To report or not to report? That question has likely crossed the minds of any investor that owns cryptocurrency. Those who ask this question should note that the Internal Revenue Service (IRS) has now trained agents on how to pursue digital currencies like Bitcoin.
Unfortunately, there is not currently an official amnesty program for those who have yet to report such assets. This seems to leave cryptocurrency holders with two options: amend prior tax filings and face whatever repercussions the IRS deems fit or take the chances that come with waiting for an amnesty program. Those that choose the later could find themselves the subject of an audit — not a pleasant experience.
A recent publication in Forbes brings up an interesting thought: could cryptocurrency qualify for other amnesty programs? More specifically, the publication delves into the use of an amnesty program set up for the reporting of foreign assets, the Offshore Voluntary Disclosure Program (OVDP).
How would the OVDP work for cryptocurrency reporting? This process basically involves filing taxes and the Report of Foreign Bank and Financial Accounts (FBAR) for the previous eight years. In return for reducing the risk of criminal charges for failing to disclose these assets, the account holder will likely pay a 20 percent penalty and all due taxes. In some cases there is an additional penalty on the highest offshore account, which ranges from 27.5 percent to 50 percent of the account balance.
In theory, when using the OVDP to come into compliance with foreign account reporting an account holder could also report cryptocurrency. Technically, the IRS could pursue this reporting. Whether or not the agency would is uncertain.
Is this process an option for me? Whether or not this process would work to bring your accounts into compliance is something that is best discussed with an attorney. Navigating the tax rules that come with offshore compliance matters and cryptocurrency are complex matters. An attorney can provide guidance designed specifically for your situation.