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Glen E. Frost

Attorney at Law *
Certified Public Accountant **
Certified Financial Planner®
Master of Laws in Taxation
Every Tax Problem has a Solution

10480 Little Patuxent Pkwy, Ste. 400
Columbia, MD 21044
Phone:  (410) 497-5947
Fax:      (888) 235-8405

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Permalink 03:37:37 pm, by admin Email , 317 words   English (US) latin1
Categories: News

States Poised to Allow Payment of Taxes with Cryptocurrency - Are You Ready?

By Mary Lundstedt

As cryptocurrency continues to inspire global awareness and dialogue, the news in the US has mostly focused on its regulation as a commodity; however, very recently, states like Arizona and Georgia are on the brink of recognizing Bitcoin, and its kin, as currency--allowing people to pay their tax bill with it. While neither state has finalized the proposed laws, Arizona’s Senate Bill 1091 was passed on February 8, 2018, and now awaits the consideration of Arizona’s House of Representatives. As it stands in Arizona, the cryptocurrency used to pay the tax bill would be converted to dollars at the prevailing rate.

While the validation of cryptocurrency as a legitimate source of payment of income taxes would profoundly affect its bid for acceptance in the mainstream, paying taxes with cryptocurrency should be carefully considered in light of the tax consequences.

Significantly, in Notice 2014-21, 2014-16 I.R.B. 938, the Internal Revenue Service (IRS) has taken the position that cryptocurrency is property. So, what happens if you pay your taxes with cryptocurrency? You’ve paid your tax bill, and you’ve sold your property. As with any sale of property, it could mean even more taxes.

Consider the following example: State approves cryptocurrency as means to pay tax bill. You acquired cryptocurrency about a year ago for $1,000. You owe $10,000 in taxes. Your cryptocurrency is now worth $10,000. You use this to pay your tax bill. You must now report a gain of $9,000, for which you will have to pay taxes. Let’s hope it’s a long-term capital gain for lower treatment.

Certainly, the potential acceptance by states of cryptocurrency as a legitimate source of payment of income taxes is an encouraging move for validation, but it’s important to remember that gain or loss is possible with each transfer of cryptocurrency. As such, tax basis and holding periods must be tracked--record keeping is essential.

If you have questions regarding cryptocurrency and tax implications, please contact Frost & Associates, LLC.


Permalink 04:16:45 pm, by admin Email , 468 words   English (US) latin1
Categories: News

Owners of Foreign Companies May Need to Act Soon

Written By Peter Palsen • Principal – International Tax BIEGEL WALLER TAX ADVISORY SERVICES

U.S. persons who own 10% or more of the shares of a foreign corporation may need to act quickly on a new rule that can require inclusion of all foreign corporate earnings accumulated after 1986. This one-time tax obligation applies to 2017 tax returns with respect to earnings of calendar-year foreign companies. The good news is that the tax liability resulting from this provision can be paid over eight years (or in certain cases deferred indefinitely). However, in order to take advantage of the payment plan, both a timely election and timely first payment are required.

The tax reform act passed at the end of 2017 made substantial changes to the taxation of earnings of foreign corporations owned by U.S. persons. The framework of international taxation was changed to allow U.S. corporations to avoid the inclusion of income on most foreign corporation earnings beginning in 2018. As a consequence of this change, a transition tax was implemented to create an “all-in” event immediately prior to the conversion to the exempt earnings regime. For most U.S. shareholders, the taxable event occurred on December 31, 2017.

Big-name U.S. companies like Apple announced multi-billion-dollar liabilities for the transition tax. However, the tax applies to all types of U.S. owners - including individuals, limited liability companies, partnerships, and S-corporations (to the extent they have the requisite ownership). These “flow-through” entities and their owners don’t get the benefits of the exemption of foreign corporate earnings - which might suggest they shouldn’t be burdened by the transition tax. However, this is not the case.

At the time this article was written, the IRS was in the process of developing additional guidance to help flow-through entities and their owners understand the procedures necessary to make the payment plan election and first payment. U.S. persons subject to the transition tax should be prepared by collecting the information required to make the calculation of the tax (including the application of different tax rates depending on whether the earnings are retained by the foreign corporation in the form of cash-type assets). In some cases, an election exists to reduce the transition tax liability if the foreign corporation has paid a high rate of foreign tax on the earnings.

This one-time tax is likely to come as a surprise to many taxpayers who take the normal step of putting their return on extension. The biggest surprise could be finding out that the 8-year payment plan is no longer available. For this reason, owners of foreign companies will want to act on the transition tax now.

Frost & Associates, LLC in collaboration with Biegel Waller Tax Advisory Services is well equipped to provide tax advice relating to the new transition tax in addition to providing advice relating to a broad range of international tax issues.


Permalink 11:10:31 am, by admin Email , 301 words   English (US) latin1
Categories: News

IRS Assembles New Crypto Tax Evaders Unit

The US Internal Revenue Service (IRS) has assembled a team of elite criminal agents to investigate whether cryptocurrencies, such as Bitcoin, Ethereum, Litecoin and Ripple, are being used to evade taxes. Chief of the IRS Criminal Investigation Division, Don Fort, revealed in a recent interview the addition of 10 new investigators to the Criminal Investigation Division. “It’s possible to use Bitcoin and other cryptocurrencies in the same fashion as foreign bank accounts to facilitate tax evasion,” he stated. In addition to investigating international tax compliance cases, the team will work with international criminal agencies to investigate unlicensed exchanges.

Bloomberg reports that due to budget cuts the Criminal Investigation Division has lost key staffers over the course of the past 6 years. With the addition of these new staff members the division will be brought back to full strength.

Most foreign countries have the expectation that citizens pay taxes on gains from virtual currency, so it is not surprising that the IRS is taking this aggressive approach. U.S government agencies are already well known for their thorough and far-reaching investigative skills. The Internal Revenue Service recently closed a successful investigation into U.S. assets concealed in Swiss bank accounts.

Companies such as Bitfury are collaborating with law enforcement to monitor blockchain activity and detect suspicious activity. Bitfury’s advisor, Jason Weinstein, a former DOJ investigator, stated: “Having a traceable public ledger of every bitcoin transaction ever conducted allows law enforcement to ‘follow the money’ in a way that would never be possible with cash.”

With its new team of elite investigators, and the rapidly growing range of blockchain tools available to them, users attempting to evade taxes at home or abroad can expect the IRS to track them down.

If you have issues with unreported gains from cryptocurrency, please contact Frost & Associates, LLC today at 410-497-5947.

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* Licensed to practice in Maryland, Florida, and the District of Columbia. May represent taxpayers nationwide in IRS disputes.
** Licensed in Maryland

10480 Little Patuxent Pkwy, Ste. 400
Columbia, MD 21044
(410) 497-5947
© 2018 Glen E. Frost