Could This Be The Next Best Thing To What Swiss Accounts Were In The 20th Century? The Tiny Island-State Of Malta Welcomes Crypto-currency.
Could This Be The Next Best Thing To What Swiss Accounts Were In The 20th Century? The Tiny Island-State Of Malta Welcomes Crypto-currency.
Given the stealth nature of Bitcoin and other crypto-currencies where there is no third party reporting to tax agencies, many people still believe that this could be the 21st century answer as to where to hide your money and so with the rise in popularity of crypto-currency the government of Malta is looking to get a piece of this industry.
Malta Touts Itself As A “Blockchain Island”
Many people consider the area of Zug in Switzerland as continental Europe’s “crypto valley”. Malta wants to be known as the blockchain island equivalent. The Mediterranean island with a population of 450,000 is already established as a major hub of banking and finance and a leader in the online gambling industry. With other countries such as China and Japan threatening to shut down crypto-currency operations in their countries, financial technology companies are looking to relocate to places like Malta that offer pro-blockchain legislation and stability. On March 23, 2018 Binance announced that it would be moving its operations to the island. The move will add at least 200 jobs in Malta and help establish another major exchange in Europe.
Despite Malta joining other countries in attracting crypto-currency business, it is certain that tax agencies will continue their investigative efforts to find non-compliant taxpayers and following the success in quashing the effectiveness of the Swiss bank secrecy laws in 2010 when the Foreign Account Tax Compliance Act (“FATCA”) was enacted, the IRS is certainly on top of this. FATCA forces foreign banks to disclose information on U.S. account holders which the IRS receives and matches the information reported by U.S. taxpayers. No longer can taxpayers avoid reporting income on their foreign bank accounts. No longer can taxpayers avoid disclosing their foreign bank accounts.
IRS Investigative Action
Given the ability for taxpayers to engage in bitcoin transactions without proper tax reporting, the IRS though has stepped up its investigation efforts to uncover non-compliant taxpayers.
A John Doe Summons issued by IRS was ruled enforceable by U.S. Magistrate Judge Jacqueline Scott Corley in November 2017 (United States v. Coinbase, Inc., United States District Court, Northern District Of California, Case No.17-cv-01431). Coinbase located in San Francisco is the largest cryptocurrency exchange in the United States. Under the order, Coinbase will be required to turn over the names, addresses and tax identification numbers on 14,355 account holders. The Court has ordered Coinbase to produce the following customer information: (1) taxpayer ID number, (2) name, (3) birth date, (4) address, (5) records of account activity, including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, and the names of counterparties to the transaction, and (6) all periodic statements of account or invoices (or the equivalent). This information was turned over to the IRS on March 16, 2018.
Now while this net may not pick up taxpayers whose accounts have less than $20,000 in any one transaction type (buy, sell, send, or receive) in any one year from 2013 to 2015, it should be clear that this is the first step for the IRS to crush non-compliance for all taxpayers involved with cryptocurrency just like the IRS was successful in battling taxpayers having undisclosed foreign bank accounts.
Penalties For Filing A False Income Tax Return Or Under-reporting Income
Failure to report all the money you make is a main reason folks end up facing an IRS auditor. Carelessness on your tax return might get you whacked with a 20% penalty. But that’s nothing compared to the 75% civil penalty for willful tax fraud and possibly facing criminal charges of tax evasion that if convicted could land you in jail.
Criminal Fraud – The law defines that any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).
The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).
And even if the IRS is not looking to put you in jail, they will be looking to hit you with a big tax bill with hefty penalties.
Civil Fraud – Normally the IRS will impose a negligence penalty of 20% of the underpayment of tax (Code Sec. 6662(b)(1) and 6662(b)(2)) but violations of the Internal Revenue Code with the intent to evade income taxes may result in a civil fraud penalty. In lieu of the 20% negligence penalty, the civil fraud penalty is 75% of the underpayment of tax (Code Sec. 6663). The imposition of the Civil Fraud Penalty essentially doubles your liability to the IRS!
What Should You Do?
The IRS has not yet announced a specific tax amnesty for people who failed to report their gains and income from Bitcoin and other virtual currencies but under the existing Voluntary Disclosure Program, non-compliant taxpayers can come forward to avoid criminal prosecution and negotiate lower penalties.
With only several hundred people reporting their crypto gains each year since bitcoin’s launch, the IRS suspects that many crypto users have been evading taxes by not reporting crypto transactions on their tax returns.
And now that like-exchange treatment is prohibited on non-real estate transactions that occur after 2017, now is the ideal time to be proactive and come forward with voluntary disclosure to lock in your deferred gains through 2017, eliminate your risk for criminal prosecution, and minimize your civil penalties. Don’t delay because once the IRS has targeted you for investigation – even it’s is a routine random audit – it will be too late voluntarily come forward. Let the tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and offices elsewhere in California get you qualified into a voluntary disclosure program to avoid criminal prosecution, seek abatement of penalties, and minimize your tax liability.
Free Crypto Currency – But At What Price?
Forks and airdrops are a prevailing trend that has been ramping up ever since Bitcoin Cash successfully emerged as a result of a fork in August 2017.
What Is A Fork?
Actually there are two types of forks – “hard forks” and “soft forks”. A hard fork is when a single crypto currency splits in two. It occurs when a crypto currency’s existing blockchain diverges into two potential paths forward — either with regard to a network’s transaction history or a new rule in deciding what makes a transaction valid. So when you own one form of crypto currency and another form is now being created as a result of a hard fork you should now become the hold of two forms of crypto currency. Bitcoin Cash was a hard fork. A soft fork essentially follows some same variation in the blockchain; however, only one blockchain (and thus one coin) will remain valid as users adopt the update. So under a soft fork you still only hold one form of crypto currency. Segwit was a soft fork.
What Is An Airdrop?
An airdrop occurs when a crypto currency is distributed to the community for free. This is usually done in connection with new offerings of a crypto currency to spread awareness to future investors. You don’t need to be a current owner of the crypto currency but you do need to be in the community to receive whatever crypto currency is being distributed. The community could developed from investors who were included in other crypto currency blockchains or even lists developed from social media. Byteball, Stellar Lumens and OmiseGo started out as airdrops.
Taxation Of Crypto Currency
Crypto currency transactions are apparently wildly taxable – far more so than investors may think. Although the IRS has not issued much formal guidance, the position of IRS is that any transaction involving virtual currency can trigger a taxable event including air drops and fork transaction as well as conversions or trades from one virtual currency to another virtual currency.
The IRS in 2014 issued Notice 2014-21 stating that it treats crypto currency as property for tax purposes. Therefore, selling, spending and even exchanging crypto for other tokens all likely have capital gain implications. Likewise, receiving it as compensation or by other means will be ordinary income.
Some would think that if bitcoin is property, trades should be tax deferred under the like-kind changes rues of IRC Sec. 1031. Under that theory someone who owned Bitcoin could diversify their holdings into Ethereum or Litecoin, and plausibly tell the IRS it created no tax obligations. Unfortunately, the new Tax Cuts & Jobs Act of 2017 does away with that loophole making it clear that “like kind exchanges” which lets people swap an asset for a similar one without triggering a tax obligation are not available for non-real estate assets.
While bitcoin receives most of the attention these days, it is only one of hundreds of crypto currencies. Everything discussed with regard to bitcoin taxation applies to all crypto currencies.
Here are the basic tax rules followed by IRS on specific crypto currency transactions:
- Trading crypto currencies produces capital gains or losses, with the latter being able to offset gains and reduce tax.
- Exchanging one crypto currency for another — for example, using Ethereum to purchase an altcoin — creates a taxable event. The token is treated as being sold, thus generating capital gains or losses.
- Receiving payments in crypto currency in exchange for products or services or as salary is treated as ordinary income at the fair market value of the coin at the time of receipt.
- Spending crypto currency is a tax event and may generate capital gains or losses, which can be short-term or long-term. For example, say you bought one coin for $500. If that coin was then worth $700 and you bought a $700 gift card, there is a $200 taxable gain. Depending on the holding period, it could be a short- or long-term capital gain subject to different rates.
- Converting a crypto currency to U.S. dollars or another currency at a gain is a taxable event, as it is treated as being sold, thus generating capital gains.
- Air drops are considered ordinary income on the day of the air drop. That value will become the basis of the coin. When it’s sold, exchanged, etc., there will be a capital gain.
- Mining crypto currency is considered ordinary income equal to the fair market value of the coin the day it was successfully mined.
- Initial coin offerings including certain forks do not fall under the IRS’s tax-free treatment for raising capital. Thus, they produce ordinary income to individuals and businesses alike.
Given the limited guidance by IRS, there are still tax positions that can be advocated or structured so that taxpayers dealing with crypto currency can defer gains and minimize taxes. That is why it is essential you seek qualified tax counsel.
Penalties For Filing A False Income Tax Return Or Under-reporting Income
Failure to report all the money you make is a main reason folks end up facing an IRS auditor. Carelessness on your tax return might get you whacked with a 20% penalty. But that’s nothing compared to the 75% civil penalty for willful tax fraud and possibly facing criminal charges of tax evasion that if convicted could land you in jail.
Criminal Fraud – The law defines that any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).
The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).
And even if the IRS is not looking to put you in jail, they will be looking to hit you with a big tax bill with hefty penalties.
Civil Fraud – Normally the IRS will impose a negligence penalty of 20% of the underpayment of tax (Code Sec. 6662(b)(1) and 6662(b)(2)) but violations of the Internal Revenue Code with the intent to evade income taxes may result in a civil fraud penalty. In lieu of the 20% negligence penalty, the civil fraud penalty is 75% of the underpayment of tax (Code Sec. 6663). The imposition of the Civil Fraud Penalty essentially doubles your liability to the IRS!
What Should You Do?
The IRS has not yet announced a specific tax amnesty for people who failed to report their gains and income from Bitcoin and other virtual currencies but under the existing Voluntary Disclosure Program, non-compliant taxpayers can come forward to avoid criminal prosecution and negotiate lower penalties.
With only several hundred people reporting their crypto gains each year since bitcoin’s launch, the IRS suspects that many crypto users have been evading taxes by not reporting crypto transactions on their tax returns.
And now that like–exchange treatment is prohibited on non-real estate transactions that occur after 2017, now is the ideal time to be proactive and come forward with voluntary disclosure to lock in your deferred gains through 2017, eliminate your risk for criminal prosecution, and minimize your civil penalties. Don’t delay because once the IRS has targeted you for investigation – even if it is a routine random audit – it will be too late voluntarily come forward. Let the tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and offices elsewhere in California get you qualified into a voluntary disclosure program to avoid criminal prosecution, seek abatement of penalties, and minimize your tax liability.
Beware If You Have Unreported Crypto Currency Transactions Through Coinbase, You Should Be Receiving Contact By The IRS
As of March 16, 2018, the IRS is getting information that many people thought would stay secret forever. If you are an American client of Coinbase and engaged in Bitcoin transactions during 2017, you better hold off on completing your 2017 income tax return until you first check your email as Coinbase has a surprise for you that could cost you more in taxes and IRS may now be knocking on your door.
Is Bitcoin And Other Crypto-currency the 21st century answer to hiding assets in Swiss bank accounts?
The IRS thinks this is the case! That is why the IRS has stepped up its investigation efforts to uncover non-compliant taxpayers just like the IRS successfully did in its investigation of the Swiss banks leading Congress to enact the Foreign Account Tax Compliance Act (“FATCA”). FATCA forces foreign banks to disclose information on U.S. account holders which the IRS receives and matches the information reported by U.S. taxpayers. No longer can taxpayers avoid reporting income on their foreign bank accounts. No longer can taxpayers avoid disclosing their foreign bank accounts.
Digital exchanges are not broker-regulated by the IRS. Digital exchanges are not obligated to issue a 1099 form, nor are they obligated to report to the IRS calculate gains or cost basis for the trader. But that is now all changing sooner than you think!
IRS Investigative Action
The IRS is launching an aggressive enforcement campaign that will likely make examples out of Americans who fail to pay taxes on bitcoin transactions. The IRS spent a year fighting in federal court to force Coinbase, “a San Francisco-based digital-currency wallet and platform with about 20 million customers,” to turn over customer data.
A John Doe Summons issued by IRS was ruled enforceable by U.S. Magistrate Judge Jacqueline Scott Corley in November 2017 (United States v. Coinbase, Inc., United States District Court, Northern District Of California, Case No.17-cv-01431). Under the order, Coinbase will be required to turn over the names, addresses and tax identification numbers on 14,355 account holders. The Court has ordered Coinbase to produce the following customer information over the period of 2013 to 2015: (1) taxpayer ID number, (2) name, (3) birth date, (4) address, (5) records of account activity, including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, and the names of counterparties to the transaction, and (6) all periodic statements of account or invoices (or the equivalent).
It Finally Happened – Coinbase Released This Data To IRS On March 16, 2018.
Now while this delivery of data on March 16th is limited to 14,355 account holders of Coinbase leaving the rest of Coinbase’s accountholders (almost half a million) unscathed, just because the IRS was able to get only part of that information so far, there’s no reason to think the IRS just give up on everyone else. It should be clear that this is the first step for the IRS to crush non-compliance for all taxpayers involved with crypto currency just like the IRS was successful in battling taxpayers having undisclosed foreign bank accounts resulting in over 56,000 Americans paying $11 billion in back taxes, interest and penalties after the IRS was finally able to pierce the veil on Swiss bank accounts in 2009.
And It Gets Worse For Coinbase Customers As Coinbase Now Voluntarily Reporting 2017 Bitcoin Transactions
As a reaction to Coinbase’s defeat in Federal District Court, Coinbase has started the policy to issue 1099-K tax forms for a certain of its U.S. clients who following under the terms issued by the Federal District Court’s order have received cash above the required reporting threshold, which is more than 200 receipt transactions or greater than $20,000 during 2017. Clients caught in this reporting net will also include “business use” accounts and GDAX accounts. The issuance of 1099-K’s by Coinbase which will be distributed by email to its clients is no different than the 1099-K’s issued by Uber and Lyft to its drivers.
Penalties For Filing A False Income Tax Return Or Under-reporting Income
Crypto currency transactions are apparently wildly taxable – far more so than investors may think. Although the IRS has not issued much formal guidance, the position of IRS is that any transaction involving virtual currency can trigger a taxable event including conversions or trades from one virtual currency to another virtual currency.
Failure to report all the money you make is a main reason folks end up facing an IRS auditor. Carelessness on your tax return might get you whacked with a 20% penalty. But that’s nothing compared to the 75% civil penalty for willful tax fraud and possibly facing criminal charges of tax evasion that if convicted could land you in jail.
Criminal Fraud – The law defines that any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).
The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).
And even if the IRS is not looking to put you in jail, they will be looking to hit you with a big tax bill with hefty penalties.
Civil Fraud – Normally the IRS will impose a negligence penalty of 20% of the underpayment of tax (Code Sec. 6662(b)(1) and 6662(b)(2)) but violations of the Internal Revenue Code with the intent to evade income taxes may result in a civil fraud penalty. In lieu of the 20% negligence penalty, the civil fraud penalty is 75% of the underpayment of tax (Code Sec. 6663). The imposition of the Civil Fraud Penalty essentially doubles your liability to the IRS!
What Should You Do?
The IRS has not yet announced a specific tax amnesty for people who failed to report their gains and income from Bitcoin and other virtual currencies but under the existing Voluntary Disclosure Program, non-compliant taxpayers can come forward to avoid criminal prosecution and negotiate lower penalties.
With only several hundred people reporting their crypto gains each year since bitcoin’s launch, the IRS suspects that many crypto users have been evading taxes by not reporting crypto transactions on their tax returns.
And now that like–exchange treatment is prohibited on non-real estate transactions that occur after 2017, now is the ideal time to be proactive and come forward with voluntary disclosure to lock in your deferred gains through 2017, eliminate your risk for criminal prosecution, and minimize your civil penalties. Don’t delay because once the IRS has targeted you for investigation – even if it is a routine random audit – it will be too late voluntarily come forward. Let the tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and offices elsewhere in California get you qualified into a voluntary disclosure program to avoid criminal prosecution, seek abatement of penalties, and minimize your tax liability.
Top Eight Myths About Crypto-Currency.
It is believed that as of September 2017 at least 80% of all Americans have heard of bitcoin. Unfortunately, a lot of myths have been circulating on bitcoin and other crypto-currencies so here are the top eight myths to consider.
- Crypto-currency Is A New Phenomenon – FALSE. Bitcoin which is the world’s most popular crypto-currency has been around for a decade. An entity by the name of Satoshi Nakamoto published the designs of bitcoin in the whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System” in the midst of the U.S. financial crisis in 2008.
- Crypto-currency Is Not Legal – FALSE. Bitcoin is a legally accepted means of payment in many countries. There are 200,000 to 250,000 transactions per day. While some companies have expressed an outright rejection of payment in crypto-currency, other companies embracing it include, Microsoft, Intuit, DISH Network, Expedia and even Playboy Media.
- The Federal Government Does Not Deal In Crypto-currency – FALSE. The U.S. government is the biggest auctioneer of bitcoin. And the FBI manages one of the world’s biggest wallets with as much as $120 million worth of BTC. In 2013, the FBI seized 144,000 bitcoins connected to Silk Road which was a notorious narcotics network.
- Crypto-currency Transactions Do Not Get Reported To IRS – FALSE. Coinbase which is the virtual currency exchange in the United State and based in San Francisco has started the policy to issue 1099-K tax forms for a certain of its U.S. clients who following under the terms issued by the Federal District Court’s order have received cash above the required reporting threshold, which is more than 200 receipt transactions or greater than $20,000 during 2017. Clients caught in this reporting net will also include “business use” accounts and GDAX accounts. The issuance of 1099-K’s by Coinbase which will be distributed by email to its clients is no different than the 1099-K’s issued by Uber and Lyft to its drivers.
- U.S. Tax Laws Do Not Require Taxpayers To Report Crypto-currency – FALSE. Although both the public and the crypto community refer to bitcoin, altcoin, etc. as “virtual currencies”, the IRS in 2014 issued Notice 2014-21 stating that it treats them as property for tax purposes. Therefore, selling, spending and even exchanging crypto for other tokens all likely have capital gain implications. Likewise, receiving it as compensation or by other means including mining, air drops and initial coin offerings will be ordinary income.
- The Penalties Are Nominal If You Get Caught For Failing To Report Income From Crypto-currency – FALSE. Failure to report all the money you make is a main reason folks end up facing an IRS auditor. Carelessness on your tax return might get you whacked with a 20% negligence penalty but that’s nothing compared to the 75% penalty for willful tax fraud and possibly facing criminal charges of tax evasion that if convicted could land you in jail. Any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).
- It Is Futile That IRS Will Get Information On Crypto-currency Transactions – FALSE. IRS already successfully pierced Coinbase. A John Doe Summons issued by IRS was ruled enforceable by U.S. Magistrate Judge Jacqueline Scott Corley in November 2017 (United States v. Coinbase, Inc., United States District Court, Northern District Of California, Case No.17-cv-01431). Under the order, Coinbase will be required to turn over the names, addresses and tax identification numbers on 14,355 account holders. The Court has ordered Coinbase to produce the following customer information over the period of 2013 to 2015: (1) taxpayer ID number, (2) name, (3) birth date, (4) address, (5) records of account activity, including transaction logs or other records identifying the date, amount, and type of transaction (purchase/sale/exchange), the post transaction balance, and the names of counterparties to the transaction, and (6) all periodic statements of account or invoices (or the equivalent).
- Waiting For IRS To Catch You Is The Best Strategy – FALSE. Now is the ideal time to be proactive and come forward with voluntary disclosure to lock in your deferred gains through 2017, eliminate your risk for criminal prosecution, and minimize your civil penalties. Once the IRS has targeted you for investigation even if it is a routine random audit , it will be too late voluntarily come forward.
What Should You Do?
The IRS has not yet announced a specific tax amnesty for people who failed to report their gains and income from Bitcoin and other virtual currencies but under the existing Voluntary Disclosure Program, non-compliant taxpayers can come forward to avoid criminal prosecution and negotiate lower penalties.
With only several hundred people reporting their crypto gains each year since bitcoin’s launch, the IRS suspects that many crypto users have been evading taxes by not reporting crypto transactions on their tax returns.
And now that like-exchange treatment is prohibited on non-real estate transactions that occur after 2017, now is the ideal time to be proactive and come forward with voluntary disclosure to lock in your deferred gains through 2017, eliminate your risk for criminal prosecution, and minimize your civil penalties. Don’t delay because once the IRS has targeted you for investigation – even if it is a routine random audit – it will be too late voluntarily come forward. Let the tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), the San Francisco Bay Area (including San Jose and Walnut Creek) and offices elsewhere in California get you qualified into a voluntary disclosure program to avoid criminal prosecution, seek abatement of penalties, and minimize your tax liability.
The Federal Government Has Bitcoin To Sell To You!
U.S. marshals in recent months having confiscated over 2,000 bitcoin in conjunction with federal prosecutions has announced the sale of this bitcoin to commence March 19th.
Feds Don’t Mine – They Confiscate.
When the Federal Government shuts down any illegal operation including cannabis enterprises (which despite State law legalizing cannabis, it is still illegal under Federal law), the Federal Government is allowed to confiscate all assets of the illegal operation which includes the plants, equipment, property, cash and bitcoin. Handling and custody of these assets are managed by the U.S. Marshals Service. It’s not a well-known fact that because of these seizures in shutting down illegal operations, the Federal Government is the biggest auctioneer of bitcoin and manages one of the world’s biggest wallets with as much as $120 million worth of BTC. In 2013, the FBI seized 144,336 bitcoins, valued at just over $48 million, connected to Silk Road which was a notorious online drug market that the FBI shut down.
Next On-line Auction Of Bitcoin By the Feds.
The Federal Government announced that it has 2,170 bitcoins set to be auctioned off this month. The coins were seized from a variety of sources: criminal, civil, administrative. Details according to the government’s press release state to be eligible for the March 19th auction, potential bidders must complete all registration requirements by noon EDT March 14. Registered bidders only will get a chance to make offers via email. A $200,000 deposit is required to participate. Deposits will be returned to non-winning bidders. The Bitcoin will be served up in chunks or blocks: “two blocks of 500 bitcoins, 11 blocks of 100 bitcoins and one block of approximately 70 bitcoins,” for a total of 14 blocks. The winner will be contacted on the 19th. The government believes that in total it should get $25 million from the auction. About a month ago the Federal Government auctioned 3,600 bitcoin for which it collected close to $30 million.
War On Drugs Includes Bitcoiners
The U.S. Marshals’ auction site lists all upcoming auctions, with about 75% of those cases coming from illegal activity shut down by the Drug Enforcement Administration (DEA). The DEA is the most dreaded federal agency of the cannabis industry putting state-law abiding cannabis businesses in the same category as narcotics traffickers. Bitcoin has been hot on the DEA’s radar and as recently as late last year the agency released a report, National Drug Threat Assessment, which contends that bitcoin is used an illicit means of finance.
Charges Include Tax Crimes
For individuals nabbed by the Federal Government, it is not surprising that the IRS gets involved and they are also charged with tax crimes.
Failure to report all the money you make is a main reason folks end up facing an IRS auditor. Carelessness on your tax return might get you whacked with a 20% penalty. But that’s nothing compared to the 75% civil penalty for willful tax fraud and possibly facing criminal charges of tax evasion that if convicted could land you in jail.
Criminal Fraud – The law defines that any person who willfully attempts in any manner to evade or defeat any tax under the Internal Revenue Code or the payment thereof is, in addition to other penalties provided by law, guilty of a felony and, upon conviction thereof, can be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than five years, or both, together with the costs of prosecution (Code Sec. 7201).
The term “willfully” has been interpreted to require a specific intent to violate the law (U.S. v. Pomponio, 429 U.S. 10 (1976)). The term “willfulness” is defined as the voluntary, intentional violation of a known legal duty (Cheek v. U.S., 498 U.S. 192 (1991)).
And even if the IRS is not looking to put you in jail, they will be looking to hit you with a big tax bill with hefty penalties.
Civil Fraud – Normally the IRS will impose a negligence penalty of 20% of the underpayment of tax (Code Sec. 6662(b)(1) and 6662(b)(2)) but violations of the Internal Revenue Code with the intent to evade income taxes may result in a civil fraud penalty. In lieu of the 20% negligence penalty, the civil fraud penalty is 75% of the underpayment of tax (Code Sec. 6663). The imposition of the Civil Fraud Penalty essentially doubles your liability to the IRS!
What Should You Do?
It is risky enough to be involved in cannabis or crypto-currency, so imagine how much riskier it is combining both. It is important to control this risk which you can do by engaging the tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Inland Empire (Ontario) and other California locations. We can come up with solutions and strategies to these risks and protect you and your business to mitigate criminal prosecution, seek abatement of penalties, and minimize your tax liability.
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