united-states federal-tax-law
If you pay taxes using a cryptocurrency, is that a potentially taxable event?
<p>With California and Colorado accepting cryptocurrency in lieu of fiat currency for paying taxes, there is a concern that paying taxes in this fashion is a potentially taxable event under federal law. But presumably, paying taxes is involuntary (unlike purchasing something with that cryptocurrency)</p>

<p>Paying taxes with cryptocurrency is a potentially taxable event under federal tax law. It is equivalent for federal income tax purposes, for example, to paying taxes in kind with IBM stock. See, e.g., <a href="https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions" rel="noreferrer">this IRS FAQ</a>.</p>
<p>You can owe capital gains taxes on involuntary transfers. For example, if you own a rental property and don't pay property taxes and it is sold at a tax sale, you owe capital gains taxes and depreciation recapture taxes on the amount realized in the tax sale if it exceeds your basis in the rental property (which it usually would since third-parties bid at tax sales).</p>
