Will the IRS Allow U.S. Taxpayers With Bitcoins to Declare Them in an Amnesty Program?Offshore Account Update
Posted in on January 31, 2018
If you are a taxpayer with investments in Bitcoin, it's important to follow the IRS reporting rules. The IRS has begun to crack down on undeclared Bitcoin transactions and those who are concerned they could come under IRS investigation should talk with a New Jersey tax attorney about their options.
As the IRS begins to investigate Bitcoin transactions more heavily, there is some speculation that the IRS may consider an amnesty program similar to the program offered that got offshore investors to come forward and voluntarily report undeclared offshore accounts. It will be important for Bitcoin investors who are not in compliance with tax rules to understand any amnesty program that is created and to make an informed decision about whether voluntary disclosure is the best course of action.
Will the IRS Allow Amnesty for Bitcoin Investors?
The IRS has taken numerous steps to try to find investors with undeclared Bitcoin, and a court has now ordered Coinbase to turn over the identifying information and transaction reports of more than 14,000 investors. Coinbase has currently been required to provide information only about investors with transactions involving $20,000 or more. However, it is likely that the IRS will continue to pursue Bitcoin investors and that more records will need to be turned over.
This puts investors who have not followed reporting rules at risk of being investigated by the IRS and facing serious penalties. The crackdown is similar to the crackdown on offshore accountholders, as the IRS took action to compel foreign banks to turn over information on those accountholders just as the IRS is now going after coin exchanges to provide information.
To encourage offshore investors to come forward before they were subject to an investigation, the IRS created the Offshore Voluntary Disclosure Program (OVDP). Offshore investors were able to come forward voluntarily as long as they were not yet under investigation and could report their offshore accounts that had previously been undeclared. Those who voluntarily came forward would not face criminal prosecution and would face reduced penalties compared to what they might have had to pay if the IRS had found out about their accounts through an investigation.
Many speculate that the IRS will create a similar amnesty program for Bitcoin investors because the Offshore Voluntary Disclosure Program was such a success. The IRS was able to recover around $10 billion, and it is obviously faster and simpler for the IRS to collect money through voluntary disclosure rather than through a full investigation and pursuing civil or criminal action.
While amnesty can be a good thing for many investors because it reduces penalties, there are also potential risks both to those who participated in OVDP and to any taxpayers who decide to participate in any Bitcoin or cryptocurrency amnesty that the IRS may decide to create.
Before you decide to disclose to the IRS, you should talk with Kevin Thorn, a New Jersey tax attorney, about the risks and about whether providing your information to the IRS is the best course of action in your particular situation. Contact an experienced attorney today to find out more.