Tax Planning for Cryptocurrencies, Bitcoin Gains & Initial Coin Offerings (ICOs)
The rise of bitcoin gave birth to a slew of ICOs, cryptocurrency exchanges, massive bitcoin gains, and the potential for civil and even criminal violations of federal tax and securities law.
For tax years 2017 and before, exchanging one cryptocurrency for another is NOT subject to U.S. tax. The reason for that is that Section 1031 treats that as a “like-kind” exchange.
For tax years 2018 and beyond, the Trump Tax Bill purposely altered Section 1031 to close the so-called “Bitcoin Loophole” while leaving the Carried Interest Loophole for hedge funds in place with a farce Section 1061 that can easily be circumvented with a simple holding company (read here).
Nevertheless, despite the Trump Administration’s attempt to target bitcoin transactions for taxation by the Internal Revenue Service to pay for the tax cuts, another option for deferring tax on coin-for-coin exchanges exists.
If you have significant bitcoin gains, there is a lawful way to defer paying tax. Not doing anything is criminal tax evasion. Tax planning with a law firm keeps everything legal with the same result of not having to pay tax. Call us to discuss details.
International Tax Planning
Launching an ICO without considering the benefits of doing so from an offshore holding company can have tremendous tax implications. Firstly, congratulations, you’re now a withholding agent and risk civil and criminal tax penalties for failing to identify your investors for tax reporting purposes. If investors make a gain, you need to prepare and provide them with an IRS Form 1099-B unless they certify their status as nonresident aliens by providing you with IRS Form W-8BEN. If it’s an entity overseas investing, it should be IRS Form W-8BEN-E.
Now, just because you’ve already done the ICO doesn’t mean all is lost. It’s very common for companies to restructure. That’s why Google restructured to become Alphabet Inc.
Now, if you’re smart enough to contact an international tax planning law firm prior to your ICO, you can avoid these tax nightmares.
By operating in another jurisdiction, you’re relieved of tax withholding and reporting requirements with regard to your investors. In a decentralized blockchain, tax compliance would be almost impossible leaving you exposed to civil and criminal penalties, which makes moving overseas unavoidable. Furthermore, it may have another added benefit when it comes to securities law.
With strategic planning around the Howey test, the accredited investor rules, and jurisdictional limits, we can implement a single structure that solves both the tax and securities law concerns.
The world of cryptocurrencies is currently booming because it’s completely unregulated. As with any period of deregulation or non-regulation, the inevitable result is either government intervention or a market crash followed by government intervention.
If your company gets ahead of the curve with tax and securities law compliance, you’ll survive the inevitable crash and intervention that’s coming. Like the “dot com bubble” of 2000 (the survivors of which were eBay, PayPal, OverStock.com, and Amazon), only the wise will survive.
Get ahead of the curve today by contacting our tax attorneys headquartered in Washington DC and serving clients throughout the world.
Bitcoin Tax Attorneys. Bitcoin Tax Planning. ICO Tax Planning. ICO International Tax Planning.