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Tax & Crypto: Blog of the Expert

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It has long been speculation that a special IRS amnesty program will be announced for Bitcoin and other taxpayers in digital currencies. He seems to be late. There is a lot of tax cleaning that some people have to do. But until now, we do not have one. In the meantime, we still have to file tax returns every year.

For crypto investors who need to abandon past transgressions, there is no official IRS program to control risk and guarantee a particular outcome. A predictable tax and penalty result is what the IRS amnesty programs usually provide. You can deal with this without formal amnesty, of course.

For example, changing a few returns to get extra income that you failed to report is usually pretty safe. Of course, timing is the key. If the IRS finds you first by an audit, you will not be protected. In some cases, even criminal prosecution is possible

But what if you are not comfortable preparing and filing some tax returns or some statements of modified earnings to correct your mistakes? For more serious transgressions, traditionally, if you voluntarily go to the IRS through an attorney to correct your tax problems before the IRS discovers them, you will not be pursued.

Although there is no special amnesty yet. for crypto, there is still one for offshore accounts. So, if you have an account abroad, the IRS amnesty can offer crypto investors a back door. With extensive data exchange agreements between the IRS, foreign governments and foreign banks, almost no offshore account is more secretive.

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Still, the amnesty of the IRS is still being proposed. Offshore account holders can always solve their problems safely, even if they have deliberately avoided reporting in the past. The cost of the IRS amnesty can be low compared to the risk of much larger civil penalties and the threat of criminal prosecution. For offshore bank accounts, FBAR (Foreign Banks and Financial Accounts) civil penalties alone can completely destroy foreign accounts.

There are two IRS programs. The OVDP or Offshore Voluntary Disclosure Program is a convenient way to wash your hands to correct past tax returns and make them clear. It is to produce up to eight years of income tax returns (or amended income tax returns) and FBAR.

You pay taxes, interest and a penalty of 20% on everything you owe. For most people, there is also a 27.5% penalty on your highest offshore account balance. In some cases, this penalty may be 50%, depending on the bank and the timing

In contrast, the streamlined program has only three years of income tax returns. You deposit six FBARs instead of three, to match the longer FBAR prescription period. The Foreign Streamlined program (for US people abroad) has no penalty. The domestic program involves a five percent penalty related to the highest offshore account balance over the six years FBAR

The streamlined program requires a declaration of non-will that may be risky in some cases. And streamlined repositories are subject to an IRS audit. These audits can be brutal, so by choosing OVDP or streamlined, you should consider IRS audits. Thus, for at-risk crypto investors, the OVDP seems to be a better way to solve crypto tax problems

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As long as you file amended tax returns, other corrections unrelated to your foreign accounts can also be processed. After all, before signing amended tax returns under penalty of perjury, you must make sure that they are accurate. If you failed to report any other income, you should include it in your amended returns

According to its terms, the OVDP applies to foreign accounts. Other corrections do not technically make it part, so the IRS could pursue these elements outside the OVDP. In reality, however, the IRS seems to treat them all together. In short, if you have any other corrections unrelated to your statements, do good others.

The cleaning of domestic tax problems is a feature of many OVDP cases. The IRS seems to be used to the usual full disclosure, including domestic tax problems too.

Domestic problems could be significant, especially given the dramatic rise in cryptographic investment. However, the OVDP should still allow the IRS to collect taxes, interest, plus a 20 percent penalty on any undeclared income. Remember, a key tradition of the IRS is that tax evaders who voluntarily advance before they are found are usually not prosecuted.

OVDP tax return packages can solve domestic tax problems unrelated to foreign accounts. Everything seems to be going well, and there is no real alternative. Given the costs, most taxpayers have an easier time deciding to classify Streamlined rather than the more expensive OVDP

The OVDP excludes criminal prosecution and results in a closing agreement. On the other hand, simplified registrants may face a civil audit or even prosecution. A key for any streamlined depositor is to be unthinking and certify that.

Negligence, inadvertence or error are all correct, but the intention to conceal or evade the tax is not not. And the IRS has criteria for objective indicators. It is hard to say that you were not volunteering if you were secretive, doing partial reports on accounts or income, and so on.

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Everyone knows that the encryption rate is low. That's why the IRS has formed IRS criminals to pursue this. That's why the IRS uses tracking software. And that's the reason the IRS managed to get Coinbase accounts via invocations

In the end, crypto investors with tax problems might consider the OVDP . Using it until the IRS has a special crypto amnesty could be worth the look.

Robert W. Wood is a tax lawyer representing clients around the world at Wood LLP in San Francisco ( He is the author of many tax books and often writes about taxes for, Tax Notes, and other publications. This discussion is not to be considered as legal advice

Disclaimer. The opinions and interpretations in this article are those of the author and do not necessarily represent those of Cointelegraph.