Bitcoin Characterized as Legal Tender by Certain Foreign Jurisdictions, Notice 2023-34

The IRS has modified Notice 2014-21 to remove Background section information stating that virtual currency does not have legal tender status in any jurisdiction, as the Department of the Treasury and the IRS are aware that certain foreign jurisdictions have enacted laws characterizing Bitcoin (an example of convertible virtual currency) as legal tender.

Modifications to Notice 2014-21

The IRS modified background sections of Notice 2014-21, which initially stated that virtual currency did not have legal tender status in any jurisdiction. Notice 2014-21 could also be misinterpreted prior to this current guidance as overstating the similarity between convertible virtual currency and “real” currency. This is because the use of convertible virtual currency, including Bitcoin, to perform “real” currency functions is limited. The modification did not alter the Service’s position that convertible virtual currency was not treated as currency that could generate foreign currency gain or loss for federal tax purposes.