The United States Internal Revenue Service (IRS) has finally clarified its position on digital currencies such as Bitcoin, declaring them to be property, but not currencies in the eyes of the taxman.

A notice [PDF] issued by the IRS on virtual currencies stated Bitcoin and others are to be treated as property for US tax purposes, determining the tax rules that will apply to Bitcoin transactions.
This means Bitcoin users must keep records of transactions, which will be seen as payments made in property.
Bitcoin mining may be considered a trade or business by the IRS, and therefore the market value of the virtual currency will be treated as income with returns to be filed.
The IRS warned that failure to accurately report virtual currency transactions when required to do so could lead to penalties. Presently, the threshold over which Bitcoin and virtual currency payments must be reported is US$600.
Bitcoin is being watched by the Australian Taxation Office which intends to provide advice to taxpayers on the virtual currency before end of June this year.
Users of the virtual currency may then end up being liable for capital gains and goods and services taxes, if the ATO decides to follow the example of its US counterpart.
At the same time, the IRS made it clear that Bitcoin and other virtual currencies are not real money under US federal tax laws:
"Under currently applicable law, virtual currency is not treated as a currency that could generate foreign currency gain or loss for US federal tax purposes," the notice stated.
Last year, the US Taxpayers' Advocate Service issed a report [PDF] to Congress requesting the government clarify its position around Bitcoin and other digital currencies.