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Enforcing Tax Law in Uncharted Territory

| June 18, 2013
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In recent years, the use of virtual currency such as bit coins has opened new avenues for consumers in America and around the world. Though this currency can be used to purchase anything from virtual goods to a poker tournament buy-in, it is not regulated by the U.S. government or any other governmental entity. Due to this, the IRS and the GAO believe there is substantial under reporting of taxable income for bit coin related transactions.

Recently, the Government Accountability Office has recommended that the IRS develop a strategy to intervene in the "underground economy" as the tax compliance risks of such a currency may be greater than initially expected. Some of the dangers include taxpayers not being aware that income earned through virtual economies or a currency is taxable or not knowing how to calculate such income. Because of the limited data available, it is difficult to determine how significant virtual economies and currencies may be.

Due to high priority in other areas of our economy, the IRS has not yet set specific guideline for this type of currency. However, the GOA is strongly encouraging them to produce a relatively low-cost way to provide information on the implications of this type of online economy, such as a website.

At the Rosenhouse Group PC, we stay aware of developments in overall economy not just tax practice. As such we have been following the development of Bit coin and similar virtual currencies. We look forward to working with you in properly presenting any bit coin transactions you have entered into.

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