently took a strong step to curb tax evasion using cryptocurrencies. Now, there is a simple question on Form 1040:

Have you sold, sent, exchanged or otherwise obtained any financial interest in virtual currency at any time in 2019? Classifying in-game currency as virtual currency would result in millions of people having to answer "yes." However, there is usually little profit to be made from owning game currency.

The measure could be used to force cryptocurrency users to report their earnings, given that falsifying the forms could result in fines of up to $250,000.

Such a move can be quite complex. For example, every cryptocurrency-to-crypto exchange is considered a taxable event that must be reported. Although some hoped that these transactions would fall under the category of “like-kind transactions,” an IRS official denied this, saying that definition means that cryptocurrency gains are only taxable when converted into fiat currency.

Cryptocurrency taxation is a topic that remains unclear, as regulators around the world take wildly different approaches. France, for example, does not tax cryptocurrency transactions.

But a new bill recently proposed in the U.S. Congress could simplify the use of crypto payments by exempting low-value transactions from tax returns.