Sorry Bitcoin users – the federal government wants to start taxing you.
The Government Accountability Office released a new report Monday stating that some transactions involving the use of virtual currency should be subject to federal taxes.
The transactions the government is specifically targeting with the new taxes are those made in an “open-flow” virtual currency system, which involves transferring virtual money to pay for real goods and services that can result in real-world profit. Other transactions, such as those made in a “closed-flow” virtual currency system where virtual currency is used to buy virtual goods and services like those in an online game, will not be subject to federal taxation, however.
The GAO conducted its report after the Senate Finance Committee requested that the agency investigate virtual currencies, their tax compliance risks and how the Internal Revenue Service has addressed these risks.
The report also found that the IRS could be doing more to inform taxpayers that their virtual transactions may be taxable.
“The fact that misinformation is circulating and the possibility of growth in the use of virtual currencies outside virtual economies suggest that it would be prudent to take low-cost steps, if available, to mitigate potential compliance risks,” the report reads.
According to the report, approximately 11 million Bitcoins were in circulation as of May 1st, and the price of one Bitcoin fluctuated between $5 and $20 from May 2012 to February 2013. In April, the price of a single Bitcoin varied between $79 and $237. The report also approximated that the number of Bitcoin transactions made in a day ranged from 8,000 to 70,000 during that time period.
The fluctuations in Bitcoin should not be surprising, however, as the report states that its exchange rates are known to be volatile.
