IRS: virtual currencies are property for tax purposes

"General tax principles that apply to property transactions apply to transactions using virtual currency," the IRS said in a statement.

Wages paid to employees in virtual currency are taxable to the employee and must be reported by an employer on a W-2 form and are subject to federal income tax withholding and payroll taxes, the IRS said.

Other payments made using virtual currency to independent contractors or service providers are also taxable, it said.

"The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer," the agency said.

Democratic Senator Tom Carper said in a statement that the IRS statement "provides clarity for taxpayers who want to ensure that they're doing the right thing and playing by the rules when utilizing Bitcoin and other digital currencies."

(Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh, David Gregorio, Andrew Hay)