The federal government will tax digital money such as Bitcoin like property, not currency, the IRS said Tuesday in its first significant guidance on the virtual coin. Although Bitcoin may operate like coin and paper currency and can be used to pay for goods and services, no country accepts it as "legal tender," the Internal Revenue Service said in its notice. "Virtual currency is treated as property for U.S. federal tax purposes," the notice said. "General tax principles that apply to property transactions apply to transactions using virtual currency." The guidance means that wages paid in Bitcoin are subject to federal income tax withholding and payroll taxes and must be reported on W-2 forms. Taxpayers must include the fair market value of Bitcoin payments for goods or services as part of their gross income, the IRS said. The fair market value would be calculated as the U.S. dollar value on the date payment was received.