IRS: Cryptocurrency Isn't Currency; It's Property

Rhett Pardon

WASHINGTON — The U.S. Internal Revenue Service said on Tuesday that cryptocurrencies are to be treated, for tax purposes, as property and not as traditional currency.

The IRS said that cryptocurrencies — like bitcoin, litecoin and scores of others — should be considered like stocks and bonds and that "general tax principles that apply to property transactions apply to transactions using virtual currency."

The IRS also said that payments made using virtual currency to service providers or independent contractors are taxable.

It further said cryptocurrencies are not to be treated as legal-tender currency to determine if a transaction causes a foreign currency gain or loss under U.S. tax law and that wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.

In addition, the IRS  said that the character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer and that a payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

For "miners," like bitcoin miners, those who use computers to validate bitcoin transactions must include the fair market value of the virtual currency as gross income on the date of receipt, the IRS said.

Online adult companies have come to embrace cryptocurrencies as a substitute for traditional methods of processing transactions. MindGeek, SCORE Group, Naughty America, Wicked Pictures,,,, and, among other adulte brands, take bitcoin. Internet payment service provider Verotel also accepts bitcoin for transactions.

View IRS FAQ on cryptocurrencies