but you wouldn't pay for the coffee with an entire bitcoin, I would pay with a fractional amount to cover the price of coffee.

whereas Bitcoin is designed to be handled fractionally.

(Not that I am an advocate of Bitcoin)

It's just that more people are speculating on it now than actually using it to pay for things. The fact that it's a currency is the only thing giving it value.

Though I must say I'm kinda tickled by this IRS statement. It's going make a lot of libertarians VERY angry.

I can encode and replay copyrighted media into some mediums (such as my brain) without penalty, but other mediums are not allowed. Who comes up with this crazy shit anyway?

Right now I'm listening to Harvest Moon on my iBrain. If I was caught, the only penalty I might get is a few years with a shrink.

Copyrights are, at their core, a protection against copying. If the media can be reproduced, that generally means the work is encoded (to use in your words) in a way which it could be shared - that is likely both reducing it to a tangible medium (the copyright language) to create copyright - and, if you are the copier - sufficient to infringe the owner's rights.

Now - if they find a way to mine your brain and suck out what you're listening to, them someday that might be infringing.

As long as it is private, you're still good to go. Just don't invite anyone over to listen - or tape it.

So the distinction is whether those 1's and 0's constitute a creative work.

valuable to the Bitcoin community and some are not.

Currency transferred as a gift (below the gift tax limit) is not taxable. Once you hit that line, it is taxable. Currency transferred to pay for a cup of coffee is (at least to the extent it constitutes property).

It has never been the currency itself that was taxable - it was how it was used.

Oh yea. That is what I compared bitcoin to a few weeks ago when folks were insisting it was tax free - in this subthread.

(My assertion was that it was taxable - and treating it as barter/stocks are handled is how I expected them to treat it this way - based on my tax training, although they had not decided which of the two ways to view it at the time.)

rather than as a piece of currency, that the face value of the same coin might represent.

A bitcoin is a 'rare' number, from a unique pool of numbers that has value only in that it is, by nature, rare. That's it. It doesn't have the melt value of a rare physical coin even.

Bitcoins are taxable, because they are a commodity for which there is an active market. You can buy them, you can sell them, you can "find" them (by mining), once found they exist forever without the ability to be cloned. Thus they are a tangible good. That their representation is digital is irrelevant. A Kindle book is still a book.

What makes this so perfect though, is that the IRS could then make the very small leap and say that profits from the trading of bitcoins is subject to capital gains, and anyone who doesn't report their trades on their tax returns could be Al Caponed.

So laundering via bitcoins becomes an unambiguous crime, unless the trades are reported.

I love it.

The question wasn't whether they were taxable, but which category of taxation they fell into. And, FWIW, if you read the article it specifically talks about capital gains.

If you bought them, with the intention of selling them, most would see it as taxable.

However, I would argue most people would NOT consider using them to "buy" something as a barter transaction resulting in gain to the extent the item you received in exchange was greater than the what you paid for the bitcoin.

bartering has always been taxable - and what people "consider" it is not really relevant.

Many people also consider income from working under the table, or tips in excess of what the employer reports, non-taxable. They are wrong. They may not get caught at it - but that doesn't make how they view it legally accurate.

If you bought a bit coin, then used it to buy something that cost more, the increased value is income to you. That is a basic principle of income. There are isolated exceptions where that is not true (limited garage sales, for example) - but there is no principle of taxation which would apply to bitcoin to make it an exception, rather than the rule. The only question, from a tax perspective, is the mechanics of taxation - not whether income arising from it would be subject to taxation.

I am saying I don't think (check that, KNOW) that most people viewed bitcoin as a currency and this would not even consider the rules of barter income (assuming they even knew they existed).

and this should be no surprise to you.

It should also be no surprise to you that many people you serve don't know either the general principles or the details of taxation. Withholding is often confused with what is owed. Few people realize that when they get a large refund they have made an interest free loan to the the government - and that they could change that if they wanted to earn their own interest. Mandatory income reporting by employers and the financial industry is often presumed to be all the income you have to report; if it isn't reported for you, you don't have to claim it. And - of course - barter income is tax free in most people's minds.

So whether or not people dabbling in bit coin had a clue, doesn't change the reality that it was always a matter of how it would be treated for tax purposes - not if.

And - FWIW, the only real life person I know who is into bitcoins and I had a discussion about taxation at least two years ago. At that point he was still holding, but both of knew that at the time he converted bitcoin to something else (whether by buying something or into cash) that there would be tax implications.

(And, FWIW, I was an enrolled agent for several years before I became an attorney, when maintaining that status became redundant.)

then, if owned by a business, one can depreciate it and reduce taxes.

A business can own land (not talking about the buildings on them here) and not depreciate it. A business can own art or gold and not depreciate them. Depreciation only occurs on assets that are considered to be 'used up' in some way in the operation of an activity for financial gain.

In theory, there is a taxable transaction based on each use of bitcoins because you have to recognize the gain or loss between your basis in the bitcoin and the fair market value of the property acquired. This could be a major pain in the rear end because the IRS will eventually get access to the records of the exchanges

it just prevented bitcoin from continuing to be a ponzi money laundering scheme.