Re: Can we have a "Digital Commodity" since BTC is a Digital Currency?

I still don't get how there is any "tax liability" in there but will follow on this thread and try to learn from others.

Because the govt taxes TRANSACTIONS. Transactions are "usually" in the form of fiat but making them not in fiat doesn't erase the tax liability.

Say Joe The Plumber is flexible and you need pipe repairs worth $300 done.

Joe The Plumber could accept $300 USD (fiat)
Joe The Plumber could accept 9 years of VPS hosting worth $300.
Joe The Pulmber could accept Gold coin worth $300.
Joe The Plumber could accept 60 BTC (worth $300).
Joe The plumber could accept 100 gift cert good for one Burger King Whopper each (worth $300).

In each instance a $300 transaction has taken place. Joe has gained $300 in taxable income and if the state charges a sale tax then sales tax is due on the $300 each.

Bitcoin doesn't make that magically go away and making it a digital commodity has absolutely no relevance (according to the IRS and state agencies).

If you claim that the value was based on a negoitiated rate in btc and not the US Dollar then how would the government know how to value the transaction? Do they have a btc publication schedule on some website that I can download? The current market rate at MtGox at the point of coin transfer? Any exchange you see fit to use? A value at a specific point in time like when you are talking to the plumber on the phone? When he arrives at the house to start work? Two days later when the work is complete? If you have an open account with him then perhaps a week later when he mails you the invoice? Do you give the government a copy of the block chain on disk with the key as proof?

I think this subject has yet to be truly explored, tried or tested and cannot be answered with any certainty.

I think the answers to your questions are the same as the answer to the question: How does government tax barter?

I don't think it's hard let alone impossible to tax transactions in bitcoins, what could be hard though is knowing about transactions that aren't voluntarily declared much like undeclared paper cash or barter transactions. We're still lucky enough to not have a chip implanted in everyone of us or a probe hovering over our heads recording every step we make so we still have some freedom to hide from uncle Sam.

The argument that Bitcoin jeopardizes government's power to tax is based on being able to hide your activity and wealth rather than it being difficult for them to find a way to tax your Bitcoin transactions or wealth.