Taxpayer Advocate Service on Bitcoin, “IRS is aware of the potential tax-compliance risks”

If you’re one of the many who made a large sum of money this past year by investing in bitcoins (BTC) and litecoins then that profit could very well be subjected to tax. Many countries in the past few months have classified bitcoin and other digital currencies as commodities and will be charged a capital gains tax.

The Taxpayer Advocate Service, an independent organization within the IRS, has alluded to several comments made on Reddit and various bitcoin message boards in which bitcoiners say they want to pay tax on their bitcoins but don’t know how to do it.

In the end, however, the question still remains if the IRS will depict the cryptocurrency as a currency or a commodity. A report was issued to the Congress late last year that states: “Some of this speculation is incorrect, incomplete, or misleading,” the report said. “It is the government’s responsibility to inform taxpayers about the rules they are required to follow.”

bitcoinThe agency sent an email to the online edition of the National Journal and confirmed that the tax-collecting service is aware of the hazards associated with bitcoins and is studying the effects of virtual currencies.

“The IRS is aware of the potential tax-compliance risks posed by virtual currencies,” the agency said. “The IRS continues to study virtual currencies and intends to provide some guidance on the tax consequences of virtual-currency transactions.”

Several bitcoin and tax experts make the case that it shouldn’t be taking the IRS this long because bitcoins should be simply classified as any other non-dollar denominated transaction in tax filings.

In the meantime, some bitcoiners will pay the government what they think they owe them. Most tax professionals say to simply report any gains as capital on their tax returns. By doing this it would avoid any complications with the IRS and trouble would be circumvented.

For more bitcoin news follow PFhub on Twitter or bookmark this page.