Cryptocurrency And Taxes | TaxConnections

25 Oct 2022

IRS Gets Another “John Doe” Summons In Hunt For Tax Cheats

A federal district court has greenlighted a John Doe summons to help the IRS fight crypto-related tax fraud. The authorization could help the U.S. government find thousands of tax cheats.

The Internal Revenue Service has received another thumbs-up from a federal court in the agency’s new passion to root out cryptocurrency tax fraud.

The U.S. District Court in the Central District of California authorized the IRS to serve a John Doe summons on Los Angeles-based OX Labs Inc., d/b/a SFOX and its subsidiaries. SFOX is a cryptocurrency prime dealer for professional traders and institutional investors and has more than 175,000 registered users.

The IRS wants information about U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in crypto between 2016 and 2021 with or through SFOX.

Written by Alicea Castellanos | Posted in Cryptocurrency And Taxes • IRS John Doe Summons

28 Jul 2022

Cryptocurrency And Taxes: A Lesson For Taxpayers And Expats

Welcome. I am Olivier Wagner from 1040 Abroad and will provide an overview of taxation of cryptocurrency, Non-Fungible Tokens (NFTs), and Decentralized Finance

First disclaimer: While cryptocurrencies and NFTs have been gaining traction, these are an extremely volatile asset class.

Likewise, it’s an ever-changing environment, so please contact me before taking anything here as true as it may have changed.

Let’s start with a review of blockchain and the building block that lead us to where we are today.

We have building blocks:
– Blockchain
– Cryptocurrency
– Smart Contracts
– Tokens

Blockchain

Written by Olivier Wagner | Posted in Cryptocurrencies: How They Work • Cryptocurrency And Taxes

13 May 2022

Cryptocurrency In 401(k)s: DOL Warns Retirement Plan Fiduciaries

DOL Releases Warning on Cryptocurrency in 401(k)s. On April 11, 2022 William Byrnes Posted This Message Under Tax Notes Intelligence

The Department of Labor (DOL) issued a compliance assistance release that warns retirement plan fiduciaries about allowing participants to invest in either cryptocurrencies or products that are related to cryptocurrency. The guidance comes in response to President Biden’s executive order that directed agencies to study the risks and benefits of cryptocurrency. The DOL release warned that in the eyes of the DOL, cryptocurrency poses significant risks and challenges for participants, including the risk of fraud, theft and loss. The release is clear that plan fiduciaries who allow cryptocurrency investment options should expect to be questioned about how those decisions could comply with their duties of prudence and loyalty. Plan fiduciaries should pay close attention and carefully evaluate whether allowing crypto-related products in their investment lineup is worth the risk, given the DOL’s sweeping statements and indication that it will presume that a fiduciary who offers cryptocurrency products has acted imprudently.

For more information on the current DOL fiduciary standard and new prohibited transaction exemption, Read More.

Have a question? Contact William Byrnes.

Written by William Byrnes | Posted in Cryptocurrency And Taxes • Department Of Labor Warning On Cryptocurrency • Warning On Cryptocurrency in 401(k)s

19 Apr 2022

Asset Protection Trusts For Cryptocurrency And Digital Assets

Asset Protection Trusts for Cryptocurrency and Digital Assets

With more investors diversifying their investment portfolios, cryptocurrencies and other kinds of digital assets (i.e., non-fungible tokens “NFTs”) have become a more popular option in recent years. With the Internal Revenue Service declaring that digital assets are property, they can be accessed by creditors, however, so certain kinds of trusts may be established to help protect these assets as well as enabling access to online accounts, especially for cryptocurrency assets. A state-based Domestic Asset Protection Trust (DAPT) enables a trust creator (“trustor”) to protect their exiting digital assets through a legal instrument that shields them from creditors. Previously, these types of trusts were only available offshore. Fortunately, many states across the U.S. have adopted DAPT statutes to allow this type of trust to be legally-established within their jurisdictions.

What is a Domestic Asset Protection Trust?

Before DAPTs were enacted, a trustor/settlor would have to establish an irrevocable trust created by a third party in order for asset protection. A DAPT is a self-settled trust that allows the trustor/settlor protection to be the beneficiary, transfer a portion of estate assets to the trust, and provide for certain protections from future creditors, legal complaints, malpractice claims, and other financially-consequential events. Formally known as a qualified spendthrift trust, it is a trust that enables the trustor to transfer assets into a trust of which the trustor/settlor is also a beneficiary to protect themselves from creditors. This type of irrevocable trust may assure that wealth can be safeguarded for future generations and protects wealth from liability risk.

Written by Jason Freeman | Posted in Asset Protection • Asset Protection Trust • Cryptocurrency • Cryptocurrency And Taxes

23 Feb 2022

Crypto Mining, Retirement Accounts And The IRS

Jason Freeman - Cryptocurrency and Retirement Accounts

Crypto mining has been extremely profitable over the last few years, with Bitcoin miners making an estimated $15 billion of revenue and several mining companies going public in 2021. Miners are critical to preventing the “double-spend” problem in decentralized cryptocurrency networks such as Bitcoin. They validate and add blocks of transactions to the blockchain ledger by competing with other miners to solve complex mathematical problems and receive crypto tokens as a reward for their mining activities.

Unsurprisingly, crypto mining profits have caught the attention of the IRS, which has taken an increasingly aggressive approach over the last few years to auditing and taxing mining activities. Given this increased enforcement, tax practitioners and their clients alike have explored ways to minimize mining profits by performing mining activities through tax-advantageous vehicles such as IRAs and 401(k) accounts.

Written by Jason Freeman | Posted in Cryptocurrency And Taxes

03 Feb 2022

IRS Confirms Pre 2018 Crypto Exchanges Do Not Qualify For Section 1031 Exchange Treatment

New IRS guidance has confirmed that pre-2018 exchanges of Bitcoin, Ether and Litecoin do not qualify for Section 1031 exchange treatment. Prior to 2018, taxpayers were permitted to defer capital gains taxes under Section 1031 for certain exchanges of personal property (1031 is now limited only to exchanges of real property). The IRS’s rationale is that these were not exchanges of like-kind property and so were taxable even prior to tax reform. The IRS found that Bitcoin and Ether each had special roles in cryptocurrency trading because if taxpayers wanted to trade in other types of virtual currency, they had to first exchange the other currency into or from Bitcoin or Ether. Therefore, exchanges between Litecoin and Bitcoin/Ether did not qualify as “like kind”.

Written by William Byrnes | Posted in Cryptocurrency And Taxes

06 Jan 2022

How To Deduct Crypto Losses On Your 2021 Tax Return

2021 was an incredible year for crypto investors. Tokens such as Polygon ($MATIC), Sandbox ($SAND), Decentraland ($MANA) had incredible gains, with investors realizing returns in excess of 100% of their original investment. Yet, investors may be looking at a hefty tax bill for 2021, if they failed to plan accordingly.

Crypto investors were not the only category of persons to proser. 2021 was also a great year…for crypto-scams. Epic failures such as Squid Game ($SQUID) literally wiped millions of dollars, generating substantial losses to thousands of investors. Launched on October 26, SQUID went from a $0.01 to a peak of $2,862 in a week, before falling to $0.00 after the developers performed what is commonly known as a “rug pull” (meaning that the developers abandon the project by selling their tokens and taking the investors’ money – hence “pulling the rug out” under the investors’ money). In these cases, the investors holding the tokens sustain giant losses without further possibility of recovery.

Written by Fernando Juarez | Posted in Cryptocurrency And Taxes