Bitcoin: What are the U.S. Tax Implications?

May 26th, 2015 | Posted by Sarah Jones in Guest Blogs - (Comments Off on Bitcoin: What are the U.S. Tax Implications?)

Although many critics are already considering Bitcoin irrelevant or even dead, technology behind Bitcoin is here to stay. This week on NVTC’s blog, John Calanog of member company CohnReznick LLP discusses the basic U.S. tax implications of using the Bitcoin currency.

In my first blog on the subject, I described Bitcoin and its increasing popularity as an alternative currency.  As the digital currency is becoming more and more prevalent in the marketplace, and for those already exchanging Bitcoins, the following article discusses the basic U.S. tax implications of using the currency. Although there may also be Foreign Bank and Financial Accounts (“FBAR”) and Foreign Account Tax Compliance Act (“FATCA”) compliance requirements, that is not covered in this blog.

What is the U.S. Taxation?

On March 25, 2014, the IRS released guidance in Notice 2014-21 explaining that Bitcoin would be treated as “property” and not as “currency” for federal income tax purposes.  From a practical standpoint, this means that gains and losses on the disposition of Bitcoin will not be treated as “exchange gain or loss” and will not be ordinary in character.  This is bad news for investors who hold depreciated Bitcoin and were hoping to take exchange losses as ordinary losses. However, it is good news for investors who hold appreciated Bitcoin and prefer capital gains treatment.

For those holding Bitcoin for sale in a trade or business (i.e., for “miners”  [1] and “dealers”), income resulting from the sale of such Bitcoin may be taxed as ordinary income.  However, for most investors who merely “trade” in Bitcoin, gains or losses will likely be capital and not ordinary.

From a tax compliance standpoint, the taxpayer has the burden of keeping a record of their tax basis in the Bitcoin and determining the fair market value of the Bitcoin at the time they seek to sell or otherwise dispose of it.  Fortunately, most exchanges and e-wallets have been implementing tools that enable customers to receive the needed documentation.  Still, users without any obtainable records should seek professional tax advice as they are likely going to need to estimate their tax liability from the records they do have on file.

Virtual Currency as Net Earnings from Self-Employment

A taxpayer who receives virtual currency, such as Bitcoin, as payment for services has gross income equal to the fair market value (“FMV”) of the currency, in U.S. dollars, as of the date of receipt.

Moreover, an independent contractor who receives virtual currency for performing services has self-employment income.  The amount of the income is the FMV of the currency, in U.S. dollars, as of the date of receipt.

If a taxpayer’s “mining” of virtual currency is a trade or business and is not undertaken as an employee, the net earnings from self-employment from that activity is treated as self-employment income.

Additional Tax Considerations

There may also be filing FinCEN Form 114, Report of Foreign Bank and Financial Accounts, (FBAR) or Foreign Account Tax Compliance Act (FATCA) reporting requirements.  However, that is beyond the scope of this blog.


Bitcoin has only been around for six years (since 2009) and many critics are already considering it irrelevant or even dead.  However, such pessimism is missing the point.  The technology behind Bitcoin is here to stay.  And that technology is likely to become more significant as developers create new and improved versions.

With the IRS issuing a Notice to give guidance for the tax treatment of this means of exchange suggests that Bitcoin is a real and lasting phenomenon. Technology companies and others using the Internet will need to deal with it in the future.  Our monetary system was not originally designed for the internet or for globalized trading.  This is where Bitcoin comes in – as a truly globalized currency.


The content of this article is intended to provide a general commentary on the subject.  Please seek the advice of a tax professional regarding your specific circumstances.

John Calanog, CPA, is a Tax Manager with CohnReznick LLP and is a member of the Firm’s Technology Industry Practice.  John’s experiences over the last fifteen years include U.S. tax compliance and consulting for C Corporations, S Corporations, Partnerships, and high net worth individuals who operate businesses in a wide variety of industries and taxing jurisdictions.  Contact John at Follow CohnReznick’s Technology Practice on Twitter via @CR_TechInd

[1]Mining is the verification process of running mathematical operations on digital data in order to validate transactions and provide the requisite security for the public ledger of the Bitcoin network. The speed at which you mine is measured in hashes per second.

The Bitcoin network compensates “miners” for their effort by releasing Bitcoin to those who contribute the needed computational power. This comes in the form of both newly issued coin and from the transaction fees included in the transactions they validate when mining. The more computing power that is contributed, the greater their share of the reward.

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New Research Shows How Referrals Can Increase Growth for Technology Firms

May 19th, 2015 | Posted by Sarah Jones in Guest Blogs | Uncategorized - (Comments Off on New Research Shows How Referrals Can Increase Growth for Technology Firms)

This week on NVTC’s blog, Liz Harr of member company Hinge Marketing explains that when it comes to generating referrals, there’s more to the matter than personal connections. Discover where referrals are coming from today, and how technology firms are taking full advantage of the opportunities available to them.

The old axiom “It’s all about who you know” has some truth to it. But when it comes to generating referrals, there’s more to the matter than personal connections. Referrals are a powerful way to generate leads — and leads are the lifeblood of every technology firm — but personal connections alone aren’t sufficient to grow a referral base that in turn, brings in more business.Prioritizing Referrals

In a recent study of over 500 firms, more than 72 percent of respondents report that “Attracting and Developing New Business” is their greatest challenge. How do they plan on attracting that business?

Figure 1. Professional Services’ Planned Marketing Initiatives in 2015


That generating more referrals came out as the highest priority marketing initiative isn’t surprising  – referrals are a time-honored strategy in the professional services marketplace. But it’s the way firms seek referrals that’s important, and it won’t surprise many in the technology industry to learn that, like the rest of the marketplace, referrals are evolving.

Where are referrals coming from today, and are firms taking full advantage of the opportunities available to them? The Hinge Research Institute conducted another study to find out, questioning 530 professional services firms about how they seek referrals. The results show that firms may have been relying on the wrong type of referral to bring in new business.

Different Types of Referrals

Traditionally, many firms have thought of referrals as coming from firms they have worked with directly, or from personal contacts. This is true, but it’s not the whole story. In fact, over 80 percent of respondents receive referrals from firms they’ve never worked with at all.

Figure 2. Prevalence of Non-Experience Based Referral Types


When it comes to generating business, there are three other types of referrals that, in some cases, perform better than the traditional experience-based referral:

  1. Reputation-based referrals
  2. Expertise-based referrals
  3. Referrals based on preexisting relationships

How exactly are these referrals generated? Referrals based purely on a personal relationship are self-explanatory – and as you can see above, that type of referral alone doesn’t necessarily lead to new business. But the other two types are missed opportunities in the technology services landscape, and require some unpacking.

Expertise-based referrals

To find solutions to particularly complex challenges, most buyers consider candidates outside of their previous experience. Having a highly specialized skill-set or a unique area of expertise sets you apart from the competition — regardless of existing relationships.

Better yet, specialization differentiates you from your competitors, giving you an identity to build your brand around. Today, you have to be more than an IT firm – you have to be an IT firm that specializes in biomedical data management and security, or whatever other area your expertise might lie in. This goes a long way in generating leads and securing buyers’ confidence. In fact, when individuals and organizations feel that they have a strong grasp of your expertise, they will refer you to others without having a direct client/provider relationship.

But how are people in your marketplace learning about your expertise?

Figure 3. Sources of Expertise-Based Referrals


The short answer is: from you. By speaking about your expertise, by presenting your research, accomplishments, and ideas, you can make a huge impact on your audience.

But apart from speaking engagements, online sources are responsible for more than half of all expertise-based referrals. A well-executed online marketing campaign – including blogs, social media, downloadable whitepapers and guides, and a lead-generating website—gets you and your expertise on prospective clients’ radar.

Reputation-based referrals

These are similar to expertise-based referrals, but are tied more to the positive impression of your abilities and the customer satisfaction you produce, rather than a specific knowledge-base or set of skills. There are two types of reputation-based referrals:

Figure 4. Sources of Reputation-Based Referrals


55 percent of these referrals come from your prospects’ colleagues and friends. None have worked directly with you before, but your marketing efforts are working. They’ve heard of you through online and offline networks alike. When your industry comes up in conversation, people think of you.

The remainder of reputation-based referrals doesn’t come from a specific contact. You’re simply known and well-regarded. Your content marketing efforts have spread across the Web and made an impression on your audiences. They’ve read your blog, and they may have found your website while researching your industry and the various services you offer. Because your content was helpful, educational, and relevant to their needs, they’ve developed a favorable impression of you.

The takeaway here is that referrals are a complex matrix of who you know, what you can do, and how well you’re regarded. Past experience only matters if you have the expertise to handle the current challenge — and expertise only matters if you’ve got great customer service and organizational skills that you can bring to bear on the project at hand.

And it’s important that you communicate all of this before your prospects even reach out to you. Why? Because over half of them will never reach out to you.

Figure 5. Why Buyers Rule Out Referrals


Poor content quality, a flimsy reputation, a substandard website—all of these things can rule you out before a would-be referral contacts you. Your marketing efforts must be impressive, convey your expertise, build your reputation, and regardless of who else is talking about you, be part of an impressive story of who you are and how you can solve customer problems.

If you’re interested in exploring Hinge’s full study on referral marketing today, download the research report. By taking a more expansive approach to referrals and strengthening their educational marketing efforts, technology firms can avoid being ruled out and take full advantage of referral opportunities among their audience. In today’s hyper-competitive industry, those opportunities matter more than ever.

Elizabeth Harr is a partner at Hinge, a marketing and branding firm for professional services. Elizabeth is an accomplished entrepreneur and experienced executive with a background in strategic planning, brand building, and communications. She is the coauthor of The Visible ExpertSM, Inside the Buyer’s Brain, How Buyers Buy: Technology Services Edition and Online Marketing for Professional Services: Technology Services Edition.


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