• The Internal Revenue Service: Coinbase

    The Internal Revenue Service has decided to limit its probe of Coinbase users to those who engaged in transactions of $20,000 or more, according to a court filing.

    The IRS sent a broad request known as a John Doe summons last November seeking information on all of the San Francisco-based digital currency service’s users in an effort to ferret out possible tax evaders (see IRS seeks information on bitcoin users from Coinbase ). Coinbase is one of the largest bitcoin and ethereum exchanges in the U.S., and the Treasury Inspector General for Tax Administration urged the IRS in a report last year to do more to ensure taxpayers aren’t using virtual currencies like bitcoin to avoid taxes (see IRS warned to safeguard against illegal use of virtual currency ).

    The IRS requested a federal court in March to force the exchange to hand over the records, but two Coinbase users asked the courts in May to quash the summons.

    Three Republican lawmakers in Congress who chair key committees and subcommittees related to tax policy wrote a letter in May to IRS Commissioner John Koskinen expressing concerns about the scope and nature of the summons (see GOP lawmakers question IRS summons to Coinbase users ).

    “We strongly question whether the IRS has actually established a reasonable basis to support the mass production of records for half of a million people, the vast majority of whom appear to not be conducting the volume of transactions needed to report them to the IRS,” House Ways and Means Committee Chairman Kevin Brady, R-Texas, Senate Finance Committee Chairman Orrin G. Hatch, R-Utah, and House Ways and Means Oversight Subcommittee Chairman Vern Buchanan, R-Fla., wrote in a letter to Koskinen. “Based on the information before us, this summons seems overly broad, extremely burdensome, and highly intrusive to a large population of individuals.”

    In a court filing last week, first reported by the digital currency news site Coindesk , the IRS limited the scope of the original request. It said the U.S. is seeking information for users “with at least the equivalent of $20,000 in any one transaction type (buy, sell, send, or receive) in any one year during the 2013-15 period.”

    The IRS court filing also said it is not seeking information on “certain identified users who are known to the Internal Revenue Service.” However the narrowed summons request is still asking for a great deal of information on the Coinbase users covered, including their “name, address, tax identification number, date of birth, account opening records, copies of passports and/or driver’s license, all wallet addresses, and all public keys for all accounts/wallets/vaults.”

    An IRS spokesperson declined to comment based on ongoing and pending litigation.

    Coinbase spokesperson Megan Hernbroth emailed Accounting Today, “We aren’t making any further comments at this stage outside of our last public statement on March 16.”

    In its March statement, Coinbase said, “Our legal team is in the process of reviewing the IRS’s motion. We will continue to work with the IRS to assess the government’s willingness to fundamentally reconsider the focus and scope of the summons. If it does not, we anticipate filing opposition papers in court in coming months. We will continue to keep our customers updated as to status.”

  • Hurricane Harvey Victims: Easier Access to Retirement Funds

    Hurricane Harvey Victims: Easier Access to Retirement Funds

    On August 30, 2017, the IRS announced that 401(k)s and similar sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Harvey and members of their families. Additionally, the IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions.

    With the relaxed rules, a plan may rely on the representations made by a victim as to the need for and amount of hardship distribution. The amount may not exceed the specified statutory limits from the victim’s retirement plan. However, the relief applies to any hardship of the employee, not just the types enumerated in the regulations, and no post-distribution contribution restrictions are required.

    Retirement plans can provide this relief to employees and certain members of their families who live or work in disaster area localities affected by Hurricane Harvey. These areas are identified on FEMA’s website at http://www.fema.gov/disasters . If a plan makes Hurricane Harvey withdrawals available, the plan must be amended no later than the end of the first plan year beginning after December 31, 2017. Hardship withdrawals must be made by January 31, 2018.

    The IRS emphasized that the tax treatment of loans and distributions remains unchanged. Ordinarily, retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less. Under current law, hardship distributions are generally taxable and subject to a 10-percent early-withdrawal tax.

    For further details, see Announcement 2017-11 posted on the IRS website.

  • Hurricane Disaster Relief and Donations: Helping an Employee in Need

    Hurricane Disaster Relief and Donations: Helping an Employee in Need

    Harvey was only the beginning. With Hurricane Irma terrorizing Florida and the East Coast, the need for disaster relief is more crucial than ever. Many employees have been impacted by the hurricanes, and while FEMA and insurance agencies are designed to help relieve some of the impact, such relief takes a long time to arrive. However, employers can take matters into their own hands. Here are several ways to help an employee in need:

    Qualified Disaster Relief Payments

    Qualified disaster relief payments (QDRPs) were created to provide a clear income tax exclusion for employer-funded relief payments to victims affected by federally-declared natural disasters, and other catastrophes like the September 11 terror attacks. QDRPs allow employees affected by Harvey and Irma to receive quick cash payments from employers without being taxed on those payments. Generally, these payments are deductible business expenses for employers.

    QDRPs are a simple and direct option to provide aid to employees in need, without raising the suspicion of the IRS. However, there are still important requirements employers must follow if they choose to make QDRPs. Employers should contact an attorney to discuss these requirements before providing QDRPs to impacted employees.

    Loans

    A low cost way of helping employees in need is to provide no-interest or low-interest loans. Such loans must be properly documented and will result in some additional taxable income to the employee.

    Additionally, under rules recently announced by the IRS, employers can allow loan distributions from 401(k) plans.

    Employees Helping Employees

    There are several ways an employer can facilitate donations from employees unaffected by the hurricanes. Here are a few examples:

    Creating a crowdfunding project to receive donations. Crowdfunding is a very popular way to raise money for new ideas, businesses and charitable donations. Benefits of crowdfunding are simplicity and speed. However, this approach is not as cost-effective as some alternatives. Crowdfunding sites such as Kickstarter, GoFundMe and Indiegogo impose fairly substantial administrative fees for their services. Additionally, crowdfunding does not yield favorable tax benefits to donor employees like the following approach.

    Establishing a 501(c)(3) nonprofit corporation to receive and disburse donations. This approach creates the best tax results for all parties involved. However, there are some drawbacks. First, setting up a new charitable organization requires an initial time commitment. Second, this approach presupposes an ongoing charitable mission, meaning an employer wouldn’t want to take this route to provide relief for a single disaster situation.

    A way of avoiding these drawbacks while still achieving the same tax advantages as a 501(c)(3) entity is for an employer to establish a fund under an existing charity. The existing charity would be responsible for distributing the funds, but the employer would still have significant input on the disbursement.

    Employers who want to help provide relief to employees impacted by recent hurricanes have many options at their disposal. While some of the options have been mentioned above, it is important for an employer to review all avenues and decide what is best for them and their employees. Seek advice from an attorney today.