Cryptocurrency Tax Lawyer
Cryptocurrency Tax Lawyer: Over the past decade, cryptocurrency has expanded exponentially from its early days on the dark web. These days, cryptocurrency is used, exchanged and sold on many platforms. Whether for investment purposes, wages or used as currency (even though technically the IRS does not categorize it as currency), cryptocurrency is here to stay.
At the current time, U.S. tax laws involving cryptocurrency are still in flux. Even with the issuance of Revenue Rule 2019-24 and Notice 2014-21, there are still many unanswered questions about cryptocurrency and Bitcoin (terms used interchangeably in this article) – especially in the offshore & international cryptocurrency arenas.
In recent years, we have seen the:
- introduction of J-5,
- IRS vigorously pursuing the Coinbase Summons, and
- the issuance of 6173 and 6174 notices
Let’s review the basics of Cryptocurrency Tax:
Cryptocurrency Tax Enforcement by The IRS
With Swiss Banking no longer lucrative, and the Panama Papers exposing the internal workings of foreign banks and U.S. tax fraud, cryptocurrency is the new kid on the block.
The IRS seeks to recover the estimated billions of dollars of unaccounted for tax dollars resulting from Taxpayers not properly complying with cryptocurrency tax rules — and they are ramping up enforcement.
In fact, the IRS has included a threshold question about virtual currency on the draft 2020 1040.
“At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”
Cryptocurrency Tax Lawyer FAQ
Here are some of the basics of Cryptocurrency tax law:
Cryptocurrency Tax Dividends or Interest
If your cryptocurrency is pooled in a fund that generated interest, dividends or capital gains, it is taxed according to its character.
Practice tip: If your pooled cryptocurrency fund is in a foreign fund, beware of PFIC tax treatment.
How is Cryptocurrency Taxed if it is Earned as Income?
Simply put, it is taxed as income.
For example, if you are a consultant and one of your clients paid you for services in cryptocurrency, then that income is taxed as self-employment income on your tax return.
On the flip-side, the employer would deduct the expenses of paying you just as it is this the employer was deducting cash payment.
The employer would not deduct it as a “sale” but rather as an expense.
Cryptocurrency Mining Tax Laws
With mining for cryptocurrency, it is oftentimes done with the hopes of receiving a reward for the work performed and verifications completed – but a payout is not guaranteed.
How the tax rules will apply for income generated from mining is impacted by the character of the performance.
In other words, is the person doing the as a business or trade, or if it is just a hobby.
With hobbies, there are some losses that maybe taken, but oftentimes they’re limited due to the fact that they’re not being conducted for business, per se.
Exchanging Cryptocurrency for Property (Tax Example)
Let’s say you wanted to purchase an asset from Michael, for $10,000.
Your cryptocurrency is worth $8,500 and you paid $8,500 for it, but Michael really wants your cryptocurrency, because after reading a Wired article, newbie Michael is convinced your cryptopcurrency is going to skyrocket in value.
Therefore, you exchange you’re $8,500 bitcoin, for his $10,000 asset.
From the IRS’s perspective you “sold” an $8,500 piece of property for $10,000.
Therefore, you made $1,500.
And, even though no money was exchanged, you are taxed on the $1,500 gain.
This is important, especially as the values increase, because you want to make sure you have some liquidity when the tax-man (or woman) comes knocking.
Cryptocurrency Capital Gains (or Losses) Tax
Oftentimes, the income generated from cryptocurrency will come as a result of capital gains.
For example, Jennifer purchased cryptocurrency worth $80,000, which is now worth $600,000.
She wants to sell the cryptocurrency for fair market value, but wants to know how she’s going to be taxed.
The capital gain sale is equivalent to any other asset sale.
In other words, if Jennifer’s adjusted basis is $80,000, and she sells the cryptocurrency for $600,000, and she has $520,000 of gain.
If the gain is short-term gain, she’ll be taxed at her progressive tax rate, and if the gain is long-term capital gain, she will be taxed at either 15% or 20%.
Soft Forks, What are Those?
This is generally just a change in software-related/technical issues, and not normally a taxable event.
About 1-2 years ago, the IRS stated it would not be developing a “stand-alone” cryptocurrency voluntary disclosure program.
If you are out of compliance, you should consider domestic or offshore voluntary disclosure.
We Specialize in IRS Voluntary Disclosure & Tax Compliance
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about our Firm?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.