Is your investment in a cryptocurrency such as bitcoin triggering IRS FBAR reporting requirements for your tax return? What are the potential penalties for failing to disclose your bitcoin holdings, especially if they are housed in an offshore exchange? if you have amassed more than $10,000 in your digital wallet or an account in an offshore exchange at any time in the tax year you should contact the experienced tax specialists at Allen Barron. Our international tax attorneys, accountants and tax preparation team will help you to understand the reporting requirements, as well as your risks and strategies to come into compliance with IRS FBAR reporting if necessary.
The recent John Doe summons served upon Coinbase by the IRS demonstrates the severity of your risk and the ultimate likelihood of your discovery. A little background might help. Last decade the IRS used the same type of John Doe summons to gain access to international account and transaction information for US taxpayers from Swiss bank accounts. Most US citizens thought of their offshore Swiss accounts as an unassailable fortress from the IRS. Today, over 100,000 financial institutions, investment houses and banks around the world provide detailed financial records on US taxpayers directly to the IRS in an electronic format. This makes it quite simple for the IRS to compare the data provided on a US tax return with the information provided by the offshore institution. When they don’t match up an IRS audit is sure to follow.
The stakes are extremely high. The failure to report offshore bank and financial accounts, including Bitcoin and other cryptocurrencies, exposes a US taxpayer to penalties of $100,000 per incidence or 50% of the highest accumulated offshore balance at any point in the tax year regardless of the present account value. If the value of your Bitcoin holdings was $400,000 in June of 2017 and is only $189,000 today the penalty would be based upon the $200,000 high point. The failure to report this example account on an IRS FBAR would expose your digital wallet to a penalty of 50% of the highest accumulated balance ($400,000) resulting in a bill for $200,000 from the IRS – even though the present balance was only $189,000.
Is Bitcoin triggering IRS FBAR reporting requirements on your federal tax returns? The risk is far too great to ignore. We invite you to contact the experienced domestic and international tax team at Allen Barron or call for a free consultation at 866-631-3470 today.