On behalf of Silver Tax Group posted in Offshore Accounts on Wednesday, November 29, 2017.
Federal officials closely scrutinize reporting of cryptocurrency gains on tax returns. This is in large part due to difficulties determining whether cryptocurrency is property or currency.
Classifying bitcoins and cryptocurrency as property or currency has tax implications. In a foreign country, a U.S. citizen may not need to report property to the IRS. Currency is a different matter. If considered currency, this currency may require reporting on tax forms.
Bitcoins and cryptocurrency
This became an issue due to language inserted into the Foreign Account Tax Compliance Act (FATCA). In 2014, the IRS issued a notice stating that cryptocurrency be considered property. However, FATCA requirements hold that foreign financial institutions report on all holdings in accounts. This includes cryptocurrency exchanges by U.S. taxpayers.
Michigan taxpayers with offshore holdings may wonder whether they need to report information concerning cryptocurrency exchanges. On the one hand, we have the IRS issuing a notice that appears to say one thing. Then we have FATCA language saying another.
The American Institute of Certified Public Accountants tried to provide some guidance. In a June 2016 letter, the institute concluded such reporting is necessary. They recommended that individual taxpayers summarize information regarding cryptocurrency accounts on Form 8938 (“Statement of Specified Foreign Financial Assets”).
Reporting offshore holdings
As in most tax-related matters, nothing is simple. This is especially true when it comes to offshore accounts. Failure to adequately report offshore holdings and activities can result in severe civil and criminal penalties. For this reason, seeking the advice of experienced tax attorneys in such matters is generally a good idea. An attorney can look at your individual circumstances and help describe to you all of your options.