Why would you "bring up the issue" ?

Just declare bitcoin-related income or capital gains as income, and bitcoin-related expenses as expenses, translated into units that the IRS understands (dollars), and follow the rules for WHEN you must declare income, capital gains and expenses and I bet a bitcoin you'll be just fine, even if you get audited.

Oh I am all for the law abiding citizens. I don't know if you realize it but you are already paying for the "privilege" of using their wonderful currency when you receive money from your employer, when you fill up the tank, and for everything else you buy. Actually every second you are holding paper note in your hand - YOU ARE PAYING THEM! And while it's fine in a sort of evil twisted way, because it is their system, I draw the line with Bitcoin. If I made some money with bitcoin, I am keeping it. I'd much rather give it to people who are making this possible.
Governments are redundant concept, they are parasitic entities and it's about time people realize this. And before you say that we need them, let me tell ya - we don't! And you know how I know this - every time they stop fucking around with economy, things start getting better. We are WAAAAYY better off without their "solutions".

But you are right it's the wrong topic. Promise not to do that again(fingers crossed behind my back )

meh
OP's question is totally legit if his intent is to create a reasonably sized business operating in bitcoins

Here's a related thread.
  - http://bt.irlbtc.com/view/2484.0

And following is a copy of my response:
  - http://bt.irlbtc.com/view/2484.msg33597#msg33597

 - http://www.irs.gov/businesses/small/article/0,,id=130524,00.html

What I'ld like to know is if holdings of Bitcoin count as a "foreign account" and thus when "aggregate value of these [foreign] accounts exceeds $10,000 at any time during the calendar year" then filing the FBAR report is required:
  - http://www.irs.gov/businesses/small/article/0,,id=210244,00.html

I am not a tax lawyer/CPA/etc, so don't take any of this as advice.  But here is my opinion:


You definitely don't want Bitcoin to be classified as a collectible.  The taxes on collectibles (beanie babies, etc) are much higher than standard assets (stocks, bonds, etc).  This has screwed many a gold coin collector.  Luckily I don't think this will happen.  A collectible is defined, in part, by being a physical object.


Bitcoin is not associated with any foreign country, so I don't believe FBAR regulations will apply.  Until the government recognizes the Internet as a foreign entity, I think we will be safe.

Bitcoin is most analogous to gaming digital currencies, so I believe the same rules should apply as for Linden Dollars.  From what I have read, these are classified as a "store of wealth" and taxed as an asset (like a stock).  Of course, the IRS can choose to change their mind at any point.  For whatever you do, you will just have to cross your fingers and hope they decide you are right.  That is the risk of being an early adopter.  There are mechanisms to request an official ruling from the IRS, but from what I understand, these are not all that binding.  To be truly safe, you simply need to wait for enough case law to give you cover.  Let someone else be the guinea pig.

I belive, if you sell something for Bitcoins, this will be treated as a barter.  We may consider Bitcoin a currency, but I don't think the IRS will.  If you have enough income to make it worth it, there are probably a lot of games you can play with how exactly you do calculate the value of the exchange.  You will need to speak to an attorney about how to do that.  Due to the massive appreciation we are seeing in Bitcoin, I expect it will be most advantageous to convert the value to Dollars at the time of sale.

If you are simply trading between Dollars and Bitcoins, you should be able to treat it as any other asset.  Make sure you keep good records of when you bought and sold so you can calculate basis and long term status.

We have talked to the Swedish tax authority and they want us to treat it like any other currency: Pay tax on the value in local currency (SEK) at the market exchange rate when a payment comes in. (And pay capital gains tax if they are sold at a profit, but the company sells immediately to avoid messing with that.)