IRS: Bitcoin is property, not currency, in tax system

The long-silent Internal Revenue Service has finally made a ruling when it comes to the virtual currency bitcoin.

Bloomberg reports the IRS guidance will provide certainty for investors, along with potential income-tax liability. Under the ruling, purchasing a $2 cup of coffee with bitcoins bought for $1 would trigger $1 in capital gains for the coffee drinker and $2 of income for the coffee shop.

Bloomberg sources say the IRS wanted to avoid the creation of an electronic black market, similar to the cash economy.

Under the IRS ruling, Bitcoin investors would be treated like stock investors. For investors with losses, U.S. tax law allows taxpayers to subtract capital losses from any capital gains.

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