GringoPost | Ecuador: Bit-Coin, the IRS and Who.....You?

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Bit-Coin, the IRS and Who.....You?

An ongoing IRS investigation into tax evasion (Title 26 U.S.C. Section 7201) relating to bit-coin, and other crypto-currencies, reveals the possibility of widespread cheating. According to an IRS survey of 2015 Form 1040 Schedule D, revealed only 802 taxpayers reported any virtual currency transactions out of millions. From 2013 - 2015, virtual currency soared from $13 to over $1,100. We are all aware of what bit-coin did in 2017 going from a low of $1,031 to $19,086.

The IRS issued a wide-ranging summons which is an administrative demand for information to Coinbase which the company contested. On November 28, 2017 the U.S. District Court of Northern California granted the IRS's request, although it limited the Service's investigative scope and ordered Coinbase to turn over records which affected over 14,000 accounts. The Service also signed a contract with a company called Chainalysis that offers software for analyzing and tracking bit-coin transactions through the company's Reactor tool. According to the IRS, virtual currencies are treated as "capital assets" and not as a currency.

Like FATCA/FBAR, virtual currencies are now in the bullseye of the Service's crosshairs and front and center of their audit efforts. If you have unreported transactions, you are strongly advised to amend any years that you may be affected by this BEFORE you become audit victim. Coming forward voluntarily is considerably better than the Service catching up to you first. If the Service initiates an audit, they will consider your actions to be more than just simple negligence, and possibly criminal. According to the Criminal Investigations Unit statistics, the average prison sentence is now 42 months in length.

Some points of interest, the Service has announced that it will institute "passport revocation" beginning in January 2018. Also consider the fact that the U.S. Government was able to "strong-arm" 80 Swiss banks into entering into Non-Prosecution Agreements and paying over $1.3 billion in penalties.

I want to thank Mark for his positive comment to my last post. If you have any questions, please feel free to email me.

January 30, 2018, Cuenca

John Papile: