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Abstract: 

In the last decade, bitcoin and other cryptocurrencies have shown a meteoric rise in value. Various analysts who track this industry have attributed this surge to the growing global awareness of bitcoin as a safe-haven asset. While the volatility in Bitcoin value has attracted a large number of traders and investors, the rules of taxation are not clear. The tax questions create additional complexities since bitcoins and other cryptocurrencies are traded globally and it is difficult to determine the chain of ownership for these currencies. In this article, the authors first trace the origins of cryptocurrencies and discuss the returns provided by various cryptocurrencies and their respective markets, as well as the risks of investing in these currencies. Then they discuss the tax guidance provided by the Internal Revenue Service (IRS) and provide an example of how to compute a gain or loss for tax treatment purposes. Finally, they compare the tax rules across different countries, and discuss what the future might look like for global taxation of investments in cryptocurrencies.

Keywords: bitcoin, market capitalization, cryptocurrency exchanges, IRS Notice 2014-21, treatment as property, fair market value, character of income, state taxation, international taxation

Affiliations:  1: University of Arkansas at Little Rock; 2: University of Arkansas at Little Rock; 3: University of Arkansas at Little Rock.