[gamblor956]

No, it's still money to the IRS as well, just like any currency that isn't USD.

However, the tax code treats all non-USD currencies as assets for the purposes of determining when taxable events occur (as a result of differences in the exchange rate between the time the currency was acquired and when it was transacted away).

For example, you acquire 100 GBP for $100 or 10 Bitcoin for $100. Then sometime later, you buy a car for $100 but pay for it with 90 GBP or 8 Bitcoin. There are two transactions: the non-taxable acquisition of the car, and the deemed exchange of the GBP or Bitcoin into USD. Because the GBP and Bitcoin are worth more now than when you first acquired them, you have foreign exchange income and get taxed on that.

[jcranmer]

> However, the tax code treats all non-USD currencies as assets for the purposes of determining when taxable events occur (as a result of differences in the exchange rate between the time the currency was acquired and when it was transacted away).

There actually is one key difference. For most currencies, you can basically use a single exchange rate for all transactions. For bitcoin, you can't do that. Although note that one of the criteria that kicks you out of this rule is that currencies with high inflation (defined as roughly 10% annual inflation)... which would include bitcoin anyways.

[gamblor956]

For most currencies, you can basically use a single exchange rate for all transactions.

No, in determining f/x gain loss, you must use the exchange rate at the time of each transaction, though you get to choose FIFO or LIFO for determining that the base exchange rate is for determining gain or loss.

Generally, most businesses deal with f/x issues in one of two ways: either they have a foreign office that uses a foreign currency as its functional currency (a QBU) and process the foreign currency transaction through that office; or they have a bank handle the USD-to-foreign conversion on the day of the transaction at whatever the appropriate rate, is so there is no f/x gain/loss.

[vmception]

IRS requires Congress to declare anything specific as a currency or not, thats all it comes down to.