WASHINGTON — The Internal Revenue Service today issued a notice providing answers to frequently asked questions (FAQs) on virtual currency, such as bitcoin. These FAQs provide basic information on the U.S. federal tax implications of transactions in, or transactions that use, virtual currency.

In some environments, virtual currency operates like “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 it does not have legal tender status in any jurisdiction.

The notice provides that virtual currency is treated as property for U.S. federal tax purposes.  General tax principles that apply to property transactions apply to transactions using virtual currency.  Among other things, this means that:

• Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
• Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply.  Normally, payers must issue Form 1099.
• The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
• A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

Further details, including a set of 16 questions and answers, are in Notice 2014-21, posted today on IRS.gov.

WASHINGTON — The Internal Revenue Service today provided taxpayers an extension until Oct. 15, 2014, to decide when to claim disaster losses arising from last September’s flooding.

The extension means that eligible individuals and businesses will now have until Oct. 15 to decide whether to claim these losses on either their 2012 or 2013 returns. Without this extension, these taxpayers would have had to make this choice by the original due date for the 2013 return, usually April 15.

Depending upon various income factors, claiming losses on a 2012 return versus a 2013 return could result in greater tax savings for some taxpayers. The extra time is available, regardless of whether a taxpayer requests a tax-filing extension for either year.

Eligible taxpayers are those who suffered uninsured or unreimbursed losses resulting from severe storms, flooding, landslides and mudslides in the 20 federally-designated disaster area counties from Sept. 11 to Sept. 30, 2013. The disaster area counties are Adams, Arapahoe, Boulder, Broomfield, Clear Creek, Crowley, Denver, El Paso, Fremont, Gilpin, Jefferson, Lake, Larimer, Lincoln, Logan, Morgan, Pueblo, Sedgwick, Washington and Weld.

Though taxpayers who miss the new Oct. 15 cut-off will lose the option of claiming their losses for 2012, they will still be able to claim them on an original or amended 2013 return. Further details are in Notice 2014-20, posted today on IRS.gov and also scheduled to be in Internal Revenue Bulletin 2014-15, dated April 7, 2014.