The IRS believes that virtual currencies such have Bitcoin have become a tool in tax evasion, and the agency is signalling more enforcement actions and IRS audits in the coming months. The real question many crypto currency investors must consider is do crypto currencies need to be reported on the FBAR and how will the IRS track this income? Coinbase, the world’s largest crypto currency “wallet” continues to add almost 100,000 new users every week. Cryptocurrencies such as Bitcoin and ethereum/ether represent almost half a trillion dollars in market value. The IRS believes literally millions of cryptocurrency transactions involving US taxpayers have taken place. However under 1,000 US taxpayers reported their Bitcoin and cryptocurrency gains over the past 3 years using IRS form 8949 regarding the sales and other disposition of capital assets.
The IRS considers this to be non-compliance and is presently reviewing enforcement options including IRS audits and FBAR reviews. If your cryptocurrency “wallet” is offshore you should be listing it on the IRS FBAR. Failure to disclose offshore accounts, including cryptocurrency is considered tax evasion by the IRS exposing the US taxpayer to draconian penalties and interest as well as the genuine risk of criminal prosecution for tax evasion.
We have written previously about the IRS’ effort to target Coinbase, one of the world’s largest bitcoin exchanges. On November 29, the US District Court for the Northern District of California in U.S. v Coinbase issued a “John Doe Summons,” which seeks among other things records exposing the US taxpayers who have purchased, sold or received cryptocurrency worth more than $20,000 in the tax years of 2013 to 2015. The IRS intends to aggressively audit these taxpayers including the potential of failure to comply with IRS FBAR compliance. The IRS has declared cryptocurrency to be characterized as property (versus foreign currency) and all cryptocurrency transactions have tax consequences. Crypto currencies need to be reported on the FBAR if the transaction occurred in an exchange physically located outside of the US, or in the event the account itself is housed in an offshore bank or financial institution.
If you have conducted transactions with crypto currency the IRS is aggressively pursuing your identity and the nature of your transactions. It is important to meet with a qualified US tax attorney with the international tax expertise to provide sound advice and counsel whether crypto currencies need to be reported on the FBAR or elsewhere on your taxes. We invite you to contact Allen Barron or call 866-631-3470 for a free consultation. Ask about the absolute protections of the attorney-client privilege and how we can help to reduce your exposure to draconian penalties, interest and the potential for criminal tax evasion prosecution.