After a year-long battle in court, the Internal Revenue Service (IRS) has notched a victory over Coinbase, a leading cryptocurrency exchange headquartered in San Francisco. The Nov. 28 federal court ruling ordered that the company turn over the identities of more than 14,000 of its users.
A famous New York rapper once said that he had “more money, more problems.” Is this notion actually true? When it comes to your tax returns as a high-income earner, it just might be. As the 2017 fiscal year came to a close, the IRS announced that it is changing the way it examines tax returns and wealthy taxpayers are expected to be most affected. Let’s look at the reason for the change and how you can potentially avoid trouble.
According to the Tax Foundation, 1.2 million Americans had their taxes audited by the Internal Revenue Service in 2015. Predicting who will be audited and why is difficult because tax law changes every year. Additionally, the IRS could change their focus from one group to another annually as new issues emerge.
The number of IRS audits has decreased in each of the last five years. In 2016, only one in 143 individual taxpayers was audited. While audits are a necessary aspect of our tax system, it is safe to say most taxpayers will not lose sleep about the decreased likelihood of an audit.
Charities, foundations and other nonprofit organizations play a crucial role at all levels of society with the overarching goal of serving the public good. While this mission is admirable, the fact remains that nonprofits must comply with a number of tax regulations in order to keep their tax-exempt status. The IRS and state tax agencies expend substantial resources in order to ensure that nonprofit organizations are enriching the public, and not enriching themselves.
In recent years, the IRS has devoted vast resources to compel taxpayers to report and pay taxes on offshore assets. As a result of these efforts, the IRS has recovered billions in unpaid taxes. Perhaps the most widely-known tool the IRS uses is the Offshore Voluntary Disclosure Program, or OVDP. When taxpayers submit to the OVDP, they will have to file up to eight years of amended tax returns and Foreign Bank and Financial Account (FBAR) statements, while paying taxes, interest and a penalty of 27.5%, or up to 50%, of the highest balance of these accounts.
Increasing numbers of businesses and individuals across the world are using Bitcoin, a form of digital currency. Coindesk, a company that analyzes digital and virtual currency, states that on average, there are more than 200,000 Bitcoin transactions each day in 2016. This is roughly twice the number of Bitcoin transactions that took place in 2015.
Every tax-exempt and nonprofit organization must place a high priority on complying with applicable federal and state tax laws. The IRS devotes substantial resources examining nonprofits to ensure tax compliance. The IRS recently released its Tax Exempt and Government Entities Work Plan for Fiscal Year (FY) 2017. In this document, the IRS discussed its priorities for FY 2017.
In recent years, the IRS has devoted increasing resources to scrutinizing the tax returns of the very rich. In fact, in a given year, the IRS audits roughly one in four taxpayers with earnings or assets in excess of $10 million. The IRS has its own team of specialists who focus on auditing high net worth individuals and their various holdings. While the IRS calls this group the Global High-Wealth Industry Group, it is known informally as "The Wealth Squad."
Facebook's current market value is estimated at $350 billion. Given its sustained success, Facebook may be in a better position than most companies to deal with the rigors of an audit. With this said, it could be facing a tax debt of many billions of dollars. In a quarterly report released last month, Facebook revealed the IRS claimed it owed between $3 billion and $5 billion. This figure does not include penalties and interest.