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The last couple paragraphs of this article are kind of ridiculous.

If the IRS decides that bitcoins are like stocks and bonds, the IRS will accept an average cost basis rather than the user having to account for each individual bitcoin (or fraction of a bitcoin).

If it works like inventory, then the taxpayer will have to decide between several accounting strategies (last-in-first-out or first-in-first-out for example) when deciding cost basis. It's complicated, but it's an order of magnitude easier than what the author is suggesting.




> It's complicated

I also have to wonder what tax returns would look like, once automated tracking occurs. Thousands of transactions per year, netting out to very little money (if and when btc/ltc values stablize) will make even electronic returns quite sizeable.

I suspect that once the IRS realizes it has DoS'd itself, it will decide that the foreign currency exemption of $600 was there for good reason and revert to currency rules.


The IRS doesn't have to implement automated tracking though or read each and every return. It has considerable discretion in which returns it decides to audit, if any.


What you have to realize though is that none of that matters with a real currency. And the point of the article is that this takes away from Bitcoin being a currency. You're going to have to think pretty hard about whether you want to use an average cost basis or whether you want to be trade specific. And once you choose one you can't change track midway. Given the significant fluctuations in Bitcoin's price that's going to matter. Lastly, you'll see "Fiscal Year" events. Bitcoin appreciated a lot this year? No one is going to want to move in and out in that later months due to the ever increasing tax cost of doing so. Come January there'll be movement again. So you'll get all these weird liquidity events.

I'm not for or against BC but the IRS definition is much more significant in terms of the future of Bitcoin.


>What you have to realize though is that none of that matters with a real currency. And the point of the article is that this takes away from Bitcoin being a currency.

If you trade foreign currencies you also have to pay capital gains tax. Bitcoin is being treated exactly as other currencies.


Except for the fact that it's being treated as a foreign currency vs a dometic one. Not much difference there (sorry I'm being snarky because you're basically reinforcing my point when arguing against it)


The IRS doesn't have much leeway here, I suspect. IANAL, but it's my understanding that U.S. laws specify dollars as the only currency of the U.S. If people can invent other currencies that the government is then required to accept as currency, I suspect it would take an overhaul of our laws. (And isn't there something in the constitution about the federal government having sole minting power?)




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