Streamlined Filing Compliance Procedures Archives

Cryptocurrency May Be Subject to US Tax: Come Into Compliance Now

by Kevin Spencer, McDermott Will & Emery and McDermott Will & Emery | Nov 16, 2018 | IRS Guidance, Uncategorized

Lately, we have been frequently asked the question: “I file US tax returns and pay taxes here. Are my cryptocurrency transactions taxable or reportable in the US?”

The answer for US persons and US taxpayers most likely is “yes.” US persons are generally taxable on income earned worldwide, regardless of the manner in which that income is paid (e.g. currency (foreign or domestic) or property (tangible, intangible or virtual)). Thus, if you have bought, sold or exchanged cryptocurrency, those transactions could be subject to federal tax. If your cryptocurrency is held offshore, a number of offshore reporting obligations could also apply to these holdings.

Now is the right time to come forward and resolve any US compliance issues related to your cryptocurrency holdings. As we have seen in recent cases like the Coinbase summons enforcement proceeding (which we reported upon in several previous posts), the Internal Revenue Service (IRS) has stepped up its enforcement efforts regarding undisclosed interests in cryptocurrency worldwide.

How should you come forward? Following an IRS-attended conference earlier this year, comments began circulating that the IRS was considering the creation of a formal voluntary disclosure program for cryptocurrency transactions, similar to the now-ended Offshore Voluntary Disclosure Program. (We reported on that program numerous times, here.) Unfortunately, the IRS has now squashed this rumor, stating that “IRS is not contemplating a separate program related to offshore [virtual] currencies.” A domestic program was not even mentioned.

Despite this news, a number of disclosure options remain available for bringing your US and foreign cryptocurrency into compliance. The IRS’s longstanding voluntary disclosure policy remains in full force and effect. This policy acts to reduce or eliminate the risk of criminal prosecution related to nondisclosure of domestic or foreign taxable assets, and can provide avenues to reduce civil penalties as well. Further, the IRS’s Streamlined Filing Compliance Procedures and Delinquent International Information Return Procedures are still active and may provide reduced (or no) penalties for US international tax non-compliance in appropriate cases.

Practice Point: Beyond the short answer of “yes, cryptocurrency is taxable,” a number of open questions regarding the taxation and reporting of cryptocurrency in the US remain. For example, determining what offshore crypto holdings are subject to FBAR and Form 8938 reporting remains complicated and unclear. Also, although tax reform has eliminated the use of Section 1031 exchanges to avoid currently being taxed for personal property like cryptocurrencies, the IRS’s position on exchanges that occurred prior to 2018 is still unknown. There are also open valuation questions, particularly for crypto accounts subject to access limitations like lock-up periods. The tax treatment of so-called hard and soft “forks” is also unclear. Finally, crypto exchanges are navigating a number of open reporting and compliance issues. If you have significant holdings in cryptocurrency, consult with a federal tax advisor who understands the tax aspects of this unique asset to [...]

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IRS OVDP Ending | Time Is Now for Coming into US Tax Compliance – Especially for Those with Willfulness Issues

by Daniel J. Bell, K. Christy Vouri-Misso and McDermott Will & Emery | Mar 16, 2018 | Alternative Dispute Resolution, IRS Audits, IRS Guidance, Settlements, Uncategorized

On March 13, 2018, the Internal Revenue Service (IRS) announced that it will begin ramping down the current Offshore Voluntary Disclosure Program (OVDP) and urged taxpayers with undisclosed foreign assets to apply for the program prior to its close on September 28, 2018. We have previously reported on developments in the OVDP.

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Courts Rejects Challenge to OVDP Transition Rules

by McDermott Will & Emery and McDermott Will & Emery | Jul 18, 2017 | IRS Audits, IRS Guidance, Trial Courts, Uncategorized

The Internal Revenue Service (IRS) currently offers non-compliant US taxpayers several different relief programs to report foreign assets and/or income to become compliant with US rules related to the disclosure of offshore income. See here for a link to the different options. The two main programs are the Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Filing Compliance Procedures (SFCP). The IRS launched the OVDP in 2012 to enable a taxpayer with undisclosed foreign income or assets to settle most potential penalties he may be liable for through a lump sum payment of 27.5 percent of the highest aggregate value of the taxpayer’s undisclosed foreign assets for the voluntary disclosure period, which is the previous eight years. The OVDP replaced prior offshore voluntary disclosure programs and initiatives from 2009 and 2011. OVDP has a number of filing and payment requirements, including paying eight years’ worth of accuracy-based penalties. The IRS updated and revised the OVDP in 2014.

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More than 100,000 Taxpayers Become Compliant with Reporting and Tax Requirements, Paying more than $10.3 billion in Taxes, Interest and Penalties

by K. Christy Vouri-Misso | Nov 16, 2016 | IRS Guidance, Uncategorized

On October 21, 2016, the Internal Revenue Service announced the most current data on the success of its Offshore Voluntary Disclosure Program (OVDP) and Streamlined Filing Compliance Procedures (SFCP) programs. For our prior coverage on the OVDP and SFCP programs please see Offshore Voluntary Disclosure Update and Release of “Panama Papers” May Encourage New Wave of OVDP Submissions.

OVDP program has existed in several iterations off and on since 2009, and the SFCP was made available to non-willful taxpayers in 2014. The programs encourage taxpayers with undisclosed income from foreign financial accounts and assets to become compliant and current with their tax returns and information reporting obligations. The program allows taxpayers to voluntarily disclose foreign financial accounts and assets and pay lower penalties now, rather than risk detection and face more severe penalties and possible criminal prosecution later.

The programs have been successful by all accounts. As of October 21, 2016, 55,800 taxpayers have made disclosures under the OVDP program and have paid more than $9.9 billion in taxes, interest and penalties since 2009. Another 48,000 taxpayers have made disclosures under the SFCP program correcting non-willful omissions and have paid $450 million in taxes, interest and penalties.

Offshore Voluntary Disclosure Update

by Jonathan D. Lockhart and Leigh-Alexandra Basha | Aug 10, 2016 | IRS Audits, IRS Guidance, Trial Courts, Uncategorized

The Internal Revenue Service (IRS) currently offers non-compliant US taxpayers several different relief programs in which to report foreign assets and/or income and become compliant with US rules related to the disclosure of foreign assets. One option is the Offshore Voluntary Disclosure Program (OVDP). Another is the Streamlined Filing Compliance Procedures (SFCP). SFCP is further bifurcated into two sub-programs—one for US residents (Streamlined Domestic Offshore Procedures or “SDOP”) and one for non-US residents (Streamlined Foreign Offshore Procedures or “SFOP”). Each program has its own set of tailored procedures and eligibility requirements.

The critical differences between OVDP and SFCP are: (1) the non-willfulness requirement; (2) the look-back period; and (3) the amounts of penalties the US taxpayer must pay. Specifically, OVDP does not require the US taxpayer to certify that his or her failure to disclose foreign assets was non-willful. On the other hand, SFCP requires the US taxpayer to certify that his or her failure to disclose foreign assets was non-willful and to also include a narrative explaining such non-willful conduct. The incentive to demonstrate non-willfulness can be significant. In general, US taxpayers who enroll in OVDP must pay a 27.5 percent penalty (and in some cases a 50 percent penalty) of the highest aggregate value of undisclosed foreign assets for the OVDP disclosure period (eight years). However, US taxpayers who enter SDOP must only pay a five percent penalty of undisclosed foreign assets during the disclosure period (three years), and US taxpayers who enter SFOP pay no penalty. (more…)