I had been pointing out this problem over the past weeks and months (remember upthread I pointed out that automating this computation was not realistic):
http://www.theatlantic.com/technology/archive/2014/03/why-bitcoin-can-no-longer-work-as-a-virtual-currency-in-1-paragraph/359648/If I have to figure out which particular Bitcoin in my wallet I want to spend and what the tax treatment will be, Bitcoin just doesn't work as a commercial medium of exchange.
But that article points out another problem with the fact that Bitcoin is not untaxable as legal tender:
The price at which a particular Bitcoin was acquired (and this is traceable) determines the capital gains on that particular Bitcoin when spent. If I spend Bitcoin A, which I bought at $10, but is now worth $400, Ive got a very different tax treatment than if I spend Bitcoin B, which I bought at $390. [
] This means Bitcoins are not fungible, and that makes it unworkable as a currency.
The reason this destroys fungibility is that people will need to think about tax timing and implications when spending money, i.e. they have to bind their money to their total tax planning.
The guidance for the IRS was absolutely not good news, imo, as some would have it. Please to those who think it is, elaborate more.
However, it was as expected, though I would say it makes more sense to tax it as an intangible, instead. Even if the masses would start to use bitcoin (which is what you claim is the goal from TPTB?), then the infrastructure needs much development still. I think we are many awaiting what you are working on, as it is obvious bitcoin in its current form could become somewhat salivating for the top-down controlled powers in place.