Page 24 - Leisure Living Magazine Spring 2018

Bitcoin
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field day. They still do. Bitcoin is awash in dirty money, and that is certainly one of the reasons the demand for it has risen. The anonymous found- ers of bitcoin, a person or group known only by the pseudonym Satoshi Nakamoto, created a built-in limit of 21 million bitcoins and because the supply of bitcoin is finite, when demand rises, so does the price.
In 2017 the price of bitcoin started increasing rapidly; the market saw many new entrants and bitcoin futures began trading on the Chicago Board Options Exchange (CBOE). A specula- tive binge ensued, driving the price still higher. Though the price of bitcoin has fallen rapidly in the past months, the New York Stock exchange recently filed with the Securities and Exchange Commission to list two exchange traded funds that would track bitcoin futures.
Bitcoin and the law
People often ask about the legal and tax aspects of buying and selling bitcoin. There is
no “virtual currency law” in the U.S., so buying, owning and selling bitcoin and using it to pur- chase goods or services is perfectly legal.
The IRS considers bitcoin to be property, not money, so if it appreciates or depreciates in value, there’s no taxable gain or loss until it’s sold or purchased for hard currency (or converted to or from something with a fair market value in hard currency). Thus, like any other payments made in property, if the fair market value virtual cur- rency received in payment for goods or services totals $600 or more in a taxable year, this must be reported to the IRS.
Since bitcoin is a relatively new medium of exchange and so many new blockchain users are entering the market, it can be useful to follow some simple guidelines in order to avoid losing money or attracting the attention of government officials. Using a U.S.-based, government-li- censed exchange to convert between bitcoin and dollars is by far the safest approach and one that will not raise any suspicions of money launder- ing or tax fraud. U.S. businesses that exchange virtual currency for hard currency or vice versa are highly regulated and licensed. Offshore busi- nesses that do the same, not so much – and the risks of being defrauded or being caught up in a criminal investigation are much higher.
Anyone who wants to convert bitcoin into dollars – especially large amounts – and anyone who accepts bitcoin in payment of goods or ser- vices (or who uses bitcoin to pay for them) would do well to consult with an attorney who is famil- iar with both the tax and technological aspects of virtual currency. Doing so might not only result in tax savings, but also could avoid unwanted scrutiny by the IRS.
This “Law You Can Use” column was provided by the Ohio State Bar Association. Articles appearing in this column are intended to provide broad, general information about the law. This article is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from a licensed attorney.
Robert Ellis is a partner at the Columbus-based law firm Hennis, Rothstein & Ellis LLP. He practices in internet and tech- nology law, business and corporate law, intellectual property law and virtual currency transactions. He is a frequent speaker on topics related to the internet, digital technology and legal ethics.
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