Crypto Investors Could Inadvertently Commit ‘Potential Felony,’ Tax Expert Says
As tax day rapidly approaches, there’s no lack of uncertainty amongst tax professionals regarding cryptocurrency investors purchasing digital assets through foreign exchanges. Regardless of the government’s seemingly straightforward legislative position, ambiguity continues to riddle the field when in-depth analysis is made.
What Does the Law Say?
The IRS has clearly outlined that transacting with cryptocurrency is treated the same as transacting with property and, consequently, taxes on capital gains are to be paid at the standard rate. The taxman has already issued a warning against tax evasion but experts remain uncertain about the way foreign accounts and cryptocurrency exchanges correlate.
Now, US citizens holding more than a specific amount of money abroad are typically required to file reports with the U.S. Treasury and the IRS. Failing to oblige could essentially result in steep fines of more than $100,000 and even jail time.
The rules that one has to follow in order to avoid that are seemingly straightforward. Anyone who has an amount larger than $10,000 in a foreign account has to fill out the Report of Foreign Bank and Financial Accounts (FBAR) with the U.S. Treasury every year.
The Foreign Account Tax Compliance Act (FATCA), however, requires taxpayers to provide a description of their foreign accounts on a 8938 form at the time they file their taxes with the IRS.
And here’s where things start to get a bit shadier.
Ambiguity Takes Place
Uncertainty amongst tax professionals regarding crypto investors who have purchased their digital assets off foreign exchanges and whether they need to comply with the additional accounting requirements takes place.
Kevin F. Sweeney, a former federal tax prosecutor says:
There probably is an FBAR requirement, but I wouldn’t go as far as to say there always is one […]. It would seem awfully unfair if they would expect taxpayers to know that — and to then issue penalties for taxpayers who didn’t do that — when practitioners can’t even 100 percent figure out if there’s an FBAR requirement[…].
Even though the American Institute of Certified Public Accountants has already addressed the issue with the IRS, no official statement or answer has been given yet.
What’s worse, according to Selva Ozelli, a CPA, and a lawyer specializing in cryptocurrencies:
U.S. taxpayers may not even be aware of this requirement when it’s obvious that even experienced practitioners aren’t 100% certain whether there is a requirement of the kind or not.
How to Stay Out of Trouble?
Despite the silence on behalf of the IRS on the matter, professionals advise that “it never hurts to report.” In the words of Daniel Morris, digital currencies accountant expert:
It’s risky not to. 8938 is the only tax form that if you fail to file, and it’s deemed that you should have filed, it’s a potential felony.
Did you file your taxes on your cryptocurrency? Let us know in the comments below!
Images courtesy of Pexels, Bitcoinist archives
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