Amnesty for Undeclared Bitcoin Holdings?Offshore Account Update
Posted in on January 31, 2018
A Boston tax attorney can provide guidance to those who own Bitcoin or who have profited off Bitcoin and who have become concerned about IRS crackdowns on undeclared earnings from Bitcoin. The IRS has become aggressive in recent years in pursuing an investigation into Bitcoin investors and other cryptocurrency investors who may not be declaring all of their profits, including going after coin exchanges to try to compel them to turn over their data.
The IRS has been successful at getting some records turned over, with the court ordering that Coinbase turn over names, addresses, tax ID numbers, and transaction details for more than 14,000 people. Because of the IRS crackdown, those with Bitcoin they have not declared should begin to explore their options to try to limit or avoid penalties in case of an IRS investigation.
One option that could perhaps become available to investors who own Bitcoin or who profited from Bitcoin or any cryptocurrency involves participation in an amnesty program. While there is currently no amnesty program in place, many speculate that the IRS may create one similar to the Offshore Voluntary Disclosure Program (OVDP), which allowed individuals with undeclared offshore accounts to voluntarily report their information to the IRS in exchange for lesser penalties.
Will There Be Amnesty for Taxpayers to Report Bitcoin Transactions?
The Offshore Voluntary Disclosure Program was created as part of a broad crackdown on offshore investing. The IRS had been focusing intensely on stopping taxpayers from hiding funds offshore, including by going after foreign banks that the IRS saw as facilitating tax evasion. The IRS is now conducting a similar aggressive investigation into Bitcoin, including taking legal action to compel Coinbase to turn over records.
While only a limited number of records need to be turned over under the current court order – those involving transactions of $20,000 or greater – the IRS is likely to continue focusing on cryptocurrency trading as a very small number of transactions that take place are actually being reported.
Those with Bitcoin investments may be interested in limiting their penalties by voluntarily disclosing, and the IRS may facilitate this given the success of the OVDP. The Offshore Voluntary Disclosure Program allowed the IRS to collect around $10 billion so it was able to recoup a lot of lost revenue – and it's certainly easier for the IRS to obtain this revenue from people who come forward voluntarily rather than for the IRS to have to investigate and pursue legal action against all tax evaders.
It remains to be seen if a similar amnesty program allows Bitcoin investors to limit their penalties by disclosing their cryptocurrency transactions outside of an IRS investigation. While amnesty programs can provide substantial financial savings, there are still risks to participation so those who own Bitcoin or who have undeclared gains from Bitcoin should be sure to talk with a Boston tax attorney Kevin Thorn about their options before the decide to report Bitcoin gains from years past.