In our Expert Takes, the opinion leaders from inside and outside express their opinions, share their experience and give professional advice. Expert Takes cover everything from Blockchain technology and ICO financing to taxation, regulation and the adoption of cryptocurrencies by different sectors of the economy.
If you would like to make an expert contribution, please send your ideas and resume to a.mcqueen @ cointelegraph.com
The year 2017 has been difficult for Puerto Rico. First the destruction and devastation of Hurricane Irma and Maria. Then come disorganized relief efforts and allegations that Puerto Rico or the United States is to blame. Even today, only 60% of Puerto Rico has access to reliable electricity. And the bill on tax reform that has just been passed by Congress has imposed new tariffs on US companies that hold Puerto Rican subsidiaries.
Yet some see Puerto Rico as a nascent crypto tax haven. Some tax advisers tell their customers to pick Puerto Rico. As the theory says, after establishing the residence, they can sell their 100 percent cryptocurrency holdings tax-free. Great! Where to register?
If this is true, it could be a boon to the Puerto Rican economy, not to mention those who sit on mountains of crypto-currency assets appreciated. But does this Puerto Rican tax system really work? Like everything in the world of cryptocurrency taxes, great caution is in order.
The IRS is just developing a strategy to identify, evaluate and collect billions of dollars in cryptocurrence taxes that some believe go unreported. The idea that US and Puerto Rican tax authorities will allow millions (if not billions) of cryptocurrency sales to entirely escape taxation is at least optimistic, it's the less than we can say
Generally, the IRS does not require an American taxpayer to include income from "sources within Puerto Rico" if they resided in Porto Rico for a full taxation year. This part seems good
However, there is a whole series of rules governing the "bona fide residence" that may apply, as well as the reporting requirements for the "good faith residence". ; IRS. So, you really should go to Puerto Rico, not just go through some of the motions. In addition, sales can still be reported to the IRS, even if they are not subject to US tax.
Of course, the most important concern is that the IRS will seek to tax these cryptographic sales of Puerto Rico even if one legitimately establishes residence there. How could this be done? Perhaps under the complex regulation governing "the property of former residents of the United States." The IRS could argue that much of the gain from a crypto sale in Puerto Rico should be imposed in the United States. For example, take someone who bought Bitcoin in 2015 and only moved to Puerto Rico in 2018. The IRS could argue that almost any appreciation has occurred before moving to Porto Rico and as a result, the IRS has the right to tax almost all gains from the sale. You may have to wait ten years before selling to avoid any US tax.
Would the IRS take it if this matter were brought to court? Some tax advisers apparently do not think. But with the taxpayers' money at stake, caution is imperative. The IRS is stepping up its efforts to tax cryptocurrencies, and it might not take the most favorable positions to taxpayers. The idea that someone can move to Puerto Rico with crypto-currencies valued, potentially worth billions of dollars, and sell them entirely tax-free, sounds good but may be too good-looking to be true.
What does Pasa do with Puerto Rico?
The other side of the equation is Puerto Rico. Suppose that in a perfect world, the IRS conceded that the sale of crypto in Puerto Rico (after moving) was not subject to a US tax.
Would Puerto Rico try to tax these sales? Again, some councilors say no, and point to Puerto Rico's tax incentives for integrated capital gains of new residents. But here too, caution is definitely in order. Puerto Rico's tax expert consultation initially seems cautious, to avoid an expensive mishap.
For example, Puerto Rican exemptions could only apply to accumulated earnings after the individual became a true Puerto Rican resident. In addition, with the state budget severely tied, and the local economy waving, he could pay to wait for the unexpected. Even if Puerto Rico's fiscal stratagem works for the moment (which is questionable), it is worth considering whether this will persist.
Imagine that billions of dollars in cryptocurrency sales are being executed in Puerto Rico. collect a tax on them. If you really expect the IRS and the Puerto Rican tax authorities to sit and watch, rather than trying to take a coin for themselves?
If so, I have an island paradise to sell you
The opinions expressed here are those of the author and do not necessarily reflect those of Cointelegraph.com [19459009
Dashiell Shapiro is a tax partner with Wood LLP in San Francisco, CA, and a former DOJ tax attorney. His practice focuses on tax controversy and audit advocacy and includes international tax and financial work / tax planning for cryptocurrency.