3 ms·

So how would one go about settling up with the IRS on this?

bitJericho 10y ago
It's your responsibility to correctly fill out your taxes. You can file a tax amendment to fix mistakes.
patio11 10y ago
The short and useful answer is talk to an accountant. The longer and less useful answer is that it depends heavily on circumstances. Two relevant ones are "What sort of income do you have here?" and "How much are we talking about?" If we assume the answers are "You have capital gains because you happened to purchase some Bitcoin, they appreciated, and you sold them, but you weren't conceivably operating a business while doing this" and "Enough money to matter but not enough that your failure to get better advice was clearly negligent" then your resolution is going to be fairly simple. Your CPA will calculate how much money you owe, file a 1040-X (amended return) for the years at issue, and say "On routine review of a prior year tax filing we found that we inadvertently understated income. We're amending the return as appropriate, and have remitted additional tax. We request an abatement for penalties for tax underpayment on the grounds that IRS guidance at the time was unclear and we're coming in voluntarily before you asked us to." You'd possibly get the abatement of penalties; you're likely to pay very modestly more than you would have if you had been more diligent about your obligations, because they don't frequently waive interest. This is the "middle class Americans screw up their taxes all the time; we like to encourage voluntary compliance" answer. If you're talking about mountains of money, on the other hand... expect rather less leniency. Other things that increase your risk: any hint of other-than-tax illegality around the business ("I underpaid on the capital gains I inadvertently generated in my drug smuggling business -- sorry about that, really didn't set up to be a currency speculator, I'm simply an honest drug smuggler") or the Bitcoins being used in a manner which was clearly straight-up tax fraud, like the prosecuted cases where someone's company paid a Bitcoin exchange $X00,000 for "technology services" and expensed it, took the Bitcoin over to Gox, cashed out, and then repatriated the money. (The Bitcoin here are just a red herring; this is a conspiracy to hide $X00,000 in income from the government. They take a dim view of that.)
- toomuchtodo 10y ago
  Excellent advice!
- mschuster91 10y ago
  > If you're talking about mountains of money, on the other hand... expect rather less leniency Well, according to Wikipedia, you can at least declare income from illegal activities, so that the feds can't jail you for tax evasion in addition to the crime itself. https://en.wikipedia.org/wiki/Taxation_of_illegal_income_in_the_United_States https://en.wikipedia.org/wiki/Taxation_of_illegal_income_in_...
  - h4nkoslo 10y ago
    However you cannot deduct most costs arising from illegal activity, which typically causes taxes to exceed your profit margin.
- lojack 10y ago
  Any clue where the cutoff for declaration of capital gains lies?
  - briHass 10y ago
    The short answer is that there is no cutoff. There are certain cases based on the time you held the asset (long-term) and you having a low income, but most likely, tax is due on all capital gains, and regardless, they must be reported. https://www.irs.gov/uac/ten-important-facts-about-capital-gains-and-losses https://www.irs.gov/uac/ten-important-facts-about-capital-ga...

It's your responsibility to correctly fill out your taxes. You can file a tax amendment to fix mistakes.

The short and useful answer is talk to an accountant. The longer and less useful answer is that it depends heavily on circumstances. Two relevant ones are "What sort of income do you have here?" and "How much are we talking about?" If we assume the answers are "You have capital gains because you happened to purchase some Bitcoin, they appreciated, and you sold them, but you weren't conceivably operating a business while doing this" and "Enough money to matter but not enough that your failure to get better advice was clearly negligent" then your resolution is going to be fairly simple. Your CPA will calculate how much money you owe, file a 1040-X (amended return) for the years at issue, and say "On routine review of a prior year tax filing we found that we inadvertently understated income. We're amending the return as appropriate, and have remitted additional tax. We request an abatement for penalties for tax underpayment on the grounds that IRS guidance at the time was unclear and we're coming in voluntarily before you asked us to." You'd possibly get the abatement of penalties; you're likely to pay very modestly more than you would have if you had been more diligent about your obligations, because they don't frequently waive interest. This is the "middle class Americans screw up their taxes all the time; we like to encourage voluntary compliance" answer. If you're talking about mountains of money, on the other hand... expect rather less leniency. Other things that increase your risk: any hint of other-than-tax illegality around the business ("I underpaid on the capital gains I inadvertently generated in my drug smuggling business -- sorry about that, really didn't set up to be a currency speculator, I'm simply an honest drug smuggler") or the Bitcoins being used in a manner which was clearly straight-up tax fraud, like the prosecuted cases where someone's company paid a Bitcoin exchange $X00,000 for "technology services" and expensed it, took the Bitcoin over to Gox, cashed out, and then repatriated the money. (The Bitcoin here are just a red herring; this is a conspiracy to hide $X00,000 in income from the government. They take a dim view of that.)

toomuchtodo 10y ago
Excellent advice!
mschuster91 10y ago
> If you're talking about mountains of money, on the other hand... expect rather less leniency Well, according to Wikipedia, you can at least declare income from illegal activities, so that the feds can't jail you for tax evasion in addition to the crime itself. https://en.wikipedia.org/wiki/Taxation_of_illegal_income_in_the_United_States https://en.wikipedia.org/wiki/Taxation_of_illegal_income_in_...
- h4nkoslo 10y ago
  However you cannot deduct most costs arising from illegal activity, which typically causes taxes to exceed your profit margin.
lojack 10y ago
Any clue where the cutoff for declaration of capital gains lies?
- briHass 10y ago
  The short answer is that there is no cutoff. There are certain cases based on the time you held the asset (long-term) and you having a low income, but most likely, tax is due on all capital gains, and regardless, they must be reported. https://www.irs.gov/uac/ten-important-facts-about-capital-gains-and-losses https://www.irs.gov/uac/ten-important-facts-about-capital-ga...