BUSINESS
04/16/2013 01:33 pm ET | Updated Apr 16, 2013

Bitcoin Celebrated As Way To Avoid Taxes

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It's 364 days until most Americans will once again face a deadline to file their taxes, but Teresa Warmke already has a plan for Tax Day 2014: She's going to skip the whole thing.

The treasurer of a limited liability company, Warmke has struck on what she celebrates as a novel way to avoid any audit trail -- and thereby any liabilities to Uncle Sam. Goodbye American dollar, hello bitcoin.

“We don’t intend to file tax paperwork any more,” Warmke told The Huffington Post Monday, as many others scrambled to fill out tax forms or stood in long lines at the post office. “We’re not going to do business with the government from now on.”

Warmke is the treasurer of Fre33 Aid, an organization that provides unpaid first aid services at large libertarian political rallies. For example, volunteers have been in charge of treating the poison oak rashes and campfire burns of attendees at the Porcupine Freedom Festival, a yearly libertarian jamboree in northern New Hampshire, since 2011.

According to Warmke, Fre33 Aid uses small donations to transport, train, and sometimes house dozens of medical tent volunteers. But the organization is set up as a limited liability company, not a tax-exempt nonprofit, Warmke said, which means it owes taxes on any donations. She said the organization applied for tax-exempt status last year, but was told to re-organize as a different kind of corporation instead.

“We saw that it was going to be a hassle,” Warmke said. “It involved filing a lot of paperwork, more fees, updating our by-laws and dealing with our bank accounts. We just didn’t think it was worth our time.”

Instead, Fr33 Aid said in a statement Monday that it would encourage people to donate in bitcoins, the virtual currency, and would convert any donations made in dollars into bitcoins "in order to mitigate risk of asset confiscation by the IRS."

“The government can tell us [to] pay in the future,” Warmke said. “I would say, good luck to them trying to enforce that requirement. It’s not going to be very easy.”

While she may be unusual in the specifics of her situation, and in her open contempt for the government’s ability to tax her organization, but Warmke is scarcely alone.

From its beginning as a concept put forward by Japanese cryptology experts, bitcoin has been embraced as a dream come true by certain libertarians who see the online currency as a way to circumvent the government. Because bitcoins are traded anonymously and reside in computer servers outside the global financial system, some have speculated the currency could be used to avoid taxes.

Inside the online forum BitcoinTalk, a 2011 thread asked early bitcoin enthusiasts if they planned to pay taxes on earnings from “mining,” which involves using computers to create the currency. Most noted they would report any amount of the virtual currency traded into U.S. dollars as income. But many said they would use bitcoins to “barter” on the web without reporting the income, a practice that is unlawful in the United States.

“I owe no tax unless I 'sell' at a profit and I'm not going to trade them back for dollars, so there are no capital gains,” a user who identified himself as Joe Allen wrote. “I will trade them at a later date, which is considered barter.”

Even those who want to use bitcoins and do not wish to run afoul of the authorities may still find a problem: the lack of information from the government as to how, exactly, they should calculate taxes on bitcoin earnings.

In March, the Treasury department issued guidelines that mainly dealt with the registration requirements and obligations of bitcoin brokers, who must enforce certain laws against money laundering.

But Anthony Burke, a spokesman for the Internal Revenue Service, told The Huffington Post that the federal agency had not issued any guidance on whether payments received in bitcoin should be considered “barter,” “in-kind” payments or payments in a foreign currency, all of which are treated differently under the tax code. There was also no guidance on whether donations to non-profit organizations made in bitcoin are deductible in U.S. dollars.

“We have not heard any tax guidance,” Fred Ehrsam, who runs a payment processing service for bitcoin users called Coinbase, told HuffPost last week. “If you hear anything, let me know.”

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