US expats at risk from IRS investigation of bitcoin trades

US expats at risk from IRS investigation of bitcoin trades

US expats at risk from IRS investigation of bitcoin trades

American bitcoin traders both in the home country and overseas are at risk from IRS investigation for failing to declare their bitcoin trades.

The US tax authority is looking to close the loophole of tax-free bitcoin trades by both US residents and expats as it considers tax on the trading profits from the virtual currency should go to the Treasury. At the present moment, the IRS is awaiting a ruling from a judge based in San Francisco over an order granting an audit of Coinbase.Inc, American’s largest cryptocurrency exchange.

Should the court rule in the IRS’s favour, the door will be open for a full investigation of files belonging to any cryptocurrency exchange, no matter where in the world it’s located. The only stipulation is that the exchange must be carrying out a large volume of trades. In addition, the IRS has already identified many thousands of US citizens both in the US and overseas who’ve failed to report their profits from virtual currency trading.

US tax law states bitcoin traders must file a number of documents identifying capital gains or losses on currency transfers as well as including bitcoin denominated accounts. Even virtual currency accounts only used for playing online poker must be included. Bitcoin exchanges are obliged to report annually with full details of virtual currency accounts held by US citizens and containing balances of more than $50,000, and US expats with such accounts must report if balances exceed $200,000.

The reason for the IRS’s sudden increase in interest in bitcoin traders is believed to be the soaring speculative value of the virtual currency and the huge capital gains being made by savvy traders. From a 2016 exchange value of around $725, the currency has soared to a record high of $7,225, leaving many suspecting a crash is due.

The IRS’s action as regards tax collection from traders seems somewhat ironic, as the US government does not recognise bitcoin as a real-time currency, classing it as an asset similar to shares on which tax is liable on profits through sales. So far, just 800 American bitcoin traders have filed the information stipulated by the IRS.

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