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Here’s how the tax treatment of Bitcoin is broken.

I couldn’t have put it more succinctly than this piece in the Wall Street Journal today:

One complication is that the IRS treats bitcoin as property, rather than currency. The property classification has its advantages for investors by treating bitcoin like stocks, a capital asset subject to a more favorable long-term capital gains rate. For bitcoin consumers, though, the downside is a ton of paperwork. Even the smallest transactions using bitcoin to pay for goods or services are technically taxable events, whose gains or losses must be individually tabulated. That is in contrast to more streamlined rules regarding foreign-currency holdings.

If the IRS can’t clear this up, this is a problem that needs a legislative fix and we’re working closely with our allies in Congress to get it done.