Awards & Recognition
The Tax Law Offices of David W. Klasing
New York City, an iconic global hub of finance, commerce, and culture, is distinguished by its bustling streets, towering skyscrapers, and status as a pioneer in numerous industries. Home to a diverse and dense population and a plethora of businesses, the city’s economic dealings are as complex and varied as its cultural tapestry. In this ever-evolving metropolis, the burgeoning domain of virtual currencies has garnered significant attention and interest.
Cryptocurrencies represent a unique form of digital value. They can function as mediums of exchange, units of account, or stores of value, similar to traditional currencies in some respects. However, unlike government-issued currencies, they don’t hold legal tender status globally. The concept of ‘convertible’ virtual currencies is particularly significant, as these types of cryptocurrencies can be exchanged for real-world currencies, thereby intertwining with traditional financial systems.
As the flagship of virtual currencies, Bitcoin has captured the public’s imagination and investor interest like no other digital asset. As of mid-March 2024, Bitcoin’s value reached an all-time high, soaring over $73,000. This surge in value comes as the cryptocurrency market heats up with the upcoming halving event in April, which typically leads to reduced new Bitcoin availability. The excitement is further stoked by the recent approval of Bitcoin ETFs in the U.S. and the entry of major financial firms like BlackRock into the cryptocurrency space. The peak in Bitcoin’s price coincided with a significant influx of investments, including a remarkable $1.045 billion poured into Bitcoin ETFs on March 12, 2024, highlighting the growing mainstream acceptance and demand for this digital asset.
At the Tax Law Offices of David W. Klasing, our New York team of dual-licensed Bitcoin and Virtual Currency Tax Attorneys and CPAs stands at the forefront of the complex and rapidly changing federal tax laws regarding virtual currencies. As Bitcoin and other cryptocurrencies capture the public’s interest and reach new heights in the financial market, as seen with the recent surge of over $73,000, meticulous record-keeping and astute tax filing becomes increasingly paramount. Whether through oversight or omission, many virtual currency holders fail to meet their tax and reporting obligations, risking severe civil and criminal tax penalties. Our expertise extends beyond consultation; we’ve vigorously defended clients against IRS allegations of underreporting and have consistently navigated them to favorable civil resolutions.
Our expertise is invaluable for those navigating the intricacies of virtual currency taxation, especially in the dynamic economic environment of New York City. We offer a reduced rate for initial consultation to address your unique circumstances. Connect with our New York office by calling (332) 244-8515 or schedule your consultation online here, and let us guide you through the tax implications of your virtual currency transactions.
Understanding the Evolving Nature of Cryptocurrency Taxation
In New York City, since Bitcoin’s introduction in 2009 by the mysterious figure Satoshi Nakamoto, it’s become a significant part of the digital financial world. Bitcoin is unique because it doesn’t need banks or other intermediaries for transactions, successfully reducing transaction fees and other charges. It’s a decentralized currency recognized by the U.S. Treasury, allowing people to trade directly with each other. Every Bitcoin transaction is recorded on a public ledger called the blockchain, making transactions transparent yet keeping user identities private. This system is maintained by “miners,” who use their computers to verify transactions and are rewarded with new bitcoins. This process is crucial for keeping the network secure and functioning.
The design of Bitcoin mirrors the scarcity of natural resources, such as gold, with its finite supply of approximately 21 million coins creating an inherent value that has captivated New Yorkers engaged in cryptocurrency. As of March 2024, more than 19 million bitcoins have been mined. This scarcity, coupled with the introduction of alternative cryptocurrencies, has fostered a dynamic digital marketplace. These burgeoning currencies, ranging from Ethereum to Litecoin, are rapidly gaining traction, evolving from speculative assets to mediums of exchange that are increasingly being woven into the fabric of everyday commerce.
Tax Implications and Recent Updates
The IRS views virtual currency not as traditional money but as property, similar to stocks or real estate, for federal tax purposes. This classification means that while buying Bitcoin might not trigger immediate taxes, selling it or using it to make purchases can lead to tax liabilities. Taxpayers must calculate gains or losses by comparing Bitcoin’s value at purchase against its value when sold or used, a crucial step to ensure compliance. These transactions are reported on Schedule D, with the tax rate depending on how long the Bitcoin was held: less than a year incurs short-term capital gains tax, while holding it longer than a year subjects it to long-term rates, potentially up to 20%, plus a possible 3.8% net investment tax for certain income levels. Taxpayers can offset some losses against gains, but with a $3,000 limit per year, and while these losses can’t be carried back, they can be carried forward. Meticulous record-keeping of each transaction’s value is essential due to these complex requirements.
Recent updates by the IRS acknowledge the complex stature of virtual currencies in today’s economy. IRS Notice 2023-34 revises earlier viewpoints, reflecting a growing recognition of virtual currencies as more than mere property. Notably, it adjusts the stance on their legal tender status, acknowledging their legitimate use in certain jurisdictions outside the traditional financial system. Despite this shift, core FAQs from Notice 2014-21 remain intact, preserving continuity in the IRS’s guidance. The Notice delineates virtual currencies from conventional money, like the U.S. dollar, while admitting their limited but growing role akin to “real” currency. This delicate balance underscores the nuanced position of virtual currencies within the financial ecosystem, illustrating their dual nature as both property and currency. These developments are pivotal for New Yorkers who are savvy in finance and technology, signaling an evolving regulatory landscape and emphasizing the importance of staying informed on the latest cryptocurrency taxation.
Enforcing Tax Compliance in Cryptocurrency: The Role of John Doe Summonses
As part of its “Operation Hidden Treasure,” the IRS has been intensifying its efforts to monitor and enforce tax compliance on cryptocurrency transactions. The complexity arises mainly due to the perceived anonymity associated with many crypto wallets, making it challenging to track and tax transactions between unknown parties.
To overcome this obstacle, the IRS has been effectively utilizing John Doe summonses. This legal instrument allows the IRS to petition a federal court to compel exchanges to release user information. This information is crucial for the IRS to determine the identity of U.S. taxpayers who may have failed to report their earnings from cryptocurrency transactions.
What is a John Doe Summons?
A John Doe summons is an investigatory tool used by the IRS to identify individuals suspected of tax law violations where their identities are not known. It requires a third party, like a crypto exchange, bank, or credit card company, to provide specific information to the IRS. The issuance of such a summons follows a legal procedure, which includes federal court approval. This process is outlined in IRM 25.5.7, specifying the criteria for issuing a John Doe summons.
List of Key IRS John Doe Summonses in Cryptocurrency
Here’s a concise overview of key John Doe summonses issued to date and the broader implications for national and international enforcement:
- Coinbase (2016, enforced in 2018): This was a landmark case where the IRS initially faced resistance from Coinbase but ultimately succeeded in enforcing the summons. It set a significant precedent for future actions against other exchanges.
- Kraken (2021): Following the success with Coinbase, the IRS secured a John Doe summons against Kraken, another major crypto exchange, continuing its trend of targeting high-profile platforms.
- Poloniex (2021): In the same year, Poloniex also came under the IRS’s scrutiny with a John Doe summons, marking yet another step in the IRS’s comprehensive approach towards crypto exchanges.
- sFOX (2022): The most recent in this series of actions, the summons against sFOX, indicates the ongoing commitment of the IRS to monitor and regulate the cryptocurrency market.
The utilization of John Doe summonses by the IRS in the realm of cryptocurrency showcases not only its commitment to ensuring tax compliance within the United States but also its capabilities to extend these efforts internationally. This global approach is crucial in the cryptocurrency sector, where the nature of transactions often transcends national boundaries.
If you think you are exposed to being the subject of the IRS’ crackdown on cryptocurrency tax evaders, contact The Tax Law Offices of David W. Klasing in New York today to set up a reduced rate initial consultation by calling (332) 244-8515. We will help you develop a legal strategy to deal with unreported cryptocurrency income. Let us get you ahead of the stiff civil and criminal tax penalties that are being pursued by the IRS through Operation Hidden Treasure. We will effectively remove the risk of criminal tax prosecution provided you are willing to knock on the IRS’s door before they come knocking on yours.
Warning: The undisclosed cryptocurrency information that the IRS may obtain from John Doe summonses to entities like Coinbase or other trading platforms is a critical component in its enforcement strategy. Such information can reveal instances of willful tax fraud, potentially leading to high-risk IRS Eggshell Audits or exponentially worse IRS-CI clandestine criminal tax investigations. It’s important for taxpayers who may have concerns about their past reporting to understand the gravity of these matters. Willful tax fraud, particularly if it occurs over several years, carries the risk of criminal tax charges.
At the Tax Law Offices of David W. Klasing, our dual-licensed Bitcoin Tax Attorneys and CPAs can work with you before you file to ensure you are paying as little tax as possible without opening yourself up to civil or criminal tax liability down the line. As long as a taxpayer that has willfully committed federal tax crimes (potentially including non-reported cryptocurrency transactions) self-reports the federal tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation/prosecution, the taxpayer can ordinarily be successfully brought back into federal tax compliance and receive a nearly guaranteed pass on federal criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
A letter from the IRS regarding unreported Cryptocurrency does not automatically make a voluntary disclosure unavailable.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney-Client Privilege and Work Product Privileges that will prevent the very professional that you hire from potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys and Kovel CPAs, our firm provides a one-stop-shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and net worth. See our Testimonials to see what our clients have to say about us!
How Can New York Residents Access David W. Klasing’s Services?
David’s proven proficiency is now available in New York at our appointment-only satellite office, providing both legal and tax services in one place—at a single hourly billing rate. We have just introduced a flexible scheduling option where our clients can reserve a four-hour slot at any of our satellite locations. David W. Klasing will travel to any of our satellite offices to meet with you personally. This option must be preceded by a one-hour phone or go-to-meeting consultation to warrant incurring the travel expenses and opportunity costs of traveling to the East Coast. We have designed this service to benefit our clients, with no additional travel expenses added to your bill. Call us at 1 (322) 244-8515 or complete our online contact form today.
In addition to our fully staffed 19,700 square foot penthouse office in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) California-based satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad, and Sacramento. We also have satellite offices in Las Vegas, Nevada; Salt Lake City, Utah; Phoenix, Arizona, Albuquerque, New Mexico,Austin Texas, Washington DC, Miami Florida and New York New York that solely handle Federal & California Tax issues.
Our New York, NY office is conveniently located at:
14 Wall St, 20th floor,
New York, NY 10005
Telephone: (332) 244-8515
See our Bitcoin and Cryptocurrency Q and A Library
More Questions and Answers About Bitcoin
- What to Do When IRS Wants My Bitcoin Trade History
- Bitcoin Tax Record Keeping
- Can I Appeal a Bitcoin Tax Determination by the IRS?
- Why does BitCoin and other types of Virtual Currency draw so much attention from the Taxing Authorities and the Federal Government?
- Where is the most current IRS guidance on Virtual Currency found?
- Should You Report Bitcoin on Your Taxes?
- What Is Bitcoin?
- How does the IRS treat Bitcoin?
- Can I Face Tax Penalties for Mistakes Made with Bitcoin?
- How Does a Business Determine Its Taxes When Paid in Bitcoin?
- Who Pays the Taxes in a Bitcoin “Mining Pool?”
- Are Bitcoin Miners Required to Pay Self-Employment Tax?
- Can Bitcoin Trading Create an Obligation to Pay Capital Gains Taxes?
- What Is Bitcoin Digital Currency and Why Does it Matter for Tax Purposes?
- What Happens if the IRS Thinks I’m Using Bitcoin to Commit Tax Evasion?
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