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IRS Revises Guidance on Bitcoin, in Light of Its Use As Legal Tender in Some Nations

S.J. Steinhardt
Published Date:
Apr 25, 2023

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The IRS has slightly revised its 2014 guidance on the treatment of virtual currency in recognition of the fact that certain foreign jurisdictions now accept Bitcoin as legal tender, Accounting Today reported.

The IRS’s new Notice 2023-34 states that the previous guidance's provision that “virtual currency does not have legal tender status in any jurisdiction is no longer accurate as to Bitcoin.” Accounting Today noted that El Salvador and the Central African Republic have adopted Bitcoin as legal tender.

The new guidance also modified the background section to state: “In certain contexts, virtual currency may serve one or more of the functions of “real” currency—i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance—but the use of virtual currency to perform “real” currency functions is limited.”

Despite the change, convertible virtual currency is still not treated as currency that could generate foreign currency gain or loss for federal tax purposes by the IRS.

In March, the IRS issued preliminary guidance regarding the tax treatment of nonfungible tokens (NFTs) as collectibles under the tax code in a move that was applauded by accounting professionals.

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