Virtual currencies are financial innovations that pose emerging challenges to federal financial regulatory and law enforcement agencies in carrying out their responsibilities. Some virtual currencies can be used to buy real goods and services and exchanged for dollars or other currencies. One example of these is bitcoin, which was developed in 2009. Bitcoin and similar virtual currency systems operate over the Internet and use computer protocols and encryption to conduct and verify transactions. While these virtual currency systems offer some benefits, they also pose risks. This book discusses federal financial regulatory and law enforcement agency responsibilities related to the use of virtual currencies and associated challenges; actions and collaborative efforts the agencies have undertaken regarding virtual currencies; describes the tax reporting requirements for virtual economies and currencies; identifies the potential tax compliance risks of virtual economies and currencies; and assesses how IRS has addressed the tax compliance risks of virtual economies and currencies.