July 2019
IRS confirms it is building criminal cases for tax evasion involving crypto.
IRS Criminal Investigations Chief Don Fort confirms that IRS-CI is building criminal tax evasion cases involving cryptocurrency.
Singapore tax authorities propose a GST exemption for exchange of tokens.
The Inland Revenue Authority of Singapore (RAS) releases proposed changes that would allow a GST exemption on the exchange of digital payment tokens for other tokens or fiat currency, including tokens used to pay for goods and services.
US legislation is introduced to provide a safe harbor for tax events related to hard forks.
Rep. Tom Emmer, R-Minn, introduces H.R. 3650, Safe Harbor for Taxpayers with Forked Assets Act of 2019. The Act provides a safe harbor for penalties involving the tax treatment of hard fork of convertible virtual currency. The resolution is currently pending and has a 1% chance of being passed, per govtrack.us.
IRS reveals plans to use grand jury subpoenas to obtain taxpayer cryptocurrency data.
An IRS-Criminal Investigations (IRS-CI) cybercrimes presentation by James Daniels is made public. The presentation details virtual currencies, smart contracts, initial coin offerings, blockchain technology, digital transactions, and the dark web. Further scrutiny of the presentation shows that the IRS plans to use grand jury subpoenas to obtain taxpayer download history for cryptocurrency applications.
June 2019
IRS provides guidance on virtual asset service providers.
The IRS Financial Action Task Force (FATF) provides guidance and standards on virtual asset service providers (VASPs). Treasury Secretary Steven Mnuchin called on all countries to join the United States in implementing the standards.
Facebook announces Libra.
Facebook announces its plan to issue its own crypto-based payment system called Libra.
IRS comments on the legality of ICOs that do not comply with securities laws.
The Texas Federal Tax Institute in San Antonio posits that initial coin offerings that do not comply with federal and state security laws may therefore be construed as “illegal.”
May 2019
Israel confirms capital gains treatment for cryptocurrency used in transactions.
An Israeli court rules that Bitcoin is not a foreign currency for Israeli tax purposes and that, when it is used in a transaction, any increase in value is subject to Israeli capital gains tax.
April 2019
Australian tax authorities obtain DSP records to match against tax returns.
The Australian Taxation Office starts collecting bulk records from Australian cryptocurrency designated service providers (DSPs) to begin data matching against Australian tax returns to ensure proper taxation.
Arrests made in US for shadow-banking services related to cryptocurrency.
The US arrests an Arizona man and Israeli woman for providing false and misleading statements to a bank to open bank accounts to receive deposits from individuals purchasing cryptocurrency. The “shadow bank” processed hundreds of millions of dollars of unregulated transactions on behalf of numerous cryptocurrency exchanges.
US Congress petitions IRS to provide additional cryptocurrency tax guidance.
Twenty-one members of Congress write a letter to IRS Commissioner Charles Rettig asking the IRS to provide additional guidance on the US taxation of virtual currency.
US proposes establishing guidelines for blockchain technology and ICOs.
US proposes establishing guidelines for blockchain technology and ICOs. Description: Six members of Congress introduce H.R. 2144, Token Taxonomy Act. The Act provides guidelines to develop blockchain technology and introduce “initial coin offerings” in the United States. The resolution is currently pending with a 2% chance of being enacted, per govtrack.us.
Six members of Congress introduce H.R. 2144, Token Taxonomy Act
The Act provides guidelines to develop blockchain technology and introduce “initial coin offerings” in the United States. The resolution is currently pending with a 2% chance of being enacted, per govtrack.us.
March 2019
IRS adds “virtual currency issues” as a reason for seeking IRS amnesty treatment.
The IRS updates Form 14457 for the new “Offshore Voluntary Disclosure Program” to include a new category on virtual currency.
The IRS updates Form 14457 for the new “Offshore Voluntary Disclosure Program”
The IRS updates Form 14457 for the new “Offshore Voluntary Disclosure Program” to include a new category on virtual currency.
January 2019
Bulgarian tax authority cracks down on cryptocurrency exchanges and traders.
Bulgaria starts investigating cryptocurrency exchanges and traders to ensure that individuals and companies trading in cryptocurrency are paying the 10% tax on profits.
December 2018
US legislation is introduced for like-kind exchange treatment of cryptocurrency.
Rep. Ted Budd, R-NC, introduces H.R. 7361, to offer an exclusion for like-kind exchanges of virtual currency. The resolution is not enacted.
Amnesty programs seem unlikely for cryptocurrency owners.
Participants at the ABA National Institutes on Criminal Tax Fraud and Tax Controversy in Las Vegas note that, “Cryptocurrency investors are unlikely to participate in the new [offshore] voluntary disclosure program.”
IRS confirms it’s already pursuing criminal cases related to cryptocurrency.
IRS Criminal Investigations Chief Don Fort confirms, “[IRS-CI] already has some virtual currency criminal tax cases under investigation.”
October 2018
Cryptocurrency—A Prime Example of Global Tax Inefficiency (for Now)
Fact: Countries disagree on the nature of cryptocurrency. In recent years, tax and revenue authorities worldwide have had to take a stand and issue guidance to their taxpayers on their country’s official position on cryptocurrency—What is it, and how should it be taxed? The result is mixed: Canada – it is a commodity, not currency, and is taxed as property Germany – it qualifies as units of account and is therefore a financial instrument, taxed like any other currency United States – it is personal property, and each transaction results in a capital gain or loss Australia – transactions are viewed as barter arrangements and cryptocurrencies are considered assets for capital gains purposes South Korea – transactions are financial transactions taxed as capital gain or miscellaneous income Jurisdictions that define cryptocurrency differently will have conflicting views on the timing of taxable events, the nature of the resulting income (ordinary or capital), and the sourcing of the income (Country A or B), yet international tax treaties do not yet have provisions to resolve these differences. As a result, depending on how the jurisdiction defines and taxes cryptocurrency, cross-border individuals who are subject to taxation in multiple jurisdictions may have significant issues claiming foreign tax credits to offset double taxation. For now, taxing authorities are still focused on sorting out the tax treatments in their home country, especially as initial coin offerings, chain splits, air drops, token swaps, giveaways, and other events present new complexities. Consequently, it may be some time before the international tax challenges are resolved.
The IRS (and States) Are Still Deciding How To Calculate Your 2018 Taxes
A common misconception among taxpayers is that the new tax law, the Tax Cuts and Jobs Act of 2017 (TCJA), passed in December 2017, contains the necessary information to calculate your 2018 taxes. That would indeed make sense. In actuality, however, the TCJA made numerous changes but left the details to be sorted out later. The TCJA was considered and passed in a record-breaking seven weeks. The previous major tax act (passed in 1986) took 13 months to craft before it was passed. In a way, this is normal. There are always details to be sorted out after major legislation is passed. That is what regulations are for. In applying tax law, there is rarely a singular calculation that results in the lowest possible correct tax liability. CPAs and tax preparers must almost always make interpretations and exercise judgment. This time, however, the TCJA contains many more areas that were left to be defined by regulations, and the regulations and details are slow in coming. What areas are still unsettled? Numerous areas of tax law remain unsettled under TCJA. Here are a select few major areas: The new 20% qualified business income deduction (for individuals with business and possibly rental income) The TCJA included this new tax break, which enables individuals with pass-through income from self-employment activities, sole proprietorships, partnerships, single-member LLCs, and other pass-through entities to significantly reduce the tax rate on their “business” income. However, the details of who can claim the deduction and how remain unclear. The calculation of the deduction takes into account the overall income of the taxpayer, the nature of his or her business, the type of business income generated, the age and amount of assets used, the employment wages paid, among other factors. On August 8, 2018, the IRS released 184 pages of guidance and clarifications on this topic, with more expected in the coming months. Itemized deductions Several itemized deduction matters remain unsettled, the most contentious of which has been the deduction for state and local taxes. The TCJA capped the deduction for state and local taxes at $10,000 per year (including both income taxes and property taxes). Last December, this sent taxpayers scrambling to make property tax payments before year-end in order to maximize their 2017 deduction before the cap went into effect. Ever since, states have been passing work-arounds to minimize the impact of the cap on their residents. One highly publicized work-around is the move by certain states to allow residents to make charitable contributions to the state in exchange for state and local tax credits. The work-arounds have produced tension between the IRS and state taxing authorities, and the IRS released proposed regulations on August 27, 2018, to limit them. Final regulations may not be completed until after the April 15 deadline next year. The IRS also issued an FAQ related to charitable contributions in exchange for state and local tax credits. Expect some of these matters to go to court. The IRS has released four notices on [...]
Ready for the 2018 Tax Filing Season? The IRS Is Not. Is Your Accountant?
Tax accountants and tax software companies (e.g., TurboTax) have been waiting with bated breath for the IRS and state tax authorities to release guidance on the new tax law. Why? Because the Tax Cuts and Jobs Act of 2017 (TCJA), passed in December 2017, made numerous, significant changes but left the details to be sorted out later. So how much is left to sort out? Quite a bit. (Check out our article on outstanding issues left to be settled.) So what? What does this mean for you? The IRS and states are still deciding how to calculate your 2018 taxes With certain parts of the law settled, accountants have been able to estimate your 2018 taxes based on the new rules and fill in the blanks (i.e., make reasonable assumptions) for the matters still being developed. That said, a few of the outstanding unsettled matters (e.g., the 20% qualified business income deduction) could make a significant difference to many taxpayers’ liability. The IRS and states will likely be delayed in releasing updated tax return forms and schedules While not all of the unsettled matters affect all taxpayers, these matters do affect the tax return forms and schedules. Already, the IRS is working diligently to update the tax return forms for the changes that are clearly settled. These updates take time. And the longer it takes for the remaining issues to be resolved, the longer it will take for the IRS to release the new versions of all the forms and schedules affected by the TCJA. Also, individual states must decide whether to adopt the federal changes in the state tax calculations or whether to apply their own methods. They, in turn, must then update their tax forms and schedules. Again, this will take time. After forms are finalized, the IRS and states must update their e-file systems and coordinate with tax software companies before you can file Whether taxpayers use a free e-file service or mass market provider (for very basic returns), prepare their returns with do-it-yourself software (for basic and moderate returns), or engage a CPA to prepare their filings (for moderate, complex, or special returns with business or foreign elements), some type of tax or e-filing software is involved. Software providers must work quickly to incorporate tax law changes into their programs. Likewise, the IRS on its end, must update all of its systems to accept the new electronic forms and schedules. Changes must be made, tested, trouble-shot and finalized before you can file. What does this mean for you? Your CPA should be ready. CPAs have been following developments closely (before and after TCJA was passed). They have a good deal of information on what is already settled, how things have changed under TCJA, and what the likely outcomes are for the unsettled matters. Many CPAs have been working closely with clients to prepare 2018 estimates with the best available information and to identify planning opportunities afforded by the TCJA. They are poised to do year-end planning [...]
The IRS Announces Crackdown on International Organization Employees
On September 11, the IRS announced a new campaign to closely examine whether individuals working at international organizations (I/O) are fully and properly calculating their taxes. The announcement was a surprise and was made at the same time as the announcements for several other unrelated campaigns. The IRS believes that I/O employees may have been underreporting taxable income The IRS announcement suggests that, on their recent tax returns, many I/O employees may not have correctly reported compensation, paid adequate income and Social Security taxes, or fully reported their foreign assets. In addition, they may have claimed erroneous deductions and credits. As a result, the IRS intends to dedicate additional scrutiny and resources to this matter, including conducting audits of I/O employees’ returns. The IRS launched a similar campaign 10 years ago Approximately 10 years ago, the IRS identified I/O employees as a population at high risk for having errors and improper reporting on their tax returns. Since I/O employees are not subject to regular tax withholding or payment of Social Security taxes (and G-4 visa holders working for I/Os are not taxable on certain income), their tax return reporting is slightly odd and can be prone to errors unless prepared by a preparer or CPA who is well-versed in I/O taxation. Beginning in 2007, the IRS spent approximately 2 years focused on I/O employees, speaking to I/O audiences and auditing the tax returns of I/O employees, to boost compliance. We predict that this IRS crackdown will be similar to the last one The IRS can easily obtain the names and contact information for I/O employees. This information is readily available from the State Department. As such, we expect the IRS will draw on this information as it determines which taxpayers to audit during this campaign. In addition, we expect that the IRS will undertake a variety of educational efforts to promote compliance. During the last campaign, the IRS sent agents to speak to groups of I/O employees, to explain what the auditors were looking for, point out common mistakes made on I/O employee tax returns, and recommend that employees amend their returns sooner rather than later to correct any issues. What will the IRS be looking for? There are a number of common mistakes that I/O employees make on their tax returns. At The Wolf Group, we have been assisting I/O employees with their taxes for 35 years, including during the last campaign 10 years ago. Although the IRS does not specify the exact issues it will target, here are the most likely mistakes the IRS will focus on, based on our experience: #1. U.S. citizen employees of I/Os not paying self-employment tax U.S. citizen employees of I/Os who are working in the U.S. must pay self-employment tax (Social Security tax), because I/Os are not liable for the withholding of U.S. Social Security tax. The self-employment tax must be calculated on the tax return each year. #2. U.S. citizen employees claiming deductions against their I/O income Although U.S. citizen [...]
