IRS Begins Criminal Evasion Cryptocurrency Tax Investigations
In the past two years, the IRS started the process of developing and executing investigation techniques for enforcing cryptocurrency compliance. Even though the IRS has not yet issued regulations involving key aspect of cryptocurrency, it is clear they are making enforcement a key priority. If the IRS believes you acted willful in failing to report cryptocurrency transactions, they may move toward both a civil and criminal violation. This article with summarize the general concepts of how a person may be non-compliant, and therefore subject to a potential investigation.
Here are some of the key points and resources involving cryptocurrency and the IRS:
Cryptocurrency Tax Guide
Cryptocurrency and tax compliance is a tough nut to crack. On the one hand, the IRS does not categorize it as income – even though it is utilized as income. On the other hand, with each transaction, exchange, etc., a person may be subject to an income or capital gains tax (and possibly other taxes depending on how it is held and used).
J5 is was developed in 2018. It is a group of 5 countries (U.S.., Australia, Canada, U.K. and the Netherlands) who have made cryptocurrency enforcement (including offshore cryptocurrency issues) a key enforcement priority.
IRS Letter 6174
IRS Letter 6174 and 6174-A are designed to place cryptocurrency owners, traders, etc. on notice that the recipient may be on the receiving end of an IRS examination or audit.
The IRS has not made any official statement as to whether foreign cryptocurrency is FBAR reportable or not. There have some “roundabout” discussions and representations made, but to date the IRS has not summarily determined if cryptocurrency in bank accounts, investment accounts, etc. is reportable.
The IRS has also not made any official statement as to whether foreign cryptocurrency is FATCA reportable or not. FATCA is more complicated, since it includes income reporting. Moreover, is cryptocurrency is not technically currency, it is an assets – and foreign assets fall squarely into the reporting requirements of FATCA.
Out of Compliance?
If you are out of compliance for international, offshore, or foreign related cryptocurrency issues, Golding & Golding can assist you with safely getting into offshore compliance.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.