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Virtual Currency is Not “Currency;” IRS Gain Rules Apply to its Use

E-commerce companies increasingly accept virtual currencies, such as bitcoin and litecoin, as payment for their products and services.

However, the IRS has categorized virtual currencies as property rather than an actual currency.

Thus, any change in the fair market value of a payment in virtual currency will generally be treated as a capital gain or loss for tax purposes.

The IRS tasks e-commerce companies with maintaining accounting records sufficient to calculate these capital gains or losses.

E-commerce companies should consider the potential difficulty in meeting these record-keeping obligations and the substantial volatility in virtual currency values when implementing a virtual currency payment solution.