Bitcoins create problems, as their popularity grows. Millions of dollars of bitcoins from the Silk Road marketplace have been seized – the largest forfeiture in history. New York federal prosecutors state $28 million of e-currency coins were captured from the black market website Silk Road. U.S. Attorney Bharara announced the forfeiture of 29,655 bitcoins, worth almost $28 million, from the Silk Road server. She stated the bitcoins were taken because they were received as payment for illegal activities.
The bitcoins seizure came just three months after San Francisco entrepreneur Ross Ulbricht, alleged operator of the black market marketplace, was arrested over charges he had sold illegal drugs through the website.
Although the seizure of 30,000 bitcoins is the largest e-currency seizure in history, the government said they are not done. According to U.S. officials, another 144,336 bitcoins have been seized from Ulbricht’s computer hardware.
Ulbricht is seeking the return of the seized 144,336 bitcoins, in a lawsuit filed in New York; a decision on the action is pending from the New York Federal Court.
In the past months, the bitcoins value has been unstable, with wild fluctuations making valuation difficult. However, last September, the U.S. Attorney’s office estimated the value of the bitcoins at $33.6 million. In a statement released Thursday, the 29,655 seized bitcoins are said to have a value of $28 million, and the 144,336 seized from the computer hardware were worth over $130 million.
Bitcoins pose tax problems
Congress and the IRS have been quiet on how to tax Bitcoins. However, UK tax officials have determined how to tax e-currency. Richard Asquith, Head of Tax at the TMF Group, stated the new laws regarding bitcoins will clarify the taxation of virtual currencies in the United Kingdom – an about face to what is in place now.
Under the new laws, tax authorities in the United Kingdom will change the classification of e-currency from a tradable voucher to currency. The changes are similar to guidelines issued in Singapore, earlier this month.
For English investment and tax purposes, vouchers now have monetary face value. When vouchers are sold at or below face value, no VAT (value added tax) is due. However, depending on the redemption value, transactions are subject to VAT on the value. If bitcoins are treated as a voucher to purchase goods and services, they would be subject to VAT on the full value of the bitcoins sold. Under the new tax, 20 percent VAT would be charged every time bitcoins were used. The scale and level of tax was blamed for devastating the bitcoin market in the United Kingdom.
Consumers, investors, lobbyists, and merchants alike, balked at the way bitcoins were taxed. They have put pressure on United Kingdom tax authorities to change the laws. It seems like Her Majesty’s Revenue and Customs (HMRC) will treat bitcoins like private money, which means that VAT would be due on commission charges.
While HMRC is still working on details on the trader/consumer side, there are indications that HMRC will make bitcoins subject to capital gains tax (CGT), with an exemption on bitcoins held over a year. As the popularity of bitcoins grows, more problems will be created.
By Deborah Baran