IRS Offshore Amnesty Will Close Soon, Crypto Investors Still Have Time

IRS Offshore Amnesty Will Close Soon, Crypto Investors Still Have Time

When you invest in cryptocurrencies, it can be hard to pay your taxes sometimes. There is a lot of gains and losses and sometimes it can be difficult to understand how much money you actually have to pay to the IRS, so you might have missed some deadlines. Because of this, we have created a guide for our American users with IRS problems.

Some people have decided to join the Offshore Voluntary Disclosure Program as part of an effort to disclose to the government how much money they made with cryptocurrencies.

As the Offshore Voluntary Disclosure Program will formally close soon, on September 28, the time draws near for cryptocurrency investors to pay their debts with the government. The OVDP has been working for 10 years and some people are running to use it soon before it closes for good.

If you are an American, you should submit your “Initial Submission” until September 28. There is the Streamlined program, but when you compare the two, you should define take this one.

Should You Do A Preclearance Request?

You should not opt for simply using a Preclearance Request, as it will not be enough. While this is an optional first step, you should do it before the OVDP. You can use it to discover whether the IRS is already investigating you or not. You will always be answered with either a yes or no answer (the most common answer is yes, which means that you are NOT being investigated).

While it is generally a good idea to ask for a preclearance request, you should notice that the deadline is getting closer now, so a lot of people may choose to simply skip it and go to the Initial Submission process instead.

In case you decide for the Preclearance Submission, you have to give the IRS the following information: your complete name, date of birth, address, phone number and Tax ID/Social Security Number. Also, any information about undisclosed foreign financial institutions including their name, address and phone number.

Finally, you should also inform the government about any non-public entities that you may be a part of. These include LLCs, trusts, corporations, partnerships and foundations. You should include their names, EIN, address, jurisdiction and undisclosed assets that you have there.

As it can take up to 30 days for the IRS to respond, you should do it as soon as possible so can have enough time to submit your Preclearance Request soon. Another good idea is to already assemble the information for the Initial Submission before you actually receive your answer.

While the law notes that you have 45 days to submit your Initial Submission after you receive the answer for your Preclearance Request, it is not 100% clear whether you can submit it after September 28, so be as quick as you can.

How To Do The Initial Submission?

This process requires a lot more information than a Preclearance Request because it is more complete. It should include a cover letter that describes your reporting history, too. You also need the Form 14457 and the Form 14454.

The Form 14457 asks you to tell how you learned about the OVDP and the source of your foreign funds. It also asks for an estimate of your combined foreign assets for each year. You should deliver only one form.

The second form is the Form 14454 and one will be needed for each foreign account that you have. The details of this form are considerably more complete, including questions if you deposited the money from the US, how the transfer happened and about the people or the financial institution that advised you about having a foreign account.

Fortunately, the hardest aspect to fill in an OVDP disclosure, which are the bank statements and the preparation of the tax returns, are only needed in the Final Submission, which you can send after September 28.

What About The Penalties?

The largest account-based penalty that you might have to pay is from 27.5% to 50% of the highest value of your account over a period of eight years. Yes, the value can be hard to swallow, so you have to be prepared. If you enter the OVDP, the prospect of opting out can be an interesting choice before you decide to pay the penalties.

Is opting out the right option for you? Let’s find out. Generally, this option is available only after the IRS has calculated your proposed penalties. It can take more than a year, so have patience with the process.

After fixing all your errant reporting, you have to pay the taxes and the interest for the government, plus penalties on under-reporting. As the biggest penalties are for the biggest accounts, opt out can be a choice, but be aware that there are some tangible risks involved in this action as the IRs can assess civil fraud or information return penalties.

According to information taken from the Taxpayer Advocate Service, over 1,000 taxpayers decided to opt out between 2009 and 2011, which means that not a lot of people do it. Most of them opted out involving small fines, which is not a good idea. The OVDP is predictable, opting out is not. Because of this, you should only do it in extreme cases.

If your penalty is $50,000 USD, for instance, you cannot save too much, but a fine of half a million or even a million USD can be more compelling. On the right facts, the results of opting out can be good for you. You should consider what you told to the IRS very carefully before doing it, though.

What To Do?

First, report your gains. Not reporting is always a bad idea and you can even be arrested for tax fraud later, so never do it. If you can tolerate some risk and have a lot to lose, opt out, but do not do it in case you do not owe so much money.

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