Can my business accept cryptocurrency?

How blockchain payment technology infiltrates core business practices and the means to maintain tax compliance with jurisdictions with its use

Cryptocurrency is a form of decentralized digital currency designed to function as an alternative payment method based on rapidly emerging blockchain technology. Although there are over 5,000 different cryptocurrencies in circulation, Bitcoin is the most popular among these digital currencies and has been the fastest growing cryptocurrency given the increasing volume of exchanges and price evaluation. Based on this characteristic, cryptocurrency is viewed as investment capital, closer to shares of companies, rather than a form of legal tender. That perspective changed when big companies like Tesla, MasterCard, Home Depot, AT&T, and BNY Mellon made strides in accepting Bitcoin as a payment option for their goods and services.

In 2014, the IRS issued Notice 2014-21 IRS Virtual Currency Guidance which reviewed and reviewed the overall status of cryptocurrencies in the United States on that date. Therefore, the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services as part of a real economic transaction, has tax consequences that may result in tax liability. Therefore, once Bitcoin is received as a means of payment, it will be taxed as property for federal tax purposes rather than as currency. As such, the cryptocurrency potentially qualifies for tax relief programs in the future while raising the specter of criminal prosecution for those who may not have declared their income and paid tax. resulting or did not report their transactions correctly. The IRS’s efforts to combat non-compliance continued through a variety of means, including educating taxpayers.

Five years later, in October 2019, the IRS issued additional guidance including Tax Ruling 2019-24 and an accompanying Frequently Asked Questions (FAQ) that expands on the initial notice and FAQs. The updated publications consider such situations as a hard fork when the legacy cryptocurrency undergoes a protocol change and results in the creation of a new cryptocurrency on a new distributed ledger. Another topic of interest is an airdrop that can occur when a new cryptocurrency is distributed to multiple taxpayers after a cryptocurrency’s ledger is renewed after a change in protocol. Although these situations seem foreign to many, these events and actions represent the maturing of tax regulations, which are often slow to take into account technological advances and complexities. The FAQ more accurately reconsiders issues such as determining the gain or loss of income to report to the IRS for these digital currencies.

As the tax implications will continue to dissipate, cryptocurrency supporters have much to celebrate. For example, since Bitcoin can be used internationally, it is easy to think that its implementation in business transactions will simplify foreign transactions and therefore be less costly for businesses in terms of exchange rate and currency. costs. In addition, digital currencies have taken hold in the public sector.

On February 11, 2021, Miami city commissioners voted to allow Bitcoin payments for salaries, taxes, and fees, being one of the country’s first Bitcoin-forward municipalities. Taxpayers would pay Bitcoin at its fair market value when filing the return. Historically, the USD has been relatively stable in terms of face value, this is where the gap with Bitcoin lies, as it is notoriously known for its high volatility, which makes gain / loss calculations difficult for jurisdictions. and businesses.

While the taxation of digital currency is a new challenge for jurisdictions and taxpayers, there is a clear need to continue to learn about new developments in federal and state regulations as reasonable efforts are made to minimize investigations, audits, penalties and interest. Researching tax regulations can ensure that businesses stay up to date and fully compliant, regardless of the medium of currency exchange sought.

Advice for the taxpayer

U.S. business owners should carefully review their practices to determine whether acceptance of cryptocurrency is within the bounds of any jurisdiction it may have ties to, as well as federal agencies. If digital currency is allowed in the jurisdiction, businesses may consider expanding their point-of-sale system to accept and record digital payments to streamline tax payments in the future. For now, companies need to move ahead with cryptocurrency implementation with the changing regulatory landscape in mind in order to stay in compliance.


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