Yearly Archives: 2022

The federal government and several other states have increased their focus on the regulation and taxation of cryptocurrency and other digital assets. 

On March 9, 2022, President Biden issued an executive order calling for evolution and alignment of the federal government’s approach to digital assets with key priorities to include: consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation. This call to action reflects the government’s desire to take more focused and coordinated steps to address the risks and cultivate the benefits of digital assets and their related technology.

From a federal tax perspective, the IRS began its focus on the taxation of “virtual” currency nearly a decade ago. Over the years, the IRS disseminated guidance in this area including IRS Notice 2014-21, IRB 2014-16 (and related FAQs), Rev. Rul. 2019-24, IRS Chief Counsel Memorandum 202114040, and others. These authorities generally provide that virtual currencies are treated as property (not fiat currency) for federal income tax purposes, and they describe how existing tax principals apply to various virtual currency transactions.

Furthermore, the IRS Priority Guidance Plan for 2021-2022, which outlines the IRS’s priorities for allocating resources to matters most important to taxpayers and tax administration, includes as its focus: (i) general guidance concerning virtual currency; and (ii) regulations regarding information reporting on virtual currency under Sec. 6045 of the Internal Revenue Code.

We have previously posted:

• IRS Cryptocurrency Enforcement and Stablecoins 
• Proposed FBAR Reporting For Crypto
• 2023 IRS Cryptocurrency Reporting Requirements
• Justice Announces First Director of National Cryptocurrency Enforcement Team
• IRS Seized $3.5B In Crypto In Fiscal 2021 and May Seize Billions More In 2022
• Cryptocurrency Is The IRS Criminal Investigation Unit's Primary Focus 

Both New York and New Jersey have joined a handful of states in addressing the tax treatment of virtual currencies from an income, sale/exchange and sales tax perspective. California Attorney General Rob Bonta recently acknowledged that crypto is an “area of concern.” 

The current tone of the rhetoric from our legislative and executive branches suggests that tax authorities will continue to focus more on providing detailed rules applicable to taxation, reporting, and compliance with respect to digital assets.

Taxpayers should check whether it is still possible to correct the tax return or file a Voluntary Disclosure in order to avoid any criminal proceedings and penalties, as well as administrative costs.

Read more at: Tax Times blog

Cryptocurrencies have garnered an increasing amount of attention from the IRS in the last several years. Guidance documents have been issued to clarify the tax treatment of cryptocurrency, and enhanced enforcement efforts have been undertaken to ensure taxpayer compliance with tax reporting obligations. 

Recently, a Type of Cryptocurrency Known as “Stablecoins”
Has Experienced Rapid Growth, Becoming The Fastest Growing Segment Of Cryptocurrency With Market Capitalization Surpassing $30 Billion as of January 2021.

As their name implies, “stablecoins” are designed to avoid the price instability that often accompanies more traditional types of cryptocurrency, such as Bitcoin. With their increasing popularity, determining the proper tax treatment and reporting of stablecoins is becoming a more pressing issue for tax policymakers and practitioners. Stablecoins are digital currencies that are price-stabilized by collateralizing and/or pegging them to an underlying, more stable asset such as the U.S. dollar (USD) or gold. Traditional cryptocurrencies such as Bitcoin, Ether, Ripple, and many others have long been plagued by extreme price volatility. 

Stablecoins use collateral to reduce volatility while retaining other benefits of digital currencies such as liquidity, transparency, and immutability through cryptography, encryption, and hashing. Users can conduct transparent peer-to-peer transactions, eliminating middlemen and many, if not all, of the fees typically associated with financial transactions. Because stablecoins are digital currencies that function on blockchain technology, they support real-time transactions and are available for use by anyone, anywhere in the world.

Stablecoins are generally differentiated based on the collateral used to reduce volatility in their price. Categorization based on collateral results in four general types of stablecoins:

1. Fiat-collateralized stablecoins.
2. Commodity-collateralized stablecoins.
3. Cryptocurrency-collateralized stablecoins.
4. Algorithmic (non-collateralized) stablecoins.

While fiat currencies such as the USD have served the role of money for centuries, there is increasing demand for global electronic payment systems to augment or even replace centralized, fiat-based systems. .

Businesses and consumers do not want to be exposed to unnecessary currency risk when transacting in cryptocurrencies. Businesses will not pay someone a salary in Bitcoin if the exchange rate between the salary in USD and Bitcoin is constantly fluctuating. Most who would consider using cryptocurrencies are not interested in speculating. Users want a store of value on a censorship-resistant ledger, escaping the local banking system, currency controls, or a collapsing economy. To date, cryptocurrencies such as Bitcoin and Ethereum have not been able to offer that.

To solve the volatility problem of cryptocurrencies, in late 2014, an organization called Tether Limited issued the first successful stablecoin, Tether, that was collateralized by USD (and later other fiat currencies and even gold). While extremely successful, Tether has been the subject of controversy and government investigations. Much of the controversy centers around whether Tether maintained the promised 1-1 collateralization ratio of Tether to USD.

Taxpayers should check whether it is still possible to correct the tax return or file a Voluntary Disclosure in order to avoid any criminal proceedings and penalties, as well as administrative costs.

Read more at: Tax Times blog

According to Law360, a California woman accused of failing to report her foreign bank accounts will settle penalties of $2.3 million for just under $1 million under a proposal accepted by her and the U.S., according to federal court documents in the case of U.S. v. Fariba Ely Cohen, case number 2:17-cv-01652, in the U.S. District Court for the Central District of California, Western Division.

Fariba Ely Cohen agreed to pay the U.S. $929,900 by Jan. 31, 2024, to settle allegations that she failed to report her Luxembourg bank account, according to the judgment, presented Wednesday April 6, 2022 to the U.S. District Court. Cohen had been assessed a penalty of $1.5 million for the 2008 tax year. Late payment penalties and interest pushed her liability to $2.3 million.

Cohen argued she did not understand her obligations to file reports of foreign bank and financial accounts, or FBARs. 

Have an FBAR Penalty Problem?  

 

 

 Contact the Tax Lawyers at 

Marini& Associates, P.A. 

 

 

for a FREE Tax Consultation at: 

www.TaxAid.com or www.OVDPLaw.com 
or Toll Free at 888-8TaxAid (888) 882-9243

Read more at: Tax Times blog

According to Law360, whether a foreign bank account reporting penalty is assessed Per Unreported Account or Per Unfiled Form should be determined by the U.S. Supreme Court, tax and business groups said, arguing a circuit split on the issue warrants high court intervention.

In amicus briefs filed on April 1, 2022, the U.S. Chamber of Commerce, Center for Taxpayer Rights and American College of Tax Counsel told the Supreme Court it should resolve the divergent findings by two appeals courts on the proper application of the penalty for a person or business' nonwillful failure to disclose foreign accounts.

While the Ninth Circuit determined that the penalty for a person's nonwillful failure to disclose foreign accounts is assessed on a per-year basis, the Fifth Circuit found in Alexandru Bittner's case that he was liable for the penalty for each account that he failed to disclose.

"The arguments for these conflicting interpretations have been fully aired, and further percolation would only allow uncertainty to continue to be a drain on our economy," the chamber said in its brief. "There is no good reason to delay review."

The American College of Tax Counsel likewise noted that "the lower courts have thoroughly analyzed this issue." "Waiting for further decisions will only add to the uncertainty," the ACTC's brief said. "In light of the diametrically opposed and irreconcilable positions taken, there is a clear need for the court to step into the fray."

The three tax and business groups filed their briefs in Bittner's dispute over the correct application of the maximum penalty for nonwillful failures to timely file FBAR forms, an issue that has divided the Fifth and Ninth Circuits and district courts in New Jersey and Connecticut. Anyone who has foreign bank accounts with balances exceeding $10,000 is required to file a single form disclosing the accounts, and that filing is due April 15 the year following the calendar year being disclosed.

Bittner, a Texas resident with citizenship in Romania, had been assessed $2.7 million in penalties in 2017. The Internal Revenue Service sued him in 2019 seeking to collect the funds, but a Texas federal judge ruled that Bittner was liable for nonwillful penalties at a $10,000 maximum per year and rejected the government's argument that he should be on the hook for a penalty per account.

The Fifth Circuit disagreed, though, saying in its November opinion that the penalty applied for each failure to file an annual FBAR was inconsistent with the Bank Secrecy Act, which requires the disclosures, and its corresponding regulations. That decision departed from one by the Ninth Circuit in U.S. v. Jane Boyd, which found that Boyd committed a single violation in failing to file an FBAR reporting her accounts, making her liable for a $10,000 penalty rather than a $50,000 sum for each of her five accounts.

In The Application Of This Penalty Has Negative
Consequences For Taxpayers And For Business Conditions.

 

Have an FBAR Penalty Problem?  

 Contact the Tax Lawyers at 

Marini& Associates, P.A. 

 

 

for a FREE Tax Consultation at: 

www.TaxAid.com or www.OVDPLaw.com 
or Toll Free at 888-8TaxAid (888) 882-9243

 

 

 

 

 

 

Read more at: Tax Times blog