1. For federal tax purpose, virtual currencies such as Bitcoin will be treated as property. As such, tax principles that apply to property transactions will apply to virtual currency transactions.
2. Notice 2014-21 shows that a capital gain or loss would only result if the bitcoins were a capital asset in the hands of the taxpayer. Capital assets typically are investment property. Bitcoins used in a trade or business are ordinary assets, and gains or losses would be ordinary.
3. Those who "mine" bitcoins have self-employement income equal to the fair market value of the bitcoin on the date of receipty.
4. Payments made with bitoins are subject to the same information reporting requirements as any other payments made in property. Therefore, W-2 and 1099s may be due.
