{"id":8263,"date":"2016-12-15T12:00:29","date_gmt":"2016-12-15T17:00:29","guid":{"rendered":"http:\/\/www.escapeartist.com\/?p=8263"},"modified":"2020-05-22T11:31:37","modified_gmt":"2020-05-22T15:31:37","slug":"irs-investigating-us-bitcoin-transactions","status":"publish","type":"post","link":"https:\/\/www.escapeartist.com\/blog\/irs-investigating-us-bitcoin-transactions\/","title":{"rendered":"The IRS is Investigating all US Bitcoin Transactions"},"content":{"rendered":"

The <\/span>IRS is investigating all US bitcoin transactions<\/b>. If you\u2019ve been conducting business using a U.S. bitcoin account, your transactions are not private. All U.S. based bitcoin accounts are subject to search and \u00a0seizure by the IRS and U.S. courts and creditors. \u00a0<\/span><\/p>\n

Per a press release by the <\/span>Department of Justice<\/span><\/a>, \u201cA federal court in the Northern District of California entered an order authorizing the Internal Revenue Service (IRS) to serve a John Doe summons on Coinbase Inc., seeking information about U.S. taxpayers who conducted transactions in a convertible virtual currency during the years 2013 to 2015. \u00a0The IRS is seeking the records of Americans who engaged in business with or through Coinbase, a virtual currency exchanger headquartered in San Francisco, California.\u201d<\/span><\/p>\n

A John Doe summons allows the government to get information on <\/span>everyone <\/b>who used a particular service or has an account at a certain bank. These same John Doe summons were used by the IRS to attack offshore banking in 2002 and have had a major impact on the industry in the years since. <\/span><\/p>\n

Back in the day, a U.S. court issued a <\/span>John Doe summons to Mastercard and Visa<\/span><\/a> seeking information on all U.S. citizens with credit and debit cards issued by offshore banks. That investigation ballooned into an attack on the offshore industry, eventually bringing in billions of dollars, putting hundreds of Americans in prison, and forcing all but the most daring Americans to keep their cash at home. <\/span><\/p>\n

The current summons targets Bitcoin users on the Coinbase platform. Specifically, \u201cThis John Doe summons directs Coinbase to produce records identifying U.S. taxpayers who have used its services, along with other documents relating to their virtual currency transactions.\u201d <\/span><\/p>\n

According to their website, <\/span>Coinbase<\/span> serves 5 million users, 10.5 million wallets, and 45,000 merchants. They\u2019ve raised $117 million in capital and have a market cap of around $10 billion. Once this summons of Coinbase pays off, you can bet the IRS will go after other U.S. Bitcoin exchanges \u00a0like CoinsBank, Kraken, and virtual currency providers like Circle. <\/span><\/p>\n

If you want privacy in your virtual currency transactions, plus asset protection from civil creditors, move your account offshore immediately<\/b>. A Bitcoin account held outside of the United States is not reportable to the IRS <\/span>on the FBAR<\/span><\/a>. Likewise, FATCA and other reporting requirements do not apply to offshore virtual currency accounts. <\/span><\/p>\n

Moving your virtual currency offshore gives you privacy. Place that account inside an offshore company, Panama Foundation, or <\/span>international trust<\/span><\/a> and you have security from future civil creditors. <\/span><\/p>\n

Note that I\u2019m talking about privacy and asset protection, not tax savings. Gains in your offshore virtual currency account are taxable in the year earned. You don\u2019t need to report the foreign account, and the IRS can\u2019t issue a summons to a foreign exchange as it can a U.S. provider, but you\u2019re required to pay your taxes. <\/span><\/p>\n

The best structure for your virtual currency, and any other assets you wish to move offshore, will depend on how you use the account and its size. For example, the most basic form of asset protection is an offshore Limited Liability Company. An offshore LLC gives you \u201centry level\u201d asset protection and your account is in the name of the company rather than your name, providing an added layer of privacy. <\/span><\/p>\n

Next would be a <\/span>Panama Foundation<\/span><\/a>. This is a hybrid foreign grantor trust and holding company. It\u2019s suited to those who want estate planning and asset protection without the overhead and complexity of an offshore trust. A Foundation is commonly used to hold $100,000 to $2 million in assets, or accounts of any size when the owner wants to maintain control over the investments rather than handing it off to a foreign trustee. <\/span><\/p>\n

The most advanced form of asset protection is a foreign trust formed in Belize or the <\/span>Cook Islands<\/span><\/a>. While a Panama Foundation is an \u201coff the shelf\u201d structure, an international trust is a fully customizable solution that can include a wide range of features. Because of the higher setup and maintenance costs, a trust is most efficient when protecting assets of $2 million or more. <\/span><\/p>\n

For some advanced uses of a foreign trust, take a read through: <\/span><\/p>\n