Is Bitcoin Money or Property? Federal courts & IRS positions diverge.
While the cryptocurrency Bitcoin is intended to be a type of currency used in lieu of or in addition to money, the IRS and courts have yet to agree. Two months ago, in a money laundering case involving virtual currency, Miami-Dade Circuit Judge Teresa Ponder ruled that Bitcoin is not money, especially as it is not “tangible wealth” like cash, and is not backed by any government or bank. Judge Ponder ultimately viewed the Bitcoin transaction at issue the same way the IRS does—as the selling of one’s property—and dismissed the money laundering case.[1][2]
However, a few days ago in another money laundering case linked to hacking attacks against JP Morgan Chase[3], U.S. District Judge Alison Nathan (Manhattan, NY)—like her colleague Judge Jed Rakoff in the unrelated 2014 case regarding the Silk Road[4]—ruled that Bitcoin does qualify as money.[5] [6] This ruling was made in a case involving defendant Anthony Murgio[7] who is charged with operating an illegal (unlicensed) Florida Bitcoin exchange.[8] As one of his defenses, Murgio asserted that Bitcoin does not constitute “funds” under 18 U.S.C. § 1960(b)(2); and thus, Bitcoin is exempt from applicable federal laws prohibiting any operation of an unlicensed money transmitting operation.[9] [10] Murgio also pointed out that the IRS views Bitcoin transactions as property transactions. [11]
Judge Nathan disagreed with Murgio’s application of Section 1960(b)(2)’s term “funds” to Bitcoin. Specifically, “Bitcoins are funds within the plain meaning of that term," she wrote. "Bitcoins can be accepted as a payment for goods and services or bought directly from an exchange with a bank account. They therefore function as pecuniary resources and are used as a medium of exchange and a means of payment.”[12]
Further, Judge Nathan addressed the IRS view that Bitcoin as something other than money or funds: “The fact that the IRS treats virtual currency as ‘property,’ rather than ‘currency,’ for tax purposes is irrelevant to the inquiry here. In fact, the IRS Notice that Murgio cites makes clear that it ‘addresses only the US federal tax consequences of transactions in, or transactions that use, convertible virtual currency.”[13]
As illustrated by these recent cases, whether Bitcoin is money and should be treated as such in legal and regulatory contexts continues to be inconsistently decided. Still, depending on the court and despite what the IRS has to say, it is certainly possible to be in violation of federal anti-money laundering laws as it relates to Bitcoin.
—By Keobopha Keopong, Esq., Barnes Law
Keo Keopong is an associate attorney with Barnes Law, licensed to practice law in California.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] See related blog post, 7/24/16: http://www.barneslawllp.com/bitcoin-not-real-money-just-property/
[2] The IRS distinguishes virtual currency from “real” money–i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance—but it does not have legal tender status in any jurisdiction. (IRS Virtual Currency Guidance: Virtual Currency Is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply, IR-2014-36, March 25, 2014. <https://www.irs.gov/uac/newsroom/irs-virtual-currency-guidance>
[3] U.S. v. Murgio, et al., U.S. District Court, Southern District of New York, No. 15-cr-00769.
[4] “Bitcoin clearly qualifies as ‘money.’” http://www.bloomberg.com/news/articles/2014-08-19/bitcoin-exchanger-must-face-charges-related-to-silk-road?utm_source=rss&utm_medium=rss; see also: https://www.justice.gov/usao-sdny/pr/bitcoin-exchanger-sentenced-manhattan-federal-court-four-years-prison-selling-nearly-1
[5] http://fortune.com/2016/09/20/judge-rules-bitcoin-is-money/
[6] U.S. v. Murgio, et al., U.S. District Court, Southern District of New York, No. 15-cr-00769-AJN, Document 198, Filed 09/19/16, “Memorandum & Order” https://cdn.arstechnica.net/wp-content/uploads/2016/09/murgio-order.pdf>.
[7] Murgio was the former operator of now-defunct Florida bitcoin exchange Coin.mx. (https://www.cryptocoinsnews.com/bitcoin-money-rules-u-s-judge-coin-mx-case/); Prosecutors last year charged Murgio over the operation of Coin.mx, and in April charged his father, Michael, with participating in bribery aimed at supporting it. http://fortune.com/2016/09/20/judge-rules-bitcoin-is-money/;
Authorities have said Coin.mx was owned by Gery Shalon, an Israeli man who, along with two others, was charged with running a sprawling computer hacking and fraud scheme targeting a dozen companies, including J.P. Morgan JPM 0.50% , and exposing personal data of more than 100 million people. That alleged scheme generated hundreds of millions of dollars of profit through pumping up stock prices, online casinos, money laundering, and other illegal activity, prosecutors have said. (Id.)
[8] https://www.cryptocoinsnews.com/bitcoin-money-rules-u-s-judge-coin-mx-case/
[9] Ibid.
[10] U.S. v. Murgio, et al., U.S. District Court, Southern District of New York, No. 15-cr-00769-AJN, Document 198, Filed 09/19/16, “Memorandum & Order” https://cdn.arstechnica.net/wp-content/uploads/2016/09/murgio-order.pdf>.
[11] U.S. v. Murgio, et al., U.S. District Court, Southern District of New York, No. 15-cr-00769-AJN, Document 198, Filed 09/19/16, “Memorandum & Order” https://cdn.arstechnica.net/wp-content/uploads/2016/09/murgio-order.pdf>.
[12] http://www.investopedia.com/news/bitcoin-money-rules-federal-judge-landmark-case-jpm/#ixzz4KoQ5NOeV
[13] U.S. v. Murgio, et al., U.S. District Court, Southern District of New York, No. 15-cr-00769-AJN, Document 198, Filed 09/19/16, “Memorandum & Order”, pg. 9 <https://cdn.arstechnica.net/wp-content/uploads/2016/09/murgio-order.pdf>.
** For related posts about Bitcoin, read: http://www.barneslawllp.com/bitcoin-not-real-money-just-property/; and http://www.barneslawllp.com/virtually-no-tax-guidance-virtual-currency/