The IRS has recently made updates to the initial 2014 guidelines they released regarding digital currencies. The revisions were made because some nations now consider Bitcoin as legal tender, and the IRS notice says that crypto is not legal tender.
Overview
Notice 2023-34 was released earlier this week by the agency. The new notice is an amendment to Notice 2014-21, which says digital currencies were not considered legal tender. Notice 2023-34 states that as time has passed, some foreign nations do indeed accept digital currencies as legal tender, particularly accepting Bitcoin. “Thus, the sentence in the background section of Notice 2014-21 stating that virtual currency does not have legal tender status in any jurisdiction is no longer accurate as to Bitcoin,” said the IRS.
Crypto Countries
One of the first nations to shock the rest of the world by accepting Bitcoin as legal tender is El Salvador. Additionally, The Central African Republic adopted Bitcoin as a legal tender last year. While this has been somewhat of a trend in foreign nations, there are also nations that have totally banned the sale of crypto.
Notice 2014-21
Notice 2014-21 was released by the Internal Revenue Service approximately 10 years ago. When it came to federal tax purposes, cryptocurrency was considered property by the IRS. The reason the agency considered it property was so that it could apply the general tax principles they apply to property transactions could be applied to crypto. The only problem with this notice is that the background information on it states that digital currency is not considered legal tender in any jurisdiction. This simply isn’t the case anymore.
To reconcile this problem, the IRS released an updated form that reads, “In certain contexts, virtual currency may serve one or more of the functions of ‘real’ currency — i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance — but the use of virtual currency to perform ‘real’ currency functions is limited.”
Wrap Up
After the updated form was released, the IRS stated that the amendments do not change the answers to the frequently asked questions of the notice, which is located in Section 4. As the world of digital currency continues to evolve, more nations will begin adapting it for a variety of reasons. With that being said, tax agencies such as the IRS are also evolving in this field. The IRS plans to continue to make changes to their crypto guidance as they continue to learn about it over time.