Mr. Steve Washington is a casual Bitcoin investor. On August 15, 2015, he purchased three Bitcoins for investment purposes when the price of one Bitcoin was $263.85. On November 25, 2017, when Bitcoins were priced at $8,795.50, he purchased $500 worth of goods for 0.0568472 Bitcoins at Overstock.com. He incurred a transaction fee of $8. He purchased an additional item for $140 from Overstock.com using Bitcoins on December 2, 2017, when Bitcoins were priced at $10,912.73 and again incurred an $8 transaction fee. Mr. Washington is a supporter of education and donated one Bitcoin to his sons school (a qualified charitable organization under IRC 501(c)(3)) on December 22, 2017, when Bitcoins were priced at $13,664.97. Realizing he had not contributed to his IRA during the year, Mr. Washington would like to contribute one Bitcoin to his IRA before year-end.

Assignment 1. Use your knowledge of the tax law to identify the tax issues faced by the taxpayer related to his Bitcoin activities.

2. Prepare a technical research memo that summarizes your findings. The memo should include an analysis and conclusion about the proper tax treatment of each of the identified issues. Include primary authorities to support the suggested conclusion as well as any authorities that are contrary to this position. Note that Bitcoin is a new technological development that does not have specific primary authority. You will need to relate existing primary authority to a new setting. Include any tax-planning strategies that the taxpayer should be aware of in the future. You will need to use a tax research database to facilitate your research in addition to Notice 2014-21 from the Internal Revenue Service (2014).