Investing in cryptocurrencies is a complicated affair, especially when it comes to paying your taxes. With a lot of varying gains and losses, it can be sometimes difficult to understand how much money you actually have to pay to the IRS. In the absence of express crypto-centric amnesty programs, some people have joined the main IRS offshore amnesty known as the Offshore Voluntary Disclosure Program (OVDP). The IRS Amnesty can be procured using offshore bank accounts or offshore crypto accounts as a hook.
For ten years, the IRS has run its Offshore Voluntary Disclosure Program (OVDP), a type of tax amnesty. However, the IRS has announced that the OVDP will formally close on September 28, 2018. Even though the streamlined program will still exist, it is clear that the Streamlined audits scheme warrants better consideration. If you want the protection of the OVDP, there’s not much time left. Even though the announcement by the IRS is not completely clear about this, most people agree that the September 28 deadline is the date by which a taxpayer must submit their “Initial Submission” requesting admission.
A Preclearance Request is an optional first step before entering one’s OVDP that involves the declaration of a small number of details about you. The purpose of requesting preclearance is to confirm that the IRS isn’t already investigating you. However, the Preclearance Request is not enough for the submission. Preclearance always has a binary yes or no answer with usually the former being the response, which implies that you can proceed to the next step to join the OVDP.
If the answer is no, It means that you may already be under investigation by the IRS. Thus, you might want to refrain from giving them even more information. However, as the September 28 deadline approaches, more people may forego this step and skip directly to the Initial Submission even though Preclearance Requests are generally a good idea.
A Preclearance Request is simple to set up and only requires the following information:
The IRS usually takes about a month to respond. However, with the OVDP closing, a Preclearance Request should be submitted as soon as possible. With the OVDP deadline inching closer at September 28, 2018, a Preclearance Request should be submitted soon, perhaps no later than August 28, 2018 and ideally much earlier. It is ideal to assemble the Initial Submission while waiting for a response to a Preclearance Request. This way, upon the receipt of the IRS’s response to the Preclearance Request, the Initial Submissions can be submitted immediately.
Once a taxpayer is precleared to enter OVDP, the taxpayer has a 45 days window to submit their Initial Submission in the past. At this moment, it is not clear if you will get that time if it extends beyond September 28, 2018. Therefore, it is wise to prepare Initial Submissions while waiting for the IRS to respond to a Preclearance Request.
Even though the Initial Submission does not require completed tax returns or FBARs, It still requires more information than the Preclearance Request. A cover letter that describes the facts and reporting history must be included in the Initial Submission. A narrative that describes the history of the foreign accounts, foreign assets, and reporting is a good start. Two forms are included in the Initial Submission along with the cover, Form 14457 and Form 14454. To complete the first of the two – Form 14457, state how you learned about OVDP, the source of the foreign funds, an estimate of the combined account/asset values for each year, and other general information. However, note that only Form 14457 is required.
The second form – Form 14454 must be filed separately for each foreign account. Form 14454 contains more detailed questions and starts off by asking whether you made deposits into the foreign account from the United States, or whether you transferred funds from the account to the United States. Form 14454 also demands information about the people at the financial institution who advised about the foreign account.
Collecting bank statements and preparing tax returns and FBARs are the most time consuming aspects of an OVDP disclosure. However they are not required for the Initial Submission and are normally completed and submitted with the “Final Submission,” which does not need to be completed by September 28, 2018.
Yet if you enter the OVDP, the prospect of opting out can be worth considering, provided you haven’t paid all the penalties and signed the closing agreement. People find paying the bigger account-based penalty harder than paying the taxes, interest and the nominal penalty. The penalties can range from 27.5 percent to 50 percent of the highest value of your account over a period of 8 years.
“Entering the program to opt out sounds odd, and it certainly isn’t for everyone. But on the right facts, it can make a world of difference to the bottom line.” Says Robert W. Wood a tax lawyer at Wood LLP.
The opt out election which is irrevocable is usually made a year or more after the program, by which time you would have already fully complied and fixed all of your errant reporting. Over 1,000 taxpayers opted out of the 2009 and 2011 offshore voluntary disclosure programs according to the Taxpayer Advocate Service.
Mr. Wood also adds that “The OVDP is predictable, while opting out is much less so. But the time and expense can pay huge dividends. If you have no evidence of willfulness, the sheer numbers may make opting out attractive.” For those brave enough to take a risk by opting out, a pretty large sum of savings might await. However, do so at your own caution.
Please note that the opinions, information, and views listed here are solely of open-sourced information curated online and doesn’t represent the views of Cryptoticker.
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