Bitcoin

Bitcoins are based on the "honor system" to pay taxes. LOL

http://www.economicpolicyjournal.com/2013/03/bitcoin-alert-us-treasury-announces.html

The U.S. is applying money-laundering rules to "virtual currencies," amid growing concern that new forms of cash bought on the Internet are being used to fund illicit activities.

he move means that firms that issue or exchange the increasingly popular online cash will now be regulated in a similar manner as traditional money-order providers such as Western Union Co. WU 0.00% They would have new bookkeeping requirements and mandatory reporting for transactions of more than $10,000.[...]


The arm of the Treasury Department that fights money laundering said Monday that the standard federal banking rules aimed at suspicious dollar transfers also apply to firms that issue or exchange money that isn't linked to any government and exists only online.

One of the fastest-growing alternative cash products is Bitcoin, an online currency launched in 2009 that isn't backed by a central bank or controlled by a central administrator. Currency units, known as "bitcoins" and consisting of a series of numbers, are created automatically on a set schedule and traded anonymously between digital addresses or "wallets." Certain exchange firms buy or sell bitcoins for legal tender at a rate that fluctuates with the market[...]law enforcement, regulators and financial institution have expressed worries about the hard-to-trace attributes of virtual currencies, helping trigger this week's move from the Treasury's Financial Crimes Enforcement Network, or FinCen.

Creating clear-cut rules for virtual currencies is difficult. A FinCen official said that anti-money-laundering rules would apply depending on the "factors and circumstances" of each business. The rules don't apply to individuals who simply use virtual currencies to purchase real or virtual goods.

The new guidance "clarifies definitions and expectations to ensure that businesses…are aware of their regulatory responsibilities," said Jennifer Shasky Calvery, FinCen director.

(ht Dale Fitz)

https://en.bitcoin.it/wiki/How_to_accept_Bitcoin,_for_small_businesses#Paying_taxes_on_Bitcoin_income


taxes on Bitcoin income

Tax compliance is a topic of concern for small businesses. We aren't accountants or lawyers, and can't give legal or accounting advice.
But in many respects, Bitcoin transactions work very much like cash. Just like Bitcoin, cash is anonymous and doesn't leave a paper trail, yet is widely used in commerce every day.
Ask yourself how you would handle a cash transaction. Do you accept cash transactions? Do you normally pay taxes on cash transactions? The answer for Bitcoin should probably be the same.
As for how to decide what a Bitcoin transaction is worth... the IRS, as far as we know, has never issued a guide mentioning how to value Bitcoin transactions. But they probably have rules and guidelines on how to value transactions made in foreign currency or "cash equivalents". We imagine the accounting would be similar.
With Bitcoins, there's likely to be some difference between the value of BTC when you received them as payment, versus when you go to exchange them for another currency like USD, should you decide to do so. This scenario, likewise, would be no different if you accepted foreign currency or gold as payment. Under some scenarios, it might make sense to book the dollar value of BTC income as it is received, and then to book any difference incurred when it is exchanged for fiat currency. Under others, it might make sense to book the whole thing at the time of exchange.
Perhaps you might talk to your accountant. You don't need to get into a discussion with your accountant about block chains and private keys or the philosophy behind a decentralized currency. By comparing the fundamentals of Bitcoins to accounting concepts already well understood by the public, you can probably get all the answers you need. What would you ask your accountant if you decided that you wanted to accept Berkshire Bucks or 1-ounce gold coins as payment?

Currency units, known as "bitcoins" and consisting of a series of numbers, are created automatically on a set schedule and traded anonymously between digital addresses or "wallets."

This is the issue for the government,

You just don't understand governments; they will do everything they can to get their piece of the pie (tax revenue). You've learned nothing during your life in the US.

New York Court Upholds Sales Tax for Online Retailers
By DAVID STREITFELD
Published: March 28, 2013

New York’s highest court rejected arguments Thursday by two Internet retailers that they should be exempt from collecting state sales tax.
Amazon.com, the biggest online store, and its much smaller competitor Overstock.com had separately sued to challenge a 2008 state law that required online retailers to collect sales taxes on purchases made by New York residents. That served effectively to raise prices on the sites by nearly 10 percent, reducing their competitive advantage against brick-and-mortar retailers.
In a statement, Amazon denounced the New York Court of Appeals ruling as conflicting with precedents by the United States Supreme Court and decisions by other state courts. Overstock said it was considering appealing to the federal Supreme Court.

Central to the dispute was the question of affiliates, which are independent sites that link to a retailer in return for a commission. Thousands of Amazon affiliates are based in New York.

“The bottom line is that if a vendor is paying New York residents to actively solicit business in this state, there is no reason why that vendor should not shoulder the appropriate tax burden,” the appeals court wrote in its decision. The suits had been dismissed by lower courts.

Even Amazon now collects state taxes on their sales. Amazon realized that it's more profitable to make sales in California and collect sales taxes rather than not allow them to do business in California.

It's still a complex issue, but the governments will eventually collect their share of taxes from ecommerce.

Cost of Tax Evasion
The U.S. government estimates that approximately 3 percent of taxpayers do not file tax returns at all. While not filing taxes can involve both civil and criminal penalties, these are usually related to the amount of tax owed. For example, if a taxpayer does not owe any taxes, the penalties for not filing are less serious. However, failing to file a tax return for a year in which you do owe taxes is a crime. For each year a taxpayer does not file a return, the penalty can include a fine of up to $25,000 and a prison sentence of up to one year. If the IRS can demonstrate that the individual or company willfully did not file in an attempt to evade taxation, the IRS can pursue a felony conviction, which could include a fine of up to $100,000 and a maximum prison sentence of five years.
Although incarceration is rare, the threat is very real. Therefore, the best course of action is to file an accurate tax return on time every year. This is true even if you don’t have the money to pay the entire tax bill. In these cases, the IRS will work with you to set up a payment plan. If you need for more time to prepare an accurate tax return, such as owing to insufficient records, you can request an extension of time to file.

You just don't understand history or how all levels of government are working to get their "fair share" of taxes. There will always be an underground economy where governments will not be able to collect taxes, but that would be in the minority. The penalty for tax evasion can be severe.