Bitcoin Investors with Tax Problems Have Some Options: Rob Wood Explains
Bitcoin and other cryptocurrencies are still in the news, and tax lawyer Rob Wood has reported on these investments on the Tax Law Channel. In this report, Wood discusses the problems facing cryptocurrency investors who have never reported their investments to the IRS, a subject he also discusses in his article, “How to Guarantee a More Predictable Tax Result Until IRS Has a Special Crypto Amnesty: Expert Blog.”
Wood notes that the IRS still has not created an amnesty program for cryptocurrency investors who have failed to report their investments. In spite of the lack of a clear path to good standing, taxpayers with cryptocurrency issues have some options. One obvious point is that taxpayers in this situation will have to amend past tax returns to reveal the cryptocurrency investments. Some of the failures to report are quite innocent. People didn’t know they had to report gains on cryptocurrency investments. People didn’t know which transfers would be taxable and which would not.
Other taxpayers may have more serious problems, Wood says. Some people may not have filed at all, and they will have to file back tax returns reporting everything. There is a third category of people at whom Wood’s article is aimed: taxpayers who are not comfortable simply filing amended returns, hoping for the best. There are taxpayers who are looking for an amnesty that doesn’t presently exist. Everybody has a tax filing deadline, whether it is April 15 or October 15. Businesses may have other filing deadlines. Some people have a hard time with the notion of going back to correct a return they have filed. Also, taxpayers with problems want to know about what can happen if they file amended returns. That assurance is what an amnesty program would provide, if one existed.
There are some amnesty programs available for taxpayers with offshore accounts, Wood points out. The programs are “formulaic,” Wood notes, requiring taxpayers to amend a certain number of returns, disclosing assets and paying taxes, plus penalties and interest. The programs are the Offshore Voluntary Disclosure Program (OVDP) and the Streamlined Filing Compliance Procedure. Wood explains the details of the programs in his article. Both programs have the plus of offering predictable outcomes to taxpayers who elect to use them. Taxpayers may not like the programs, but at least the programs offer a way to know how much you’ll end up paying, and there will be no criminal charges later.
Wood’s biggest suggestion for cryptocurrency investors who are looking at potential tax problems is that they consult a tax lawyer or perhaps a tax CPA. The lawyer would probably be a better choice for several reasons, including attorney-client privilege and the possibility that criminal charges could be involved (in which case a lawyer would be a necessity).
Robert W. Wood is the Managing Partner of Wood LLP, San Francisco. Often listed among the best tax lawyers in America, Wood has broad experience in corporate, partnership and individual tax matters. Concerning the tax treatment of litigation settlements and judgments, he is perhaps the preeminent tax lawyer in the United States. He is also an authority on merger and acquisition tax matters, tax opinions, offshore account and entity disclosures, and many types of tax controversies. The Legal Broadcast Network is a featured network of Sequence Media Group.