The long-arm of the taxman is waiting in the wings to catch hold of investors of cryptocurrency for any evasion of capital gains tax. Since the digital currency market flourished like anything last year, IRS officials are cautious in looking at the reports of investors, who were dealing in the virtual currencies. The United States is not worried whether investors have done in the domestic trading platform or foreign exchanges. However, investors were not clear in their thought and were wondering whether to go through the additional measures of reporting it.
It is quite natural to think that those who have traded in cryptocurrencies are not fully aware of the sections of the tax. Similarly, those who are doing the digital currencies through the foreign exchange would also be not equipped with the laws of the land. However, any American, who has more than a prescribed limit of money in abroad, will have to file his or her reports with the Treasury and the Internal Revenue Service.
Any failure on the part of investors would result in a fine of over $100,000 apart from a jail. A certified public accountant and lawyer, Selva Ozelli, who is a specialist in digital tokens, has told cnbc.com that the American taxpayers might not even be aware of the requirement of the IRS. That was simply because they are not doing it every year. The issue is not only haunting the American investors but also throughout the world.
The rule in the United States indicated that “Anyone with more than $10,000 abroad usually needs to fill out the Report of Foreign Bank and Financial Accounts, or FBAR, with the Treasury Department each year. Another law — the Foreign Account Tax Compliance Act, or FATCA — requires certain U.S. taxpayers to describe their overseas accounts on Form 8938, when they file their taxes with the IRS.”
The rules explicitly described virtual currency as property. Therefore, investors would have to pay taxes on capital gains at the applicable rates irrespective of where the digital coin is purchased and sold. This should remove any doubts on investors dealing with the cryptocurrency on the question of buying and selling the digital assets on foreign exchanges.
Lack of Guidance
One of a former federal tax prosecutor, Kevin Sweeney found fault with the taxmen for the failure in providing guidance to investors. As a result, there is a ‘black hole’ in the filing of reports. He was not convinced if any taxpayer fails to pay taxes for the capital gains from dealing with the cryptocurrency trading, he or she would have to face fine or jail term. His opinion is shared by the American Institute of Certified Public Accountants (AICPA).
The AICPA has sought the guidance from IRS on foreign reporting requirements. However, Ozelli is very clear that if an investor is using foreign exchange, then it would qualify for foreign reporting. She believes that a number of transactions take place only on foreign exchanges as far as digital currency is concerned. Though there is ambiguity on reporting requirements, there was also a school of thought that it never hurts to report despite there being no set answer.