I’ve been offered all sorts of things as a fee for my services. My favorite offer was of a house in Mexico. I turned it down, telling the potential client I didn’t have time to visit Mexico, much less own a house there.
Accepting property as a fee is trouble brewing. You have to declare a value for transaction for tax purposes. The value of most things is what you can sell it for. I’d rather practice law than become a broker in miscellaneous items.
So what about Bitcoin? Can a lawyer accept payment for legal fees in Bitcoin?
Our office was consulted on that question last week, and the answer surprised me. Bitcoin, for those of you who don’t pay attention to such things, is a medium of exchange existing only in digital form. If you are defending folks charged with serious felonies, your fees are often in excess of $10,000. If paid in cash, you are required to get identifying information from your client, and submit an Internal Revenue Service Form 8300 to the federal government. Failure to do so is a crime.
The form is part of the government’s effort to crackdown on money laundering. Ill-gotten gains are subject to forfeiture in criminal cases, and to being clawed back out of the hands possessing them in civil proceedings.
Tracing the provenance of funds is supposed to make it more difficult for the nefarious to succeed. As a general matter, the government wants a paper trail for large sums of cash. A cashier’s check requires the bank to fill out a form; a personal check is drawn from an individual’s account; money orders must be purchased from vendors with reporting requirements. Cash, on the other hand, is silent.
What to do about a client who pays with $10,000 or more in Bitcoin?, we were asked. I assumed that the answer would be to report it on a Form 8300, so I pulled out a form and read the instructions. Nothing about Bitcoin there. I then went to the IRS webpage, and learned that the taxman doesn’t consider Bitcoin to be currency or cash. The feds regard it as property.
That is counterintuitive. Bitcoin has no value other than as a medium of exchange. You can live in a house or sell the house for cash; you can drive a car or sell it for cash; all you can do with Bitcoin is use it to purchase something else. Bitcoin functions like a currency., and like a currency, it has an exchange value.
At the time of this writing, one Bitcoin was worth about $606, according to www.coindesk.com. Bitcoin lives in a dark world outside the law, unregulated, murky, indeed, even suspicious. It is the very sort of medium of exchange one would most expect the IRS to be interested in.
As near as I can tell, however, there is no requirement to report the receipt of Bitcoin, regardless of how large the sum. I didn’t trust my research, so I called a senior lawyer in the Justice Department who represents the taxman. What about Form 8300 and reporting requirements for Bitcoin?
A day or so later, I had my answer: There is no reporting requirement. I am stunned by that answer.
A lawyer receiving Bitcoin is still required to declare a value for tax purposes, and selling large sums of Bitcoin is not easy. Banks don’t want to deal with them; they are messy, suspicious and the sort of thing likely to draw questions from Uncle Sam.
But I am also intrigued and more than a little relieved by the news that this “property” exists outside the law. There still is a way to exchange things of value without having to genuflect before the government’s ever-watchful eye. Privacy has a currency – it’s called Bitcoin. Something tells me the taxman won’t rest for long. Expect new regulations, and soon. But until those regulations come, you are free to accept all the Bitcoin you want.