The Independent Commission for the Reform of International Corporate Taxation recently published a report calling for a “global asset registry” to track wealth to help institute a wealth tax – Bitcoin ’s blockchain would be used to track property and wealth.
The calls for a wealth tax and global asset registry are worrying.
Bitcoin evangelists preach about the importance of decentralisation. The brilliance behind the blockchain cannot be denied. But it’s not all rainbows and lollipops. Bitcoin can be used to ensnare its users.
Bitcoin only functions thanks to a centralized accounting system.
In case you are unfamiliar, Bitcoin is a peer-to-peer payment system that allows individuals to send funds (Bitcoins) directly to one another without the need for a traditional bank or financial institution. Users send, receive, and store their bitcoins in digital “wallets” with public and private identification numbers.
Other Bitcoin users, mainly Bitcoin “miners”, verify transactions to ensure that the coins are not being double spent. Every transaction is verified, published, and preserved on a publicly available ledger called the blockchain. The amount of a transaction and the public key of both the recipient and transmitter of the Bitcoins is available for anyone to discover.
This ledger will exist until the internet dies.
Bitcoin users should already be exercising extreme caution to stay in compliance. Mistakes can easily be made. In 2014, the IRS published some guidance on how to track and interpret your virtual currency transaction. However, their guidance neglected to address some very basic questions.
Bitcoin users that make international transactions should be even more vigilant. The nature of a transaction might trigger various reporting requirements. For example, a cold storage Bitcoin “wallet” located outside the US might trigger FBAR and other reporting requirements.
Individuals can be penalized up to 50% of the peak value of an account for every year of non-compliance. There is also the possibility of prison time.
Critically, some of the international reporting requirements have an unlimited statute of limitations.
The evidence of an infraction or crime will be publicly available until the internet disappears. IRS agents can take their sweet time untangling a series of transactions without worrying that too much time has passed before bringing charges.
What more could tax collector ask for?
Al Capone was famously imprisoned for tax evasion, not bootlegging, gambling, prostitution, or a slew of other illegal activities.
It shouldn’t be a surprise when tax collectors use crypto-related tax-evasion charges against some political dissident, such as Kim Dotcom or Julian Assange, should other charges fail to stick.
It’s like having an ace up their sleeve. The IRS has refused to clarify even basic issues with properly tracking cryptocurrency transactions. Intentional or not, this makes it easy for them to accuse anyone they want of breaking US tax law.
But you don’t need to be a gangster or public figure to end up in the crosshairs of the IRS.
Make sure that your tax guy knows what he is doing – you’re held liable for any mistake made by a tax professional.
Of course, we’re always here to help.