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Crypto Craze Creates Tax Problems, Especially for Americans

May 20, 2018 • Governance & Regulation, Personal Finance

By Robert W. Wood

Although some countries do not tax crypto gains, IRS has been clear that crypto is a property for tax purposes. Americans who fail to comply may face huge criminal tax charges. To resolve the tax problems faced by crypto investors, the IRS has two programs – the Offshore Voluntary Disclosure Program and the Streamlined program. What’s more efficient between the two is worth a closer look.

 

In general, the world has embraced bitcoin and other cryptocurrencies. In fact, it is hard to ignore the international sensation. It is also hard to ignore the stratospheric gains, though there have been some deep price drops too. Taxes in this volatile environment can be especially worrisome.

Some countries don’t tax crypto gains, and some may not even be clear on how to classify crypto for tax purposes. But the IRS is quite clear that crypto is property (not currency) for tax purposes. Israel recently reached the same conclusion. In the case of the IRS, of course, if you are a U.S. citizen or permanent resident, you must report taxes to the IRS on a worldwide basis.

Some Americans are still coming forward under tax amnesty plans started in 2009 when UBS and other Swiss banks were facing fines and threats of prosecution from U.S. authorities.

Even if you live and pay taxes abroad, you must file and pay the IRS every year. That still catches many people by surprise. Indeed, some Americans are still coming forward under tax amnesty plans started in 2009 when UBS and other Swiss banks were facing fines and threats of prosecution from U.S. authorities. In a way, that is where a curious crossover seems to be happening.

There has long been speculation that a special IRS amnesty program will be announced for bitcoin and other digital currency taxpayers. It would sure be nice. The number of crypto investors who are vocally worrying on whether and how to get into compliance with the IRS suggests that the IRS should try to welcome them home. There’s a good deal of tax cleanup that some people need to do.

 
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About the Author

Robert W. Wood is a tax lawyer representing clients worldwide from offices at Wood LLP, in San Francisco (www.WoodLLP.com). He is the author of numerous tax books, and writes frequently about taxes for Forbes.com, Tax Notes, and other publications. This discussion is not intended as legal advice.

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