201712.11
0

IRS Coinbase – Subpoena Issued for Coinbase Taxes & Foreign Reporting

IRS Coinbase - Subpoena Issued for Coinbase Taxes & Foreign Reporting (Golding & Golding)

IRS Coinbase – Subpoena Issued for Coinbase Taxes & Foreign Reporting (Golding & Golding)

IRS Coinbase – Subpoena Issued for Coinbase Taxes & Foreign Reporting

Things are looking a little more grim for customers of Coinbase who are considered to be US account holders. Coinbase has been ordered to comply with IRS demands for accountholder information.

IRS Coinbase Subpoenaed has been issued, with several thousands account holders at risk for U.S. Government tax liability and reporting penalties

IRS Coinbase

Even though Coinbase tried to fight the IRS Subpoena, Coinbase has been ordered to disclose the account information (aka wallet information) for nearly 15,000 individuals who may be considered US account holders and are maintaining their Bitcoin/crypto currency with Coinbase.

Two Main Disclosure Issues

When it comes to Bitcoin, there are two main disclosure and reporting requirements that individuals must keep in mind:

Domestic Bitcoin Tax Issues

First, there is a domestic aspect of the disclosure. Since Bitcoin is not considered currency, but is considered property, there are many aspects to the income tax of Bitcoin.

Examples:

– If Bitcoin is traded, there may be capital gain; and

– If Bitcoin is being used in lieu of currency (payment for services for example), then the key issue for the IRS is that the recipient must report the currency as income

In either situation, the individual may have capital gain or income tax requirement that would have to be disclosed on the US tax return.

International Tax Issues

When it comes to offshore disclosure, the main issue is whether account or wallet is being held in the United States or in a foreign country, and whether the account is earning passive income (Interest, Dividends, Capital Gains). If it is being held in a foreign country, then the Bitcoin account/wallet may have to disclosed on an FBAR and other Forms.

**Be careful, the IRS written information online re: non-reporting requirement for FBARs is for prior years.

Even if your Bitcoin is being held in the US wallet, if you were to transfer the Bitcoin to a foreign account, there are probably some online transfer records, even if you want to believe (read: Wish Hopeful) there are not, that shows some sort of transfer from your U.S. Based Bitcoin Wallet, to an account overseas.

If you happen to have money in a domestic Bitcoin wallet, and you have some knowledge or concern it was transferred to a foreign account(s), which exceeds more than $10,000 in value, you should speak with an experienced offshore disclosure where to try to get into compliance before the IRS has your information.

Coinbase

Coinbase has grown into one of the top Bitcoin companies worldwide. As anybody with crypto currency/Bitcoin is aware, Coinbase is one of the larger online storage facilities/platforms, which is used to buy, sell, trade, and hold Cryptocurrency.

Typically, if an account/wallet is located within the United States, then there is no reporting requirement for the crypto currency holder.

Example: Matthew has a wallet that contains upwards of $200,000 worth of Bitcoin. If the Wallet is being stored in the United States, then there is no form or offshore aspect to the wallet – and therefore it would typically not be considered a foreign account or require disclosure on your typical offshore disclosure forms (FBAR, FATCA, etc.)

IRS Limits the Subpoena

The IRS’ initial subpoena was over-burdensome and therefore not initially successful in forcing Coinbase’s hand. Thereafter, the IRS went back to the drawing board and limited the scope of the subpoena in order to try to facilitate its enforcement.

The Key Points of the IRS Enforcement Document:

In reviewing the enforcement document filed in November 2017, here are the main takeaways from the IRS’s position:

– Coinbase offers buy/sell trading functionality in 33 countries, with (according to its website) 5.9 million customers served and $6 billion exchanged in bitcoin.. By the end of2015, Coinbase was America’s largest  platform for exchanging bitcoin into U.S. dollars, and the fourth largest globally.

– Based upon an IRS search, only 800 to 900 persons electronically filed a Form 8949 that included a property description that is “likely related to bitcoin”  in each of theyears 2013 through 2015

IRS Specific Subpoena Requests

Request 1 – Registration Records

Account/wallet/vault registration records for each account/wallet/vault ownedor controlled by the user during the period stated above limited to name, address, tax

identification number, date of birth, account opening records, copies of passport or driver’s license, all wallet addresses, and all public keys for all accounts/wallets/vaults.

Request 2- Due Dilgence

Records of Know-Your-Customer diligence.

Request 3 – 3rd Party Agreements

Agreements or instructions granting a third-party access, control, or transaction approval authority.

Request 4 – Transaction Records

All records of account/wallet/vault activity including transaction logs or other

records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, the names or other identifiers of counter parties to the transaction;requests or instructions to send or receive bitcoin; and, where counter parties transact through their own Coinbase accounts/wallets/vaults, all available information identifying the users of such accounts and their contact information.

Request 5 – Correspondence

Correspondence between Coinbase and the user or any third party with accessto the account/wallet/vault pertaining to the account/wallet/vault opening, closing, ortransaction activity.

Request 6- Statements

All periodic statements of account or invoices (or the equivalent)

What This Means for You?

At Golding & Golding, we’re not fear mongers. We do not try to scare people into considering offshore disclosure. But sometimes, in situations such as these — the facts speak for themselves.

Overall, the IRS has a skewered eye towards Bitcoin, due to the initial use being related to illegal websites such as Silk Road and the dark web. Moreover, if you have your Bitcoin in an anonymous wallet and it is being transferred to foreign accounts in which you either on the foreign account or utilized a foreign corporation/nominee company to receive the Bitcoin, chances of the IRS is going to be pursuing the trail of the money.

IRS Voluntary Disclosure

Depending on the facts and circumstances of your situation, you may be able to qualify for the offshore disclosure or domestic disclosure programs. If you only have undisclosed domestic income as a result of utilizing Bitcoin, you may consider entering the domestic voluntary disclosure program.

If you only have offshore related issues, then you may consider entering one of the offshore voluntary disclosure programs. If you have a hybrid of both undisclosed offshore income/disclosure (aka reporting your foreign wallet or account) along with undisclosed US income, you may be able to still apply for the offshore disclosure programs – although restrictions apply as to the application involving the domestic portion of the nondisclosure.

FATCA

With more than 300,000 foreign financial institutions reporting millions of US account holders, the IRS computers are continually being populated with account holder information. 

IRS Voluntary Disclosure is All We Do!

We represent all different types of clients. High net-worth investors (over $40 million), smaller cases ($100,000) and everything in-between.

We represent clients in over 60 countries and nationwide, with all different types of assets, including (each link takes you to a Golding & Golding free summary):

Who Decides to Enter IRS Voluntary Disclosure

All different types of people submit to IRS Voluntary Disclosure. We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, and more.

You are not alone, and you are not the only one to find himself or herself in this situation.

Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist

Our Managing Partner, Sean M. Golding, JD, LLM, EA is the only Attorney nationwide who has earned the Certified Tax Law Specialist credential and specializes in IRS Offshore Voluntary Disclosure and closely related matters.

In addition to earning the Certified Tax Law Certification, Sean also holds an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS.) 

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

*Click Here to Learn about how Attorneys falsely market their services as “specialists.”

Less than 1% of Tax Attorneys Nationwide

Out of more than 200,000 practicing attorneys in California, less than 400 attorneys have achieved this Certified Tax Law Specialist designation.

The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. It is a designation earned by less than 1% of attorneys.

Our International Tax Lawyers represent hundreds of taxpayers annually in over 60 countries.

IRS Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

A Penalty for failing to file FBARs

United States citizens, residents and certain other persons must annually report their direct or indirect financial interest in, or signature authority (or other authority that is comparable to signature authority) over, a financial account that is maintained with a financial institution located in a foreign country if, for any calendar year, the aggregate value of all foreign financial accounts exceeded $10,000 at any time during the year. The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

FATCA Form 8938

Beginning with the 2011 tax year, a penalty for failing to file Form 8938 reporting the taxpayer’s interest in certain foreign financial assets, including financial accounts, certain foreign securities, and interests in foreign entities, as required by IRC § 6038D. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Taxpayers must also report various transactions involving foreign trusts, including creation of a foreign trust by a United States person, transfers of property from a United States person to a foreign trust and receipt of distributions from foreign trusts under IRC § 6048. This return also reports the receipt of gifts from foreign entities under IRC § 6039F. The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

Information Return of Foreign Trust With a U.S. Owner. Taxpayers must also report ownership interests in foreign trusts, by United States persons with various interests in and powers over those trusts under IRC § 6048(b). The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

Information Return of U.S. Persons with Respect to Certain Foreign Corporations. Certain United States persons who are officers, directors or shareholders in certain foreign corporations (including International Business Corporations) are required to report information under IRC §§ 6035, 6038 and 6046. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Taxpayers may be required to report transactions between a 25 percent foreign-owned domestic corporation or a foreign corporation engaged in a trade or business in the United States and a related party as required by IRC §§ 6038A and 6038C. The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

A Penalty for failing to file Form 926

Return by a U.S. Transferor of Property to a Foreign Corporation. Taxpayers are required to report transfers of property to foreign corporations and other information under IRC § 6038B. The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Return of U.S. Persons With Respect to Certain Foreign Partnerships. United States persons with certain interests in foreign partnerships use this form to report interests in and transactions of the foreign partnerships, transfers of property to the foreign partnerships, and acquisitions, dispositions and changes in foreign partnership interests under IRC §§ 6038, 6038B, and 6046A. Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion 

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

What Should You Do?

Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.

Contact us Today; We Can Help You!