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5 of 5 DOCUMENTS

Copyright 2013 Tax Analysts

Tax Notes Today

NOVEMBER 13, 2013, WEDNESDAY

DEPARTMENT: Practice Articles

CITE: 2013 TNT 219-10

HEADLINE: 2013 TNT 219-10 TAXATION OF VIRTUAL CURRENCY. (Section 901 -- Foreign Tax Credit)
(Release Date: OCTOBER 30, 2013) (Doc 2013-25091)

CODE: Section 901 -- Foreign Tax Credit;

Section 902 -- Foreign Firm Credit;
Section 905 -- Foreign Tax Credit Rules;
Section 985 -- Taxpayer's Functional Currency;
Section 988 -- Foreign Currency Transactions;
Section 1221 -- Capital Asset;
Section 1471 -- Foreign Financial Institution Withholding;
Section 1472 -- Foreign Entity Withholding;
Section 1473 -- Foreign Financial Institution Withholding Definitions;
Section 1474 -- Foreign Institution Withholding Special Rules

ABSTRACT: Mindi Lowy and Miriam Abraham explore the tax consequences of transactions dealing in virtual
currencies.

SUMMARY: Published by Tax Analysts(R)

Mindi Lowy and Miriam Abraham explore the tax consequences of transactions dealing in virtual currencies.

AUTHOR: PricewaterhouseCoopers LLPLowy, Mindi;

Abraham, Miriam

GEOGRAPHIC: United States

REFERENCES: Subject Area:

Capital gains taxation;
Credits;
FATCA;
Goods and services tax;
Individual income taxation;
Information reporting;
Withholding taxes

TEXT:

Release Date: OCTOBER 30, 2013

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2013, Tax Analysts, Tax Notes Today, NOVEMBER 13, 2013

Published by Tax Analysts(R)

[Photo Omitted]Mindi Lowy is a tax director and Miriam Abraham is a tax manager in the New York alternative
investments practice of PricewaterhouseCoopers LLP. They would like to thank Gina Biondo, Simcha David, Kara
Friedenberg, Meredith Jensen, Jennifer Kennedy, Rebecca Lee, David Shapiro, Mark Tibaldi, and Michael Yaghmour
for their comments on and contributions to this article. Lowy can be reached at mindi.lowy@us.pwc.com, and Abraham
can be reached at miriam.abraham@us.pwc.com. The views expressed in this article are those of the authors and don't
necessarily reflect the views of PwC or any other person or entity. They were not intended or written to be used, and
cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties.

This article explores the tax consequences of transactions dealing in virtual currencies, such as the Bitcoin. It provides
background on virtual currencies and their growing popularity and discusses the complications created by the
uncertainty of potential tax character treatments, the timing of taxable income recognition, the calculation of basis, and
compliance and reporting requirements. Finally, the article discusses recent regulations regarding virtual currencies.

Copyright 2013 Mindi Lowy and

Miriam Abraham.
All rights reserved.

*****

A. Introduction

The low-interest-rate environment has spurred investment funds to seek new opportunities to increase the yield on their
investments. The desire for yield has led funds to explore new forms of alternative investments, which include a wide
array of investment types such as life settlement contracts, litigation and patent claims, and peer-to-peer lending. A
recent addition to that list is the investment in virtual currencies. Funds are exploring the prospect of investing in virtual
currencies, and this year alone several funds have been launched with the intention of gaining exposure to those
currencies. For example, on July 1 celebrity entrepreneurs Cameron and Tyler Winklevoss filed a registration statement
with the SEC for an exchange-traded fund gaining exposure to the Bitcoin, the most popular form of virtual currency.
This article will discuss the tax challenges and tax reporting requirements generated by the use of virtual currencies in
real economies. n1

Currency is generally defined as a system of money (or any other item) used as a medium of exchange. For much of
economic history, that medium of exchange has been tangible and ranged from items such as salt to the most widely
used media today, coins and paper bills. However, currency has always been shaped by, and adapted to, the social and
economic norms of the times.

A new currency may be in its embryonic stage. As the Internet gradually infiltrated our entire social fabric, new forms
of online interaction developed and became normative. That virtual interface ultimately led to opportunities for
economic activity and dealings, and the creation of virtual currencies as a medium of exchange between online
participants.

For example, World of Warcraft, an online gaming community, created its own internal virtual economy and, as of
December 2012, boasted more than 9.6 million users. n2 In massively multiplayer online role-playing games
(MMORPGs), players can earn virtual currency and accumulate valuable objects, such as potions and magic weapons,
by performing tasks or successfully completing missions. Many MMORPGs have their own virtual marketplace, where
virtual currency can be exchanged for virtual goods and services, and sometimes for real-life goods and services. Third
parties have taken that exchange further and allowed players to sell their virtual currency for real-world money.

The electronic form of currency used in real-world transactions is also frequently referred to as "virtual" or "digital"
currency. There are many types of those currencies, the most popular of which is the Bitcoin. As of October, the Bitcoin
had a circulation of close to 12 million, up from around 3 million in August 2010. n3 The term "virtual currency" may
be a misnomer when used to describe the Bitcoin and similar electronic currencies used in real-world transactions,
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because there is no virtual economy using the Bitcoin as functional currency. Unlike World of Warcraft's "Gold Coins"
or Second Life's (another MMORPG) "Linden Dollars," the Bitcoin exists only in the real world, albeit a digital one.

Bitcoins enter circulation through a process called mining, whereby members solve complex mathematical equations
that further secure the Bitcoin system. By successfully solving an equation, a miner is awarded Bitcoins. Bitcoins have
some characteristics of conventional currency; they can be used to pay for goods and services, and purchased for other
currencies via online exchanges. However, unlike conventional currencies, the Bitcoin is not backed by any central
government and until recently has not been subject to regulatory authority. n4 Also, because it lacks formal government
backing and its circulation is still in a developmental stage, the value of a Bitcoin can fluctuate sharply.

Despite the risk associated with its value, the Bitcoin is gaining popularity among both investors and end-users.
Investors have begun trading on the price fluctuations using online exchanges such as Mt. Gox, the largest Bitcoin
trading platform. Private equity and venture capitalists see that increased activity as an investment opportunity, and
funds are considering strategies that include investments in virtual currencies. One of the first funds to take that step is
SecondMarket, a platform focusing on alternative investments. It is raising cash for the Bitcoin Investment Trust, a
private investment vehicle that will trade solely in Bitcoins and is open only to accredited investors. Also, the
Winklevoss brothers intend to launch the Winklevoss Bitcoin Trust, an exchange-traded fund (which will be subject to
tighter regulation) open to a wider pool of investors. End-users, such as small business owners, have increased their use
of Bitcoins as a form of payment to save on credit card processing fees, because transaction fees for its use are minimal
to zero. n5 Also, some international users have opted to use the Bitcoin as a form of payment to avoid the scrutiny that
cash transfers might bring.

The increased activity has subjected virtual currencies to more publicity. But that publicity is not necessarily always
positive. Bitcoin and virtual currencies are often in the news through reports about the growing risk associated with their
use for illegal activity and tax evasion. n6 More importantly for promoters of the currency, however, is the increased
scrutiny by regulatory and taxing authorities. Virtual currencies have historically not been subject to much regulation.
That has given its originators a relative amount of freedom, but that may be coming to an end.

B. Technical Analysis

There is limited guidance governing the tax treatment of digital currency. n7 In fact, the Government Accountability
Office issued a report to Treasury in May recommending that the IRS develop guidance on the topic. The taxpayer must
determine not only the proper character of the income but also when a recognition event occurs for tax purposes, and the
related tax reporting requirements.

1. Character. The tax character of a transaction is important to the taxpayer because it governs the tax rate applied to
any gain or loss generated from the transaction. For example, foreign currency gain is taxed at the federal ordinary
income rate of up to 39.6 percent for individuals. Alternatively, capital gain from an asset that is held over a one-year
period is taxed at a maximum rate of 20 percent for individuals. n8 Taxpayers have taken different approaches
regarding the character of the income associated with digital currency activity and have considered treating that income
as transactions involving currency, capital assets, or other financial instruments.

a. Currency treatment. The code provides ordinary tax treatment for foreign currency transactions in the absence of
specific elections. n9 However, it does not define currency. Rather, it defines functional currency as "the currency of
the economic environment in which a significant portion of such unit's activities is conducted and which is used by such
unit in keeping its books and records." n10 The Bitcoin is not likely the currency of choice for a significant portion of a
taxpayer's activity and therefore generally would not be considered the functional currency of a taxpayer. However, the
question remains: Is the Bitcoin considered currency under the code, even if it is not the functional currency of any
economy?

Although the definition of currency is ambiguous under the code, the courts have weighed in on the subject. In 1998 the
Court of Federal Claims addressed the definition of currency for purposes of federal foreign tax credits in AMP Inc. v.
United States, with the holding later reversed by the Federal Circuit. n11 The case involved the use and implementation
of Brazil's Readjustable Obligation of the National Treasury (ORTN). The ORTN was introduced when Brazil was
operating under a hyperinflationary economy that significantly decreased the purchasing power of its official currency
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at the time, the Brazilian cruzeiro. In an attempt to secure the value of the income tax it was expected to receive, the
government adopted a decree law in 1982 establishing an indexing system for the payment of Brazilian income taxes.
n12 The index was based on the value of the ORTN and required all taxpayers to state their tax liability in units of
ORTN. The ultimate tax payment was made in cruzeiros, based on the cruzeiro-to-ORTN rate that was determined
monthly by the Brazilian government (according to official inflation indices). n13

AMP Inc. owned 100 percent of its Brazilian subsidiary, AMP Brasil. AMP claimed an FTC under sections 901 and 902
for the deemed-paid Brazilian taxes attributable to the tax years in question. n14 However, after the introduction of the
ORTN system, AMP amended its earlier returns to capture the increased amount of Brazilian cruzeiros paid to satisfy
their new liability under the ORTN system and thus requested a refund on the amended tax returns. n15

The IRS rejected the refund request under the premise that the tax liability did not change and no redetermination of
foreign taxes paid was required under section 905(c). The original tax liability as expressed in ORTNs was equal to the
final tax payment made, as expressed in ORTNs.

AMP filed suit to obtain the tax refund. The ultimate decision of whether a refund was appropriate centered on the
definition of functional currency and whether the functional currency of AMP Brasil was the ORTN or the cruzeiro. The
courts considered several key factors in their determination of what is considered a functional currency, including
whether the currency can be used to maintain books and records and whether the currency is a medium of exchange.
n16

The Court of Federal Claims considered the fact that the Brazilian economy used the ORTN as a monetary conversion
system for income taxes, Social Security payments, capital markets, leases, expropriation, and labor costs, and
concluded that the ORTN was the functional currency of Brazil. Therefore, it held that because the ORTN dollar rate
was fairly constant and both the foreign tax liability and the payment amount were determined in ORTN, "the value of
tax at the time it was paid must be calculated in ORTN, not cruzeiros." n17

The court found that Rev. Rul. 91-21, 1991-1 C.B. 112, was persuasive. That ruling refers to the ORTN as the functional
currency for Brazilian tax law. Another key factor in the court's decision was Announcement 81-4, which stated
regarding functional currency: It is the "the primary currency of the economic environment in which the entity operates.
It is presumed that an entity's functional currency would be the currency of the country in which the entity is located
and the currency of the country in which the books of record are maintained. In some instances, however, a foreign
entity's functional currency may not be the currency of the country where the entity is located even though that currency
is used in the books of records." n18

The Federal Circuit overturned the claims court and concluded that the cruzeiro, not the ORTN, was the functional
currency of Brazil. The court determined that currency is defined as a "medium of exchange," which is a measure and
standard of value in commercial transactions between buyers and sellers. n19 The medium of exchange used by AMP
Brasil for all its transactions and for its books and records was the cruzeiro. The court found that the ORTN was merely
used as an inflation index.

It also considered that in 1986 and 1987 the Brazilian Supreme Court held that the national currency of Brazil was the
cruzeiro, not the ORTN. n20 Contrary to the claims court, the Federal Circuit gave no deference to Rev. Rul. 91-21,
determining that it was released with a self-serving purpose while the case was pending. n21

Unlike the ORTN, the Bitcoin has a value in commercial transactions and can be used as a medium of exchange to
purchase goods and services, albeit in a limited capacity. Recently, Bloomberg took steps to make Bitcoins more
mainstream by adding Bitcoin valuation to their terminals, n22 as well as pricing history under the ticker symbol XBT.
n23 Although Bitcoins have not been issued by banks or other financial institutions, and assets are not yet commonly
valued in Bitcoins, this medium of exchange may gradually become more conventional and Bitcoins may be viewed as
currency for tax purposes as their valuation becomes increasingly transparent and available.

Also, regulators have started taking an interest in virtual currencies such as the Bitcoin, and no doubt that interest will
continue to influence its development as a recognized medium of exchange and currency. The SEC and Treasury's
Financial Crimes Enforcement Network are evaluating the risks involved, such as money laundering and theft. In July
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the SEC brought charges against Trendon Shavers, the founder of a Bitcoin hedge fund, Bitcoin Savings and Trust
(BTCST), who allegedly perpetrated a Ponzi-type scheme and defrauded investors of more than $ 23 million by using
the fund's Bitcoins for his own purposes. Shavers challenged the subject matter jurisdiction of the federal district court,
claiming that he could not be charged under the Securities Act of 1933 or the Exchange Act of 1934 because Bitcoins
were neither securities nor notes. Under the 1933 act, a security is defined as "any note, stock, treasury stock, security
future, security-based swap, bond . . . [or] investment contract." n24 An investment contract is any contract, transaction,
or scheme involving (1) an investment of money; (2) in a common enterprise; (3) with the expectation that profits will
be derived from the efforts of the promoter or a third party. Thus, for the SEC to pursue the matter, the court needed to
determine if the scheme involved an investment of money. On August 6, the U.S. District Court of the Eastern District
of Texas issued a memorandum opinion stating that Bitcoin was indeed a currency:

It is clear that Bitcoin can be used as money. It

can be used to purchase goods or services, and as
Shavers stated, used to pay for individual living
expenses. The only limitation of Bitcoin is that
it is limited to those places that accept it as currency.
However, it can also be exchanged for conventional
currencies, such as the U.S. dollar, Euro, Yen, and
Yuan. Therefore, Bitcoin is a currency or form of
money, and investors wishing to invest in BTCST provided
an investment of money. n25

Based on the cases above, we see a trend toward treating the Bitcoin as currency for legal and regulatory purposes,
which could provide a basis for treating it that way for tax purposes as well.

b. Capital treatment. An alternate approach to currency treatment would be classifying those transactions as involving
non-currency capital assets, which give rise to capital gain or loss treatment under section 1221. That approach may be
preferred by taxpayers investing in Bitcoins who anticipate holding the asset for more than a year. To the extent a capital
asset is held for more than a year, gain on the disposition of the asset is taxed at the preferential rate of 20 percent for
individual taxpayers, as opposed to the rate of 39.6 percent applied to ordinary income. n26

The code defines capital assets by exclusion. n27 Property held for investment or personal use (as opposed to property
held as inventory) is generally considered a capital asset. n28 Bitcoins held by taxpayers for investment purposes rather
than as a means to purchase goods or services may meet the definition of capital asset. Accordingly, a taxpayer may
argue that to the extent the Bitcoin is held as property, it should be treated as a capital asset.

There is little precedent in the area, and certainly no industry standard. Therefore, it is interesting to note the position
the Winklevoss Bitcoin Trust took in its Form S-1 registration statement, that its investment in Bitcoins will be treated
as a capital asset and not as currency. n29 The registration statement acknowledges that there are no regulations,
rulings, or other authorities specific to the situation and that its position is subject to change should additional guidance
be released.

While currency or capital treatment appear to be the most likely tax treatments applied to transactions involving virtual
currency, there are other potential classifications for those transactions, such as commodity treatment or other
derivatives.

In our opinion, since virtual currencies are still in an infancy stage and there are limited markets that will accept virtual
currency in lieu of conventional currency, virtual currency would more likely be viewed as a capital asset. However, as
virtual currency gains popularity and becomes more accepted, creating a larger virtual economy that can be used to
purchase real-world goods and services, the view of virtual currency as an actual currency would become stronger.

2. Timing/recognition. Possibly more important than the tax character of virtual currency is the timing of a recognition
event. In its report issued in May, the GAO addressed the concept of timing as it relates to the gaming industry. It asserts
that if income is amassed within the contained economy of a virtual gaming world (closed-flow transactions), a taxable
transaction has not occurred as long as the money is maintained in that virtual economy. However, when the virtual
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currency or property is converted into real currency or property (open-flow transactions), the transaction likely would
constitute a taxable event. For example, if a game player sells his in-game currency for U.S. dollars, that event would
likely constitute a taxable transaction. n30 The guidance is difficult to apply to the Bitcoin, which is used outside closed
gaming worlds and is an open-flow currency.

Similarly, if virtual currency is deemed currency for tax purposes, it would trigger a recognition event at the point when
the virtual currency is used to purchase goods or services. n31 That can come as a surprise to a typical consumer, who
may not be accustomed to tracking his basis in currency, or computing gain or loss in connection with a personal
transaction.

Further, the mining of Bitcoins is itself a taxable event. A taxpayer's gross income includes all income from whatever
source derived, n32 including prizes and other winnings. A miner earns Bitcoin by solving complicated math problems
and must include the value of those earnings in his taxable income. Hobby or self-employment rules may also apply,
depending on the frequency and nature of the activity.

The timing and recognition concept is likely less complicated in the fund context. A fund that invests in virtual currency
typically will only exchange the virtual currency for another currency, and not other goods. Further, a fund closely
tracks the costs and proceeds associated with its transactions. Therefore, unlike an individual consumer, who is
unaccustomed to tracking the basis in his currency or computing gain or loss when a personal transaction is made, a
fund is familiar with the process and will already be maintaining the necessary records for the computation.

Another way of looking at transactions involving virtual currency is the tax treatment associated with barter
transactions, the trading of one product or service for another. A barter exchange is any organization of members
providing property or services who contract to trade or barter the property or services. n33 Although bartering was the
original and basic system used to exchange goods and services, and it predates the modern form of currency, the tax
consequences involving barter transactions can be complex. If the Bitcoin is not considered currency, Bitcoin
transactions may be viewed as barter transactions. In a barter transaction, the taxpayer must include in gross income the
fair market value of goods or services received. n34 The tax laws governing barter transactions focus on the recognition
of income, even though cash was not exchanged. In that context the character (ordinary versus capital) of a barter
transaction involving Bitcoins would depend on the nature of the goods or services exchanged, as well as whether
Bitcoins are considered currency or as an asset that receives capital treatment.

3. Basis. Regardless of the character of the income generated by virtual currency, its basis must be tracked once
acquired. Basis is needed to determine the amount of income to recognize when the virtual currency is disposed of,
whether on the open market or used as payment for services. As a general rule, the basis of property is its cost. n35 If
Bitcoins were purchased on a virtual currency exchange, their cost would be the amount paid for them in whatever
mainstream currency the buyer used. A Bitcoin miner's basis in his Bitcoins is the amount of taxable income that he
recognized upon earning it. However, cost is not always easy to determine, and users are not necessarily aware of the
need to track basis. For instance, when a shopkeeper accepts Bitcoins in exchange for his product, he may not be
cognizant that besides recognizing income from the sale, he may need to recognize income when he converts the
Bitcoins to dollars.

C. Reporting Requirements

The IRS has several forms available for one party to report the income earned by another party, including forms 1099,
W-2, 1042-S, 8805, and Schedule K-1. The exact form depends on the nature of the income, as well as the reporting
entity. Where do virtual economic transactions fit in?

The anonymity involved in digital currency transactions doesn't release a taxpayer from his tax liability or reporting
obligation. If goods and services are provided in exchange for digital currency, a Form 1099 should be issued. If
employee services are compensated using digital currency, a Form W-2 should be issued. The requirement to report
those payments exists despite the obstacle of not always knowing who is on the receiving end of the payment, and the
requirement to reflect the amounts in income exists even though the IRS may not be receiving a Form 1099 or Form W-
2.
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Further, with the imminent implementation of the Foreign Account Tax Compliance Act, n36 this additional
requirement may further complicate the reporting and withholding responsibilities regarding payments made to foreign
recipients, since their identities and nationalities may be unknown. Moreover, taxpayers will have to consider the nature
of the virtual currency transaction to determine the appropriate source of the income, because the source of the income
can affect withholding obligations.

D. Regulation

The IRS, FinCEN, SEC, and state regulators have all given attention to virtual currency. In its report, the GAO
suggested that the IRS issue formal guidance on the basic tax reporting requirements of virtual economic transactions,
because the lack of formal guidance increases the noncompliance risk. The report listed the primary tax risks associated
with virtual economies and currencies, which include:

1. Lack of knowledge of tax requirements: Many taxpayers

are not aware that selling their virtual assets may
be considered a realizable event.

2. Uncertainty over how to characterize income: It

is unclear whether the transactions qualify as foreign
currency transactions, capital, or as a kind of financial
instrument.

3. Uncertainty over how to calculate basis for gains.

4. Challenges with third-party reporting: There are

no specific rules governing third-party reporting
of virtual transactions. Also, the real-life identities
of users are often unknown to the third party, which
further adds to the difficulty of reporting.

5. Evasion: Some taxpayers use their cloaked identities

in online economies as ways to avoid detection and
attention from tax authorities. n37

Beyond the increased scrutiny from a tax perspective, FinCEN published guidance on March 18 regarding the
application of its regulations to those administering, exchanging, or using virtual currency. In its guidance, FinCEN
indicates that transmitters of virtual currencies would be treated as transmitters of real money and that a business that
accepts and transmits, or buys and sells, virtual currencies would be considered a money service business and is
required to register with FinCEN. n38 The announcement was a surprise to many businesses in the virtual currency
arena that thought they were exempt from registration.

Further, in August the New York Department of Financial Services launched an inquiry into the appropriate regulatory
guidelines it should put in place for virtual currencies, n39 and it subpoenaed 22 companies engaged in Bitcoin
transactions.

The virtual currency industry has created its own self-regulating body, the Committee for the Establishment of the
Digital Asset Transfer Authority, which will set technical standards designed to prevent money laundering and ensure
compliance with laws. n40

While increased regulatory activity may ultimately resolve some of the many questions associated with investing or
transacting in virtual currency and reduce the amount of criminal activity related to its use, it will be interesting to see
the effect that regulation will have on the use of those currencies for investment purposes or on the exchange of goods
and services.

E. Conclusion
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The line between real currency and virtual currency continues to blur as we increasingly use virtual forms of payment,
such as gift cards or airline points, to purchase goods and services. Will the Bitcoin become commonplace? Will the IRS
issue additional guidance on the treatment of virtual currency transactions? How will the various regulatory bodies
shape the future of the virtual economy? Until regulation associated with virtual currency becomes more definitive and
robust, it is the taxpayers who will be confronted with making decisions regarding the timing of recognition, tax
character, and tax reporting requirements. Taxpayers engaged in virtual currency transactions should carefully consider
the many questions that remain unanswered and closely monitor the industry as it evolves.

FOOTNOTES:

n1

Although this article will discuss the use of virtual currencies in general, it will predominantly focus on the
Bitcoin.

n2

Government Accountability Office, "Virtual Economies and Currencies: Additional IRS Guidance Could Reduce
Tax Compliance Risks," GAO-13-516 (2013) (Doc 2013-14702).

n3

"Total Bitcoins in Circulation," Blockchain, available at https://blockchain.info/charts/total-Bitcoins.

n4

In recent months there has been increased interest from the SEC, Treasury's Financial Crimes Enforcement
Network, and the courts. See FinCEN, "Application of FinCEN's Regulations to Persons Administering,
Exchanging, or Using Virtual Currencies," FIN-2013-G001 (Mar. 18, 2013).

n5

Sarah E. Needleman, "Banking on Bitcoin's Novelty," The Wall Street Journal, June 27, 2013, at B4.

n6

One of the most notorious cases to date was the arrest of Silk Road founder Ross Ulbricht on October 1. Silk
Road was an online marketplace of illegal drugs and weapons whose users paid each other in Bitcoins. That
method of payment kept the transactions anonymous, and the buyers and sellers were able to keep their identities
secret.

n7

The IRS posted guidance on its website, on a page titled "Tax Consequences of Virtual World Transactions." The
guidance is mostly directed at gaming transactions and the exchange of real and virtual goods.

n8

The rates indicated are for the 2013 tax year and do not include the Medicare Net Investment Income Tax, which
imposes an additional tax of 3.8 percent on certain investment income.
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2013, Tax Analysts, Tax Notes Today, NOVEMBER 13, 2013

n9

See section 988(a)(1)(A) and (B).

n10

See section 985(b)(1).

n11

40 Fed. Cl. 172 (1998) (Doc 98-3940), rev'd, 185 F.3d 1333 (Fed. Cir. 1999) (Doc 1999-25946).

n12

Law No. 1967 (Brazil).

n13

AMP, 185 F.3d at 1335.

n14

Under Brazilian law, a corporation was required to pay its annual estimated tax liability, calculated based on the
previous year's actual tax liability, in monthly installments over the course of the year. Once the ORTN was
introduced, the calculation was no longer computed using the cruzeiro value. The installments were required to
be computed in ORTNs and converted to cruzeiros in the month the payment was due. Because of that change,
companies needed to revalue the estimated tax payments computed before the decree law on the cruzeiro
liability and recompute the estimated payments based on the ORTN, on which their tax liability would ultimately
be valued. Brazil allowed companies to amortize the additional tax liability generated by the new computation
over 11 monthly installments. Id.

n15

Id. at 1336.

n16

Announcement 81-4, 1981-2 IRB 37 (citing Financial Accounting Standards Board, "Foreign Currency
Translation," Exposure Draft para. 15 (Aug. 28, 1980)).

n17

AMP, 40 Fed. Cl. at 179-180.

n18

Announcement 81-4.
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2013, Tax Analysts, Tax Notes Today, NOVEMBER 13, 2013

n19

Black's Law Dictionary (2009).

n20

AMP, 185 F.3d at 1338 (quoting the Brazilian Supreme Court; see State of Sao Paulo v. Ricardo Fioram, No.
114.328-2 (1987); State of Sao Paulo v. Kataru Mishima and Wife, No. 114.036-4 (1987)). While the Brazilian
government may have successfully used the ORTN to insulate the tax system and other important governmental
systems from hyperinflation, Brazilian taxpayers were not as insulated.

n21

AMP, 185 F.3d at 1338 (citing Tandy Corp. v. Commissioner, 92 T.C. 1165, 1170-1171 (1989)).

n22

As of the writing of this article, only Bloomberg employees have access to the ticker.

n23

Romain Dillet, "Bitcoin Ticker Available on Bloomberg Terminal for Employees," TechCrunch (Aug. 9, 2013),
available at http://techcrunch.com/2013/08/09/Bitcoin-ticker-available-on-bloomberg-terminal.

n24

The Securities Act of 1933, section 77b, 15 U.S.C.A. section 77b.

n25

SEC v. Shavers, 4:13-cv-416, 2013 WL 4028182 (E.D. Tex. Aug. 6, 2013).

n26

The rates indicated are for the 2013 tax year and do not include the Medicare Net Investment Income Tax, which
imposes an additional tax of 3.8 percent on certain investment income.

n27

See section 1221.

n28

See IRS Publication 550, Investment Income and Expenses (Including Capital Gains and Losses).

n29

Winklevoss Bitcoin Trust, Registration Statement 8 (Form S-1) (July 1, 2013).

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2013, Tax Analysts, Tax Notes Today, NOVEMBER 13, 2013

n30

GAO-13-516, supra note 2, at 10.

n31

Under section 988(e)(2), an exclusion to recognize gain for some personal transactions exists, to the extent the
gain on the transaction does not exceed $ 200.

n32

See section 61.

n33

See section 6045(c)(3).

n34

See IRS Publication 525, Taxable and Nontaxable Income.

n35

See section 1012(a).

n36

See sections 1471-1474.

n37

GAO-13-516, supra note 2, at 6.

n38

See FIN-2013-G001, supra note 4.

n39

New York State Department of Financial Services, "Notice of Inquiry on Virtual Currencies" (Aug. 12, 2013).

n40

Robin Sidel, "Virtual Currency Enthusiast to Launch Self-Regulatory Group," The Wall Street Journal, July 29,
2013, available at http://online.wsj.com/article/SB10001424127887323854904578636552102522168.html.