Taxpayer asks:

Dear Taxgirl,

Just for fun can people pay their taxes with bitcoin?

Taxgirl says:

Unfortunately, no. Nor can taxpayers pay their taxes with loose diamonds even though, they, too, have value. And typically, most taxpayers can’t pay in Botswana pulas or Russian rubles either. So what can you use? Let’s take a look.

By law, at 31 U.S.C. 5103, you can pay your taxes using U.S. money:

United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.

It’s worth noting that law is found at Title 31 (Money and Finance), and not Title 26 (Internal Revenue Code). That’s because not all laws which affect your taxes are specific to the Tax Code. Since Internal Revenue Service (IRS) is an arm of the federal government, it is also subject to other regulations like this one from the Bureau of Fiscal Service (BFS) which confirmed that IRS would no longer accept checks for $100 million or more.

But even when an issue is directly related to IRS, you won’t necessarily find a corresponding provision in the Tax Code. Consider the issue of paying in foreign currency, for example. On the IRS website, it notes that “Payments of U.S. tax must be remitted to the U.S. Internal Revenue Service (IRS) in U.S. dollars” – even for foreign electronic payments.  But if you check the Tax Code, you won’t find specific language requiring that those taxes be paid in U.S. dollars, just like there’s nothing in the Code that says no to payments of bitcoin or loose diamonds. Here’s what the Code actually says (section 6311):

It shall be lawful for the Secretary to receive for internal revenue taxes (or in payment for internal revenue stamps) any commercially acceptable means that the Secretary deems appropriate to the extent and under the conditions provided in regulations prescribed by the Secretary.

That’s a fancy way of saying that the IRS will issue Regulations (interpretations of the tax code) and other guidance about the kinds of payment which can be used to pay your taxes so long it doesn’t run afoul of other rules. And the IRS has done so, authorizing, for example, payment by check, money order, credit card and debit card.

What about other forms of payment? Paying in foreign currency has been addressed – it’s allowed under limited circumstances. But paying in bitcoin (or loose diamonds) has not specifically been authorized, and even if you wanted to argue that the specific omission of bitcoin or loose diamonds shouldn’t preclude using those as payment for taxes, you’d likely lose under a statutory interpretation of what’s considered “commercially acceptable.”

That said, if you really had your heart set on paying your taxes in bitcoin, you could investigate using a third party. Bitcoin-based shopping cart Snapcard tried its hand at it in 2014 with a service that allowed customers to pay the IRS. The service Snapcard worked like a payment processor (think MasterCard) and processing fees applied. However, Snapcard has since repivoted and launched a product in 2015 called “Masspay” that became Wyre. According to a spokesperson from the company, “Paying the IRS with bitcoin is something that we’re not offering at the moment.”

Of course, just because IRS doesn’t accept cryptocurrency like bitcoin as direct payment today doesn’t mean that will always be the case. A bill to accept bitcoin as payment for taxes was ultimately voted down, 264 to 74, by the New Hampshire legislature in 2016: The state was angling to be the first in the country to accept bitcoin as payment for taxes. A similar measure in Utah also failed to pass. However, states are still trying: Arizona introduced a crypto payment measure just this year. I suspect it’s just a matter of time before we see some changes.

(Author’s note: An email to IRS asking whether there were any plans in the near future to accept bitcoin as payment was not immediately returned.)

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.

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Kelly Erb is a tax attorney, tax writer and podcaster.

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