Article prepared by and republished courtesy of our colleagues Joseph Langhirt and David Plewa; originally published here: http://www.dlapiper.com/en/us/insights/publications/2014/04/bitcoin-is-property-not-currency/.

The Internal Revenue Service has joined several other jurisdictions in publishing guidance regarding the income tax consequences of certain convertible virtual currency transactions.i IRS Notice 2014-21ii clarifies that existing general tax principles apply to transactions using convertible virtual currency and that such virtual currencies should be treated as “property” rather than “currency” for US federal income tax purposes.  Classification as property may affect the timing and character of income, gain or loss. While the immediate implications of the Notice are apparent, the mid-term and long-term consequences are still being considered.  The IRS has indicated that penalties may apply to taxpayers that have taken return positions that are inconsistent with its position in the Notice or that have failed to file the appropriate information returns.

Virtual currency, such as bitcoin, that is “convertible” (i.e., has an equivalent value in or acts as a substitute for “real currency”iii) and that is sold or exchanged or used to pay for goods or services in certain transactions has tax consequences that may result in a tax liability to the person disposing of such virtual currency and/or receiving such virtual currency.

In addition, such tax consequences may be immediate or deferred, and any tax imposed may be at varying rates, depending on the nature of the transaction and the type of person disposing of or receiving such virtual currency.

In the following paragraphs, we discuss the Notice and its immediate implications, and we point out some legal, factual and practical issues that the Notice raises.
Continue Reading Bitcoin is property, not currency, IRS says – Notice leaves many open questions about convertible virtual currencies

Employers, from startups to public companies, need to be aware of the following requirements and take action by January 31st if they apply.  Section 6039 of the Internal Revenue Code requires a corporation to furnish a written statement to any employee or former employee who either (i) exercised an incentive stock option within the meaning of Section 422 of the Code (ISO) during 2013 or (ii) during 2013 first transferred legal title to shares acquired under the corporation’s employee stock purchase plan within the meaning of Section 423 of the
Continue Reading Employers: 2014 Deadlines to Furnish ISO and ESPP Information Statements and Returns

Many severance and other compensation arrangements provide for payment only if and when the employee signs a release of claims and the release has become irrevocable.

For a general release of claims to be valid under federal employment law, the employer may be required to give the employee a specified number of days to consider the release and then an additional period of time in which to revoke the release after signing it.

The IRS believes that a release contingency for payment of severance or other deferred compensation could violate Section 409A of the Internal Revenue Code if not drafted correctly.

The IRS has given employers until the end of this year to correct the release contingency language in arrangements subject to Section 409A.

Continue Reading December 31 is IRS deadline to correct Section 409A violation due to severance conditioned on release of claims

Asher headshot.jpgCONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

The IRS recently issued new guidance for funds that deliver Schedule K-1s electronically to their investors.  Under the new rules, fund managers must request the consent, in a particular form, of each investor that will receive Schedule K-1s electronically or the Schedule K-1s must be provided in hardcopy/paper format.  Your legal representative should be able to provide you with a form consent that complies with these new IRS requirements, which are summarized below thanks in large part to Howard Rosenblum and Joseph (Tony) Hugg in DLA Piper’s Boston office.


Continue Reading Issuing K-1s Electronically? New IRS Rules Apply.