Monthly Archives: August 2013

The Treasury unit called FinCEN, the Financial Crimes Enforcement Network, already has rules about Bitcoin. The IRS is likely to follow.

FinCEN says Bitcoin exchanges and Bitcoin miners should register as Money Services Businesses (MSBs) and comply with anti-money laundering regulations.

Still, ordinary Bitcoin users don’t have to register just to purchase goods and services. The IRS treats it as pay in kind, just as if you paid in groceries or anything else of value. You must value what’s provided, withhold income and employment taxes in cash and send the money to the IRS. You also must issue a Form W-2.

With no banking or government involvement, Bitcoin may be anonymous. It may even be ideal for someone who intentionally tries not to pay tax. That may be a small piece of the Bitcoin payment universe. 

But for most people who file tax returns and report their income whether or not it shows up on a Form W-2 or 1099, it probably isn’t the tax haven some are suggesting it is.

The IRS will most certainly take steps to regularize tax reporting.

Forbes 

The Internal Revenue Service disagrees with four major banks over structured transactions done a decade ago with Barclays Plc, which the IRS lacks "Economic Substance."

In the first STARS case to go to trial, the U.S. Tax Court ruled that the transactions lacked "economic substance," meaning they were done solely for tax purposes. A judge called them "a subterfuge for generating, monetizing and transferring the value of foreign tax credits."

The U.S. Tax Court held Feb. 11 in a case of first impression that a structured trust advantaged repackaged securities (STARS) transaction lacked economic substance and the taxpayers were not entitled to claim foreign tax credits (Bank of New York Mellon Corp. v. Commissioner, T.C., No. 26683-09, 140 T.C. No. 2, 2/11/13).

Judge Diane L. Kroupa determined that, while the STARS transaction was structured to meet the relevant tax code requirements and the regulations for claiming the disputed foreign tax credits, the STARS transaction was in essence “an elaborate series of pre-arranged steps designed as a subterfuge for generating, monetizing and transferring the value of foreign tax credits among the STARS participants.”

An affiliated group composed of Bank of New York Mellon Corp. and its subsidiaries entered into a structured trust advantaged repackaged securities (STARS) transaction with Barclays Bank in London.

As part of the STARS transaction, Bank of New York transferred income-producing assets to a trust with a U.K. trustee, and the trust was subject to U.K. tax on its income. The STARS transaction generated $199 million in foreign tax credits. Bank of New York had claimed foreign tax credits and expense deductions on its 2001 and 2002 federal consolidated tax returns. It also reported income from assets transferred to the trust as foreign source income.  

Three other banks - BB&T Corp, Santander Holdings and Wells Fargo - are challenging the IRS in separate STARS disputes.

Source:

Reuters

Americans renouncing U.S. citizenship increased 6X in the second quarter from a year earlier as the government prepares to introduce tougher asset-disclosure rules.