Interview by David Berger, CEO of the Digital Currency Council, with Kirk Phillips, a thought leader on Bitcoin and a CPA that serves clients across the U.S. on business issues related to Bitcoin taxation and accounting.
David: Kirk, you are one of the earliest CPA adopters of Bitcoin and one of the first CPAs to build a practice around it. How did you first learn about Bitcoin?
Kirk: I grabbed a Wall Street Journal before getting on a plane in late October 2013. The Silk Road Bust was a major story in that issue which of course mentioned bitcoins. Shortly thereafter a friend asked if I knew about bitcoins and wanted my opinion about spending $800 on a computer to mine bitcoins. I thought to myself, “this doesn’t pass the smell test,” so I started my journey into learning about bitcoin, I became completely absorbed and I’ve never looked back.
David: What are the issues your clients are facing?
Kirk: In general entrepreneurs and start-ups just want their accounting, bookkeeping, compliance, tax and everything backoffice and business admin handled without having to think about it. The most universal comment is, “We just don’t want to deal with it,” because what they really want is to focus on the things that will make their business grow. Bitcoin adds an extra element to this while providing ways to do things that haven’t been done before, which is why I’m so excited about bitcoin.
David: Did the March 2014 IRS guidance on Bitcoin provide the necessary clarity on the tax treatment of Bitcoin? Or does the landscape remain opaque?
Kirk: In many ways the guidance made it quite clear and easy understand, however when business situations get more complicated you begin to find out that the landscape is murky without much to draw on for guidance. The IRS Notice was very lightweight, therefore simple issues are very clear and other issues need a lot of work to sort out the answers.
David: Where would you like to see additional clarity from the IRS?
Kirk: The most important issue requiring clarity is the concept of “Brand New Coin” which represents the creation of hundreds of altcoins on the market today. I actually included this concept in my forthcoming book because I thought it was so important. The question becomes, what is the value of Brand New Coin before and during the process of becoming valued on an exchange? Basically, there is a gap between the time when a coin is created and when it has an established market value on the exchanges. The time gap creates a value translation issue which is where the rules of bartering probably kick in, however the IRS didn’t mention bartering in the notice.
David: How does the lack of clarity impact your clients?
Kirk: We are addressing this issue right now with several altcoins in terms of complying with 1099 payments for determining a fair value number to include on the form. Even if the coin is listed on an exchange it doesn’t necessary reflect the value of services. People are willing to do things because they are passionate about crypto including accepting it for payment, therefore a vendor’s real consideration is not the fair value of services in exchange for coins of equal value but a passion for being involved with something that’s intrinsically rewarding. This needs to be considered as part of the equation.
David: How is your approach different that traditional CPA firms?
Kirk: The old time and billing model is fading away. We are focused on providing a value-based monthly subscription service including outsourced accounting, business back office and tax preparation. Business owners don’t have to hire an employee or figure out what systems to use they can just plug into our systems and scale up as necessary when the business grows. We also have scheduled coaching calls that are part of the package. Surprise sticker-shock billings are a thing of the past with our new 21st century model.
David: You’re one of a few visionary CPA’s whose platform effectively serves clients across the country by leveraging technology. Could you tell us about how you work with your clients?
Kirk: The platform we created, invizibiz.biz, is a 100% paperless, all-in-the-cloud, transparent, accessible accounting and business process outsourcing solution. We use best of class technology including password management systems, accounting packages, bill payments and receipts systems, virtual mailboxes, electronic document execution and more. The most important thing we provide is transparency of information, access level controls and peace of mind for business owners by eliminating headaches and back office wheel spinning. We setup a business dashboard via a password management system with role-based access for team members allowing everyone 24 hour access to the same systems. One of our five mantras is, “Never delegate what you can automate and never automate what you can eliminate.” Tim Ferris
David: And where do you see the greatest risk for companies who involve themselves in Bitcoin? What are the obstacles that a client may need the services of an accountant with an in-depth understanding of Bitcoin to overcome?
Kirk: Depending on the company, legal challenges may be more significant, however accepting bitcoin may require implementation of many systems beyond just a payment service provider while accounting and taxation have to be considered simultaneously. The more bitcoin systems the more complicated the accounting and a well thought out strategy is the best offense. A CPA should understand all these systems and be a crypto power user to deliver the best advice when fielding clients’ questions. Clients should really start with an A-Z understanding which inspired me to write my forthcoming book, “The Ultimate Bitcoin Business Guide.”
David: What should we expect for Bitcoin in 2015? Any predictions for the new year?
Kirk: I think bitcoin is going to show up in conversations more often. I’m still surprised when I find a sophisticated person who’s never heard about bitcoin. Mainstream understanding is going to be a two-step process. The first step is getting both individuals and businesses to understand bitcoin as a disruptive payment network and the second challenge is getting them to understand non-financial alternative uses of the blockchain. I think these other uses of the technology will be 10X to 100X more valuable than bitcoin’s disruptive payment potential. I look forward to the latter showing up in more conversations in 2015.
Kirk: My pleasure.
David: Readers who enjoyed this interview should note that Kirk will be speaking at Inside Bitcoins in New York City on April 29. DCC Members receive discounted admission and the session qualifies for DCC Continuing Education Credit.