OLR Report 2014-R-0050 summarizes (1) the use of bitcoins as virtual currency, (2) the laws that govern it, and (3) other states’ attempts to regulate it.
Bitcoins is a form of virtual currency, created in 2009 by a computer programmer using technology that allows financial transactions to be conducted on a network using computer codes.
There are no state or federal laws that specifically govern bitcoins.
The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) provided guidance indicating that, under federal law, a virtual currency “user” is not a “money transmitter” and is therefore not subject to the registration, reporting, and recordkeeping regulations for money services businesses (MSBs). However, virtual currency “administrators” and “exchangers” may be regulated as money transmitters, but should not be considered “dealers in foreign exchange.”
The Government Accountability Office (GAO) issued a report to the U.S. Senate in which it concluded that a tax payer who receives virtual currency as payment for real goods or services could earn taxable income. The GAO has urged the Internal Revenue Service (IRS) to issue guidance.
New York is considering requiring a “BitLicense” for businesses that conduct transactions in virtual currencies, such as bitcoins. California, on the other hand, is looking into whether the licensing requirement of the California Money Transmission act applies to virtual currency companies. Also, the California General Assembly has introduced a bill that allows the use of certain alternative currencies as lawful money, but requires no one to accept them.
For more information, read the full report.
