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Tag Archive for Cryptocurrency

Court Authorizes Service Of John Doe Summons Seeking Identities Of U.S. Taxpayers Who Have Used Cryptocurrency

Court Authorizes Service Of John Doe Summons Seeking Identities Of U.S. Taxpayers Who Have Used Cryptocurrency

A federal court in the Northern District of California entered an order today authorizing the IRS to serve a John Doe summons on Payward Ventures Inc., and Subsidiaries d/b/a Kraken (Kraken) seeking information about U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in cryptocurrency during the years 2016 to 2020. The IRS is seeking the records of Americans who engaged in business with or through Kraken, a digital currency exchanger headquartered in San Francisco, California.

“Gathering the information in the summons approved today is an important step to ensure cryptocurrency owners are following the tax laws,” said Acting Assistant Attorney General David A. Hubbert of the Justice Department’s Tax Division. “Those who transact with cryptocurrency must meet their tax obligations like any other taxpayer.”

“There is no excuse for taxpayers continuing to fail to report the income earned and taxes due from virtual currency transactions,” said IRS Commissioner Chuck Rettig. “This John Doe summons is part of our effort to uncover those who are trying to skirt reporting and avoid paying their fair share.”

Cryptocurrency, as generally defined, is a digital representation of value. Because transactions in cryptocurrencies can be difficult to trace and have an inherently pseudoanonymous aspect, taxpayers may be using them to hide taxable income from the IRS. On April 1, 2021, a federal court in the District of Massachusetts granted an order authorizing the IRS to serve a similar John Doe summons on Circle, a digital currency exchange headquartered in Boston.

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Can My Business Accept Cryptocurrency?

Can My Business Accept Cryptocurrency?

How Blockchain Payment Technology Is Infiltrating Core Business Practices And Ways We Can Maintain Tax Compliance With Its Use

Written by Allyn Tax Author Eleene Ismail

Cryptocurrency is a decentralized, digital form of currency that is designed to work as an alternative payment medium based on quickly emerging blockchain technology. Although there are over 5,000 different cryptocurrencies in circulation, Bitcoin is the most popular among these digital currencies and is the fastest growing one to date considering the volume of trading and price valuation increases. Based on such characteristics cryptocurrency is seen as an investment capital asset, more akin to corporate stocks, rather than as a form of legal tender. This perspective shifted in recent weeks as large corporations including Tesla, MasterCard, Home Depot, AT&T, and BNY Mellon are making strides to accept Bitcoin as a payment option for their goods and services.

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The United States’ Need To Reevaluate Legislation On International Cybercrime To Successfully Compel Forfeiture of Digital Assets Abroad

The United States’ Need To Reevaluate Legislation On International Cybercrime To Successfully Compel Forfeiture of Digital Assets Abroad

Four United States government agencies collaborated in an investigation of North Korean hackers who targeted and stole over $250 million worth of various cryptocurrencies from two South Korean cryptocurrency exchanges in July 2019 and March 2020.[1] A civil in rem forfeiture complaint filed on behalf of the United States on August 27th, 2020 seeks the forfeiture of 280 virtual currency accounts belonging to the hackers. Although the techniques used by the agencies to trace the stolen funds is impressive, the task of seizing the assets still remains and presents a unique problem.

The issue for seizing the cryptocurrency wallets involves two elements. First, seizing cryptocurrency abroad requires multiple legal hurdles to clear. Second, the property belongs to a country with tense political relations to the United States. The government is faced with the issue of enforcing a forfeiture against an almost untouchable entity.

The Attack & Investigation

The American agencies utilized a U.N. report by the U.N.’s Security Council to suspect North Korean hackers as masterminds of the attack.[2] North Korean hackers previously attacked South Korean crypto exchanges to fund their regime’s weapons development program.[3] With this information, the agencies used advanced tracing techniques to obtain and track the hacker’s transactions, wallet addresses, clusters on the blockchain, email and exchange accounts, and VPN addresses to confirm North Korean hackers were indeed behind the attack.

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Virtual Currency: IRS Issues Additional Guidance On Tax Treatment And Reminds Taxpayers Of Reporting Obligations

Cryptocurrency And IRS

As part of a wider effort to assist taxpayers and to enforce the tax laws in a rapidly changing area, the Internal Revenue Service today issued two new pieces of guidance for taxpayers who engage in transactions involving virtual currency.

Expanding on guidance from 2014, the IRS is issuing additional detailed guidance to help taxpayers better understand their reporting obligations for specific transactions involving virtual currency. The new guidance includes Revenue Ruling 2019-24 and frequently asked questions (FAQs).

The new revenue ruling addresses common questions by taxpayers and tax practitioners regarding the tax treatment of a cryptocurrency hard fork. In addition, a set of FAQs address virtual currency transactions for those who hold virtual currency as a capital asset.

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What The Taxman Can Learn From Crypto

We are in the midst of a “Fourth Industrial Revolution” in which technology is advancing at an exponential pace, bringing us mostly digital tools and processes. In the tax world, “digital” translates to: “how do rules designed for a tangible world apply?”

Cryptocurrency is a great example to remind us that tax as well as other laws and compliance processes need to be fluid to keep our economy moving ahead. Inaction or inappropriate responses can shut down or decelerate advancements that benefit society and lead to further technological progress.

From the late 1960s, when software was decoupled from hardware, to the birth of bitcoin nearly a decade ago, what have we learned that can help us deal with this asset and its uses as we encounter even more new forms of technology, uses and ways of doing business? This article suggests four tax lessons.

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Is Bitcoin Money?

What is money? Money is a measurement unit for the purpose of exchange. Money is used for valuation of goods, settling debts, accounting for work performed, and standardizing the measurement of production. Money has to be divisible, portable, stable in value, easy to obtain, durable over time and must be trusted by all parties using it.

Imagine money that is too large to divide into pieces, heavy to carry, spoils after 2 days, gets damaged easily or can be eaten by animals? If these are the characteristics of the currency, it would not be that useful and many business deals would not happen.

The most important element of money is trust. If you work for someone and you are not sure if you will get paid, would you do the work? If you did the work, and you got paid for something that was not accepted in many places, is it a valid payment? The economy and money system are built on trust, and it can be broken by a lack of trust by the majority of people.

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Is Bitcoin The De Facto Reserve Cryptocurrency?

What is a reserve currency? This is the currency in which all other currencies are standardized against, and this measure is used for global trade, asset valuation, and account settlement. The current reserve currency is the U.S. dollar since it was the strongest currency after World War 2. The strength of the currency was based on its trade position, political influence, military might, resources available and liquidity/recognition in the investment world.

In the cryptocurrency world, Bitcoin serves this function as other cryptocurrencies are converted into Bitcoin to access most exchanges. Since Bitcoin has the brand recognition of being the first known cryptocurrency, it has the advantage of breaking milestones first.

Bitcoin was the largest cryptocurrency by market cap at the time of writing (January 2018), the first coin to be created in 2009 and the first currency to be utilized for futures trading around the world. Bitcoin is also the first decentralized currency in recent time, as there have been digital and electronic currencies created before and after Bitcoin that are not decentralized.

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Paying Taxes On Bitcoin And Other Forms Of Cryptocurrency

With exponential gains in value and thousands of new retailers now accepting it as payment, Bitcoin has suddenly become one of the hottest discussion topics around the country. Bitcoin (BTC) is currently the most circulated virtual currency (also referred to as cryptocurrency, or “crypto”) in the world and can be exchanged for U.S. dollars, Euros, and other real or virtual currencies like Ethereum (ETH) and Ripple (XRP).

You may spend virtual currency to pay for products or services, or you may treat it like an investment or commodity and hold onto it. But how is a virtual currency like Bitcoin taxed and treated by the IRS? Do you have to pay taxes on Bitcoin? Depends on what you do with it.

  • How is virtual currency like Bitcoin handled for federal tax purposes?

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Virtual Currency Business Act Proposed Drives Droves Of Investors To Bermuda

TaxConnections, Virtual Currency Legislation

Virtual Currency Business Act Proposed In Bermuda – Regulation Of Virtual Currency Business Driving Many Investors To Bermuda

With interest in virtual currency at an all-time high, virtual currency is here to stay. Kevin Anderson of the Bermuda Monetary Authority, the financial services regulator states the Virtual Currency Business Act (VCBA) has been proposed as a “shining example” for what Bermuda can accomplish.

The Bermuda VCBA defines “virtual currency business” as the provision of the following activities: issuing, selling or redeeming virtual coins, tokens or any other form of virtual currency. This would include an ICO business on behalf of customers. The Act would also cover payment service providers, defined as: “a person whose business includes the provision of services for the transfer of funds.”

It would also cover virtual currency exchanges, virtual currency wallets and virtual currency services vendors, defined as any business providing specific virtual currency-related services to the public. The legislation also addresses the intersection of cryptocurrency and fiat, preventing fraud and market manipulation, the integrity of cryptocurrency owners, clear descriptions of the risks for prospective investors, and the Bermuda Monetary Authority BMA enforcement powers. Review the Consultation Paper at this link.

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Reporting Virtual Currency Transactions

With the price of Bitcoin hitting record highs in 2017, many Bitcoin holders cashed out not realizing the impact it could have on their tax bill. Many people, for example, did not understand that it was a reportable transaction and found themselves with a hefty tax bill–money they may have been hard-pressed to come up with at tax time. Others may have been unaware that they needed to report their transactions at all or failed to do so because it seemed too complicated.

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How To Mount A Tax Defense For Unreported Crypto Income

On February 23, Coinbase, a popular U.S.-based digital currency exchange, notified 13,000 of its customers that it would be turning over their account information to the IRS. The notice was precipitated by a U.S. District Court ruling in a protracted John Doe Summons battle between the company and the IRS concerning accounts with potentially unreported cryptocurrency income.

Ultimately, the Court found that the IRS was entitled to the information.

The Coinbase summons battle is reminiscent of aggressive tax enforcement efforts pursued by the Department of Justice to ferret out U.S. taxpayers holding unreported income and assets abroad. That initiative also began with the issuance of a John Doe summons, but to a Swiss bank, UBS, for unreported foreign account information.

The IRS and DOJ then quickly expanded to other foreign banks and other countries. With the offshore voluntary disclosure program (“OVDP”) winding down, there are strong indications that the IRS will be turning its attention to unreported cryptocurrency transactions.

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Blockchain And Corporate Taxation: Change Is Coming

While the technology can sound quite complex, a blockchain is essentially an immutable, distributed ledger. This means that instead of a single, third-party record holder, every authorized party within the blockchain holds an instantly updated record of all transactions. Blockchain maintains data integrity this way because it’s virtually impossible to alter the data of every single ledger. Any discrepancies found will be compared against every ledger and any fraudulent data found will be disregarded. Read more