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Thursday, March 28, 2024

“Virtual Currency Must Be Reported”

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IRS agent Andrew Lee is discussing virtual currency at the Korean American Tax Study Forum seminar.

“Virtual currency is considered as an intangible property. Even permanent residents who lived eight of the last 15 years are subject to paying exit taxes.”

Korean American Tax Study Forum held a seminar Monday to introduce laws related to virtual currency and exit tax, two of the rising points of interest among investors in recent years. Officials from the IRS also attended the seminar to explain the current events regarding tax laws and how taxpayers should respond to varying situations.

IRS agent Andrew Lee presented the abuse cases and tax problems stemming from virtual money via Bitcoin and Ethereum, while IRS manager Albert Hwang discussed exit tax.

▶ Virtual currency
As of September 2016, there were 765 different types of virtual currency. Virtual currency transactions have been increasingly popular as it transcends borders while protecting identities of those involved.

More businesses are also accepting virtual currency as payments. The concept of using virtual currency has advanced over the years and users can now deposit funds into a debit card to make offline purchases as well.

According to the IRS, virtual currency is categorized as a capital asset on tax reports. If one has used Bitcoin to make transactions with an American dollar, it must be reported.

The biggest problem with virtual currency is that its use is abused in black markets around the world. It is being used to make illegal transactions, including purchases of personal information, human trafficking, weapons and drugs and ways to evade taxes. Some have even transferred virtual currency onto a debit card to launder money.

“Anonymity and interpretation of digital codes have made it extremely hard to track illegal transactions with virtual currency,” Lee said. “The IRS has founded CCU offices in Washington D.C. and Los Angeles to clamp down.”

▶ Exit Tax
More Americans have forfeited their citizenships and green cards as Foreign Account Tax Compliance Act (FATCA) and Report of Foreign Bank and Financial Accounts (FBAR) have tightened the tax monitoring processes. The IRS has revealed that around 5,400 Americans have forfeited their citizenships, while that number of the first quarter this year has reached approximately 1,300.

Hwang said that about 30 Korean-Americans have forfeited their American citizenship during the same period. He concluded that the requirement to report foreign assets has led them to make that decision.

The exit tax is imposed on those who forfeit their American citizenship or green card if the ones affected have resided in the U.S. for eight of the last 15 years.

The requirement to pay exit tax applies to those whose total tax payment was $162,000 in the last five years or the ones with a net worth of $2 million. Forfeiting citizenship is only allowed with a proof that the taxpayer has made payments without issues for the last five years.

“South Korea, Japan and Canada are also imposing similar taxes on its citizens and that has led more forfeiture of citizenships in recent years,” Hwang said. “The government will continue to actively charging those who are subject to the taxes.”

Exit tax must be paid within 90 days after forfeiting the nationality.

By Sungcheol Jin