The IRS estimates that 13,000,000 to 28,000,000 wallets have traded cryptocurrencies during 2013, 2014 and 2015. Less than 900 people per year have filed taxes listing this information. 2,700 / 13,000,000 = .02076923% compliant.
As you are probably aware, the IRS has won its dispute with Coinbase. Coinbase is now required to disclose identifying information of more than 13,000 wallet holders to the IRS. If you have bought and sold crypto currencies and have not filed a return with the gains or losses on them, you may want to do so now. We can help. In most cases, you will need to file an amended Form 1040 and add Schedule D and form 8949 to the return. If taxes are owed, then interest and penalties can be charged.
Some individuals have used ‘like kind’ exchanges under Section 1031. That treatment was uncertain as the IRS treats cryptocurrencies as property (treated as stock sales). After December 31, 2017 like-kind exchanges are only allowed for real estate – so that reasoning is void. On a side note, since most currencies settle in bitcoin, you may have two gains or losses for each transaction.
Here is where things can get expensive. If the currency is not organized in the United States and you own more than $10,000 worth – you have a FinCEN Form 114, Report of Foreign Bank and Financial Accounts filing obligation AND a Form 8938 Statement of Foreign Financial Assets reporting obligation. There is currently an Offshore Voluntary Disclosure Program (OVDP) that expires in September 2018. If you have not filed the forms, the penalties can be quite high. The non willful penalty can be up to $12,459 for each negligent violation with no criminal provision for the taxpayer. If you were willful, knew about the requirement but still failed to file, the penalty can be $124,588 or 50% of the account balance at the time of the violation. Absent fraud, the statue of limitations is six years.
The IRS and FinCEN are aware of the exchanges. We see where they have the authority to issues significant penalties. Don’t gamble with this. File the required forms now. If you need assistance, please reach out to us firstname.lastname@example.org.