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As long as there are taxes, there will be efforts to stash assets to avoid paying them. With the recent crackdown of the last 10 years of anonymous bank accounts that forced numerous offshore banks to cough up details about their account holders and their assets, the next “it” place to hide assets may be (or in many cases, already is) virtual currency.
The draw is undeniable considering that cryptocurrencies are still largely unregulated, and rules that are in place are enforced unevenly, especially outside of the United States. The problem is confounded by the fact that the cryptocurrencies far outpace the law in technological advances. For example, ZCash (a “privacy coin”) not only offers private cash storage, but uses encryption technology to make the money virtually untraceable. This allows investors to essentially be their own banker while maintaining the safety and security of their assets.
Whereas the world’s financial powerhouses were willing to turn a blind eye to Swiss and offshore accounts in the past, there will be no such favors given to cryptocurrencies. Recently, U.S. Treasury Secretary Steve Mnuchin reported that he was working with officials from other G-20 nations to actively circumvent cryptocurrency from becoming a haven for illegal money and tax evasion.
This endeavour is not without its significant perils, as the main driver for the creation of cryptocurrency in the first place was to get out from underneath the heavily-regulated financial system entirely. One of the greatest selling points of Bitcoin—the first cryptocurrency—was the anonymity that it provided, which inevitably led to uses for illegal activities such as money laundering.
Ironically, Bitcoin has been one of the early losers in the race to privacy. All transactions involving Bitcoin are tracked publicly via an electronic ledger known as “blockchain.” However, the U.S. government has figured out how to track buyers and sellers even though they are listed only as an assortment of letters and numbers.
The IRS is also very interested in Bitcoin ownership and recently ordered Coinbase, a Bitcoin exchange, to hand over its information on 13,000 of its customers, which it has agreed to do. If you are one of these 13,000 about to receive an audit of your account, please contact us at (305) 374-5544 to see how we can help you. We have a special focus on IRS litigation and audits. Now is the time to call us and guide you through your rights.
Switzerland, perhaps taking a cue from Mnuchin’s stated desire to prevent cryptocurrencies from becoming the next Swiss accounts, is actively working to court cryptocurrencies for the next wave of anonymity in banking. Other nations, like the UK and India, are moving in the opposite direction, concerned about the potential of cryptocurrency for massive tax evasion and money laundering. The Autorite des Marches Financiers in France recently came out in favor of regulation for cryptocurrency derivatives under new EU laws that took effect on January 1, 2018.
With the U.S. aggressively waging war on cryptocurrencies, the question may not be if cryptocurrencies will be tamed with regulation and disclosure requirements, but when. With the cooperation and equal level of concerns of other G-20 countries, the effort will likely eventually succeed, just in time for the next new tax haven to be invented.
If you have questions about cryptocurrency, tax avoidance, or any topics in between, our knowledgeable attorneys are prepared to educate and advise you as to your options. And again, if you are one of the 13,000 Coinbase customers that received an IRS summons, contact us today to get started.
Weisberg Kainen Mark, PL
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