If you're thinking that bitcoin and digital currency generally are merely some one-off flash in the pan, the new Digital Currency Council would argue otherwise. The council launched in September and already had 400 members in early October—with an "overwhelming" response from accountants, said council CEO David Berger in an email. Guess what: digital currency is going mainstream.
And if that doesn't convince you, the IRS is helping to encourage attention, and you know what that means.
"Today, clients are asking their accountants for their insight on how best to record, report, and account for bitcoin holdings and transactions", Berger said. "And the questions are only increasing, with over 5 million holders of bitcoin today—a 7-fold increase over this time last year—and 100,000 merchants accepting bitcoin, a number that is increasing by 1,000 per week."
The demand for qualified accountants with an in-depth knowledge of digital currencies is far outpacing the current supply, he added.
Here's the pitch: Accountants can join the council for free, and take a training course that gives them the basics of digital currency. If they choose to become certified through the council, they get a 5.5-hour curriculum of 27 lessons and practice exam in preparation for the certification exam.
At present, there is no outside credentialing organization issuing the certifications. "We have been asked to partner with other organizations that issue credentials and may choose to do so over time, but to date we have chosen to issue our own certification", Berger says. That's similar to how the CFA, CFP, CPA and other designations developed, he added.
AccountingWEB has already offered some advice about bitcoin, explaining that IRS Notice 2014-21 indicates "virtual currency" will be treated as property for federal tax purposes. Berger offered these additional tips.
- The notice referenced above is not a new law but an interpretation of existing law, so there's significant uncertainty. At least one bill is before Congress to change the tax treatment of bitcoin.
- New accounting tools support the recording, reporting and accounting of bitcoin. For example, LibraTax is a SaaS platform designed for this.
- A taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received. Fair market value is determined by the publicly available rates on the exchanges, consistently applied (IRS Notice 2014-21).
- The fair market value of virtual currency paid as wages is subject to federal income tax withholding (IRS Notice 2014-21). New platforms like Bitpay and Wagepoint are offering payroll services in bitcoin.
- The character of the gain or loss generally depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
Currently, bitcoin is the only decentralized digital currency actively traded for goods and services, Berger said. There are other such currencies traded on various exchanges, but they aren't accepted by merchants to the extent that bitcoin is.
The future is far from certain, but it's becoming clear that accountants need to understand bitcoin and other virtual currencies, in order to keep up with their clients.
About Terry Sheridan
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.