If you need accounting or tax-related advice on cryptocurrencies, hire experienced cryptocurrency tax attorneys, CPAs, and consultants.
Cryptocurrency ICO, Tax Issues & the Role of the IRS & SEC
Cryptocurrency fraud allegations are common. Accusations of a fraudulent ICO (Initial Coin Offer), tax misrepresentation, under-reporting cryptocurrency activities, and ordinary business operation fraud are common allegations that are capable of compromising your reputation.
Federal agencies like the IRS and SEC are constantly investigating companies and individuals who use cryptocurrencies and blockchain technology to harm investors, commit tax crimes and compromise capital markets.
If the IRS or SEC suspects that you or your company has misrepresented information to potential investors and/or failed to report all cryptocurrency transactions fully and honestly, you may face hefty civil and criminal penalties.
However, finding a good law firm, crypto tax attorneys, and consultants to defend you with these issues can be a challenge.
Fortunately, at Blockchain Lawyer, we've assembled a team to help you with such matters. We can advise on emerging cryptocurrency tax matters, how regulation changes impact your personal and business dealings, and how you can get compliant.
Most importantly, we can defend you should you get into crypto-related legal problems. It's important to be proactive and avoid federal investigations. We can offer advice, the necessary assurances, and tax guidance you require to safeguard your future.
The Role of a CPA in Cryptocurrency Transactions
The IRS believes there is significant under-reporting of cryptocurrency income. Even after issuing guidelines on virtual currencies since 2014, cryptocurrency transaction reporting and tax payments remain a challenge.
Many taxpayers with crypto dealings still struggle to comply with reporting standards. Some don't know what they should report or how to report. This has prompted the IRS to enhance investigations on crypto tax evasion and related matters like filing false returns. Individuals and businesses that use cryptos face higher IRS scrutiny and risk facing hefty fines and penalties if found guilty.
Both regular and seasoned investors can benefit significantly from hiring a CPA for crypto transactions, even if they utilize software to track every crypto transaction from FMV to losses and gains.
Benefits of a CPA and/or Crypto Tax Lawyer
The benefits you enjoy from retaining a CPA/attorney include:
- Advice on the IRS' stand on virtual currencies and the issues that trigger tax reporting obligations.
- Help establishing if your crypto transactions qualify as business income, investment income, interest income, etc., that attracts certain tax obligations.
- Advice on the latest cryptocurrency regulatory framework in relation to the SEC and IRS' views.
- Assistance in getting the maximum possible deductions if you run a crypto mining business. A CPA can also assist in setting off any crypto-related losses against ordinary income or capital gains.
- Advice on business compliance with crypto laws and regulations.
- Help with tax reporting obligations from cryptocurrency transactions (i.e., capital vs. ordinary tax treatment, tax implications when selling and converting crypto) and reporting income from ICOs, staking, airdrops, mining, etc.
- Advice on KYC, AML, and other Bank Secrecy Act guidelines, as well as establishing a compliance department and comprehensive compliance programs.
- Guidance on whether crypto transactions qualify for preferential capital gains or typical income tax treatment.
Considerations When Choosing a Crypto CPA
When you decide to hire a CPA/attorney to handle your cryptocurrency transactions, here are important considerations to make:
Consider a CPA Who Owns Cryptocurrency
Besides the typical educational background and experience that a CPA is expected to have, you need a CPA who not only professes to understand everything on cryptocurrency transactions but also owns crypto. Having a crypto enthusiast as your CPA is critical since they'll already have firsthand knowledge of cryptocurrency transactions and their effect on income and tax obligations.
A good example would be specialized reporting obligations. Individuals who use crypto exchanges most likely use a foreign exchange creating disclosure obligations on foreign-held crypto. Agencies like FinCEN require FBAR forms to disclose foreign holdings exceeding $10,000. While this traditionally applies to foreign bank account holdings, foreign crypto exchanges may require FBAR form filings to be met with the $10,000 threshold. CPAs who own crypto usually understand holding crypto internationally, reporting requirements, and being compliant.
Is the CPA Open-Minded about Cryptocurrencies?
Since the crypto world is an emerging area characterized by compliance challenges, CPAs and tax attorneys are bound to disagree on issues surrounding reporting certain cryptocurrency transactions.
A typical example would be how staking income (from holding cryptos in a crypto wallet to support a blockchain consensus network) is reported. Most CPAs consider such income to be similar to interest income earned via a savings account. However, interest income is income earned on money, and a crypto tax attorney may argue that cryptos (which are virtual currency) don't meet the legal definition of money.
What's more, since cryptocurrency is considered property and interest earned on a property can qualify as rental income, some CPAs believe staking income qualifies as rental income. There are many similar unsettled issues. You need a CPA that can communicate on uncertainties effectively as well as consider conflicting views and rationale when making decisions.
Avoid CPAs Who Claim to Know Everything about Cryptocurrency Regulations
Currently, there are no blanket rules and regulations on cryptos. Most of the current regulation is based on IRS and SEC guidance and existing provisions on securities fraud, tax evasion, tax fraud, wire fraud, and related matters. There is no cryptocurrency tax law in place today. As a result, a CPA who claims to know all the rules is probably overstating their capabilities.
Good CPAs know there are no concrete crypto laws, and the best approach is to assess unique facts in every situation and respond from there with the aim of satisfying compliance and reporting guidelines. However, they have a good understanding of reporting transactions and getting compliant. This expertise can be uncovered by asking specific questions.
For instance, a good CPA will know different tax treatments for different scenarios, such as the tax implication for newly minted coins vs. future disposition of such coins. If you are launching an ICO and don't wish to be subjected to SEC registration, he/she should know how security tokens and utility tokens are structured.
Consider CPAs with Legal (Securities) Expertise
Cryptocurrency activities can trigger compliance issues with securities and banking regulations. The SEC and other agencies like FinCen have an interest in crypto matters. As a result, CPAs who are securities attorneys are extremely beneficial.
Looking for Cryptocurrency Advice from a Qualified and Experienced CPA?
Cryptocurrencies have gone mainstream and are currently the best use of blockchain technology. Getting a CPA and/or lawyer who understands crypto reporting obligations (including tax requirements and overall regulatory compliance) is challenging.
The importance of selecting a team of experts with up-to-date information on crypto trends and the latest federal agency guidelines on crypto and new technologies can't be overlooked.
At Blockchain Lawyer we have a team of expert crypto tax attorneys, CPAs, and consultants capable of advising you on cryptocurrency transaction reporting requirements.
We help clients satisfy their short-term and long-term cryptocurrency and blockchain technology objectives. Let's alleviate the stress and uncertainties of the tax season for you by advising on your individual and business compliance obligations.
Don't wait for federal government attention to start thinking of being compliant with securities regulations, tax laws, and banking obligations. Contact us now and claim a free consultation. Request to talk with our dedicated cryptocurrency attorneys and/or CPAs.
