Bitcoin, Virtual Currencies and Criminal Law
First a definition of virtual currency (VC): VC's are computer generated mediums for moving value or wealth (think money) across virtual space (think internet) in avoidance of governments, banking institutions and all traditional money and transaction methods. All virtual currencies in common usage are tagged or valued in terms of the US dollar. Just as a gram of gold is valued in terms of dollars per ounce, all virtual currencies are floating in dollar value ranges. It is the moving valuation and volatility which makes it an investment platform and its value is determined by the liquidity of transactions (think how many people are bidding and using your virtual currency of choice to buy, sell or speculate?).
There are two types of virtual currencies; they are Centralized and Decentralized. We know them by their names: Bitcoin, Liberty Reserve, cryptocurrencies, digital wallets, Webmoney etc. Because these wealth transfer platforms are not regulated by governments or transacted through banks they exist only in their use to buy, sell and speculate. But how does criminal law and virtual currency cross paths? The answer is everywhere. Taxes for one. If you earn income and receive payment in bitcoin and you do not report it as income then the IRS can, and will, come after you. If you buy and or sell anything that is taxed or subject to duty, then Florida and New York taxing authorities can, and will, seek to collect fees and taxes in US dollars. How and when does this occur? Do you really want to wait and find out? Think in terms of the swings in bitcoin valuations. Bitcoin has swung from a few dollars to tens of thousands of dollars. Imagine an auditor from the IRS or the Florida Department of Taxation assessing you for unpaid taxes based on a bitcoin transaction you entered into a year ago. When you get a tax levy, or are charged or indicted in a Federal court for a tax fraud charge, the taxes due, penalties and interest will all be assessed at a Bitcoin exchange value that the prosecutor will select. Do you, can you litigate a criminal tax lien for a transaction in a virtual currency and expect anything other than a prison term? Federal prosecutors in New York and Florida are all actively following virtual currency transactions, today and in the past few years. At some point we will see federal criminal indictments for tax fraud, tax evasion: both Florida state and Federal. To avoid this the best course of action is to file income tax returns and pay your taxes on any and all transactions and trades. To do otherwise is high risk behaviors with a high probability of indictment and a low probability of it never happening.