Coinbase To Disclose Your Bitcoin Account to the IRS – IRS Amnesty

Coinbase To Disclose Your Bitcoin Account to the IRS 

This is a major concern, especially for individuals who may owe tax to the IRS. Even more concerning are individuals who may have their Bitcoin/Crypto wallet maintained overseas, and/or transferred money abroad to foreign accounts, but did not properly comply with IRS Offshore Reporting Rules, such as FATCA and FBAR.

Coinbase/Bitcoin & the IRS

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 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.

Moreover, if your Bitcoin Wallet is anonymous, then it could lead to bigger issues such as whether you are attempting to avoid detection of your crypto currency. (aka Willfulness)

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 the years 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 Diligence

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 access to 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. If the IRS already has your information than you are prevented from entering the offshore disclosure program (and they will typically deny preclearance letter)

Contact one of our experienced attorneys today to schedule a reduced fee consultation and learn your different options.

Learn More About Offshore Voluntary Disclosure

There are five main methods people/businesses use to get into compliance. Four of these methods are perfectly legitimate as long as you meet the requirements for the particular mechanism of disclosure. The fifth alternative, which is called a Quiet Disclosure a.k.a. Silent Disclosure a.k.a. Soft Disclosure, is ill-advised as it is illegal and very well may result in criminal prosecution.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.