Ensuring Your Offshore Crypto Accounts are in Compliance with Changing IRS Policy

in crypto •  6 years ago 

On September 28, the IRS has closed its Offshore Voluntary Disclosure Program (OVDP). The OVDP allows for U.S. taxpayers with willfully undisclosed foreign financial assets to voluntarily report them so that they comply with U.S. tax laws.

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By reporting and cooperating with the IRS and Justice Department through OVDP, taxpayers can rectify any unreported assets by paying back taxes and any penalty fees they may be subject to given their individual case.

With no crypto-centric amnesty available, some crypto users are turning to OVDP to ensure they are in compliance with tax laws. Successfully completing the OVDP allows applicants to gain protection from criminal prosecution and ends with a closing agreement settling all relevant accounts.

However, OVDP can come at a hefty costs, requiring the submission of eight years of tax returns and FBARs, and a letter explaining why taxes were not paid during the given timeframe. Penalty fees are 27.5% or 50%, depending on circumstance, of the highest account balance held over the past eight years. While the cost can be high, OVDP offer predictability and peace of mind at the end of the process. Usually the amount that needs to be paid is not terribly high.
OVDP is for U.S. taxpayers purposely evading taxes who want to protect themselves from investigation and prosecution. If you want to take advantage of the program, acting immediately is the only way to take advantage of OVDP, as closes today, September 28, 2018.

For the initial submission, applicants must provide a cover letter describing facts and reporting history, Form 14457, and one Form 14454 for each foreign account. Bank statements and FBARs are not required for the initial submission and do not need to be submitted by September 28.

For U.S. crypto users hiding assets in foreign accounts, this may be the last chance to take advantage of a legal avenue to report assets without fear of prosecution. ICOBox co-founder Daria Generalova advises users to make a last minute effort and apply, "this is the end of an era. If you're willfully hiding foreign crypto assets, squaring up accounts with the IRS now, while possibly pricey, might ultimately be a far easier road to take in the long run."

For large accounts, OVDP applicants may want to apply, reconcile their back taxes and then opt-out after penalties are calculated. This is a irrevocable decision, but depending on circumstance, could save the applicant money, however the protections offered by OVDP are voided and they could face a criminal dispute with the IRS and Justice Department, who now have access to all information filed in the OVDP process.

As crypto becomes more and more important to the global economy government regulation and intervention is inevitable. Generalova is optimistic for the future of crypto but predicts the road will be rocky, "we're going to see a lot of crackdowns on crypto. It's going to flourish, but as governments become more involved, at least initially, things will be messy. Taking advantage of OVDP while you still can is just a way of getting ahead of the curve."

While much uncertainty and fear has surrounded crypto markets as old guard financial institutions and governments debate adoption and regulation, Generalova believes these are natural growing pains, "crypto arrived and the establishment had no idea what to do with it. Crypto was dismissed and dismissed and dismissed until finally it couldn't be ignored any longer. We just passed that point in the few year or so, and now the world has to figure out how it's going to adopt. It will. There is just a lot of short- term uncertainty on how that is going to happen."

Crypto users with offshore assets that they were not purposely hiding should not panic. The IRS offers a separate program, the Streamlined Filing Compliance Procedures that to helps to comply for those unaware they were failing to report assets comply. The Streamline process imposes much lighter penalties and helps educate applicants about what assets they need to report while reconciling their accounts. The Streamline process should not be used by people who willfully avoided taxes, as this can result in much harsher penalties and criminal prosecution. The Streamline process will not be closing on September 28, but the IRS does eventually plan on ending it as well.

Before applying to either program, individuals should consult both an accountant and legal counsel.

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