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Bitcoins and the IRS: Walmart’s Problem

Written by Gary North on October 10, 2015

It’s time for me to revisit the story of bitcoins. As you may have noticed — or not have noticed — you don’t hear much about bitcoins these days.

A bitcoin used to be worth about $1100. These days, it is worth $250. The price has settled into this range for most of the year. It’s boring. The financial media have dropped the topic. So has the hard money community.

I was an early critic of bitcoins, which earned me the hostility of the bitcoin community, which was small then and remains small.

TAXABLE EVENTS

I want to talk about what should be obvious to anybody. Every time some retailer or wholesaler sells something in exchange for bitcoins, this creates a taxable event. The IRS is highly interested in taxable events.

As you know, the IRS taxes people in United States dollars. It taxes businesses in terms of profits made in United States dollars. This is why every business has to keep an account of whatever it has paid out in United States dollars, which constitutes a deductible business expense. At the same time, every business has to keep a record of how many dollars have come in from sales.

This means that every business that does business in bitcoins must keep a record of the price of the bitcoin in terms of dollars at every point of sale or point of purchase. The IRS wants to know how many dollars came in or went out. It is not interested in bitcoins.

This creates huge problems for any business that wants to use bitcoins. Its computerized point-of-sale software must have a conversion system for bitcoins into United States dollars. When somebody buys something from the retailer, and he uses bitcoins to make the purchase, the retailer’s software must instantly convert the value of the bitcoins into the value of United States dollars. The businessman is going to be taxed in terms of the value of the bitcoins in United States dollars.

This is obvious, isn’t it? But the implications are not obvious.

If you want to get some estimate of the number of businesses that are using bitcoins as part of their operations, you must find out how many businesses have incorporated a conversion system that records the value of the bitcoins at the point of sale. This means barcode software.

Here is what I have discovered: there is no such barcode conversion software available.

(For the rest of my article, click the link)

Continue Reading on www.garynorth.com

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