By Michael Scott / Bitcoin Magazine

The recent Internal Revenue Service request to Coinbase, seeking records of customers who purchased virtual currency from 2013 to 2015, has led to a flurry of media attention both in the U.S. and worldwide. This action affecting America’s largest Bitcoin exchange — arguably the most comprehensive sweep of virtual currency for the purpose of identifying lawbreakers — has massive implications for the future of financial privacy and taxation.  

Documents filed by the IRS signal the agency’s intent to pursue both egregious tax evaders, as well as small, everyday users who use bitcoin and other forms of digital currency as a potential dodge for paying taxes. In the John Doe Summons, the IRS alleges that they have uncovered three instances where people have used bitcoin to evade taxes — two involving Coinbase customers. Based on these findings, the IRS. now surmises that many more people are utilizing digital currency for similar aims. 

IR-2015-118, Oct. 21, 2015

WASHINGTON — The Internal Revenue Service today announced cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2016. In general, the pension plan limitations will not change for 2016 because the increase in the cost-of-living index did not meet the statutory thresholds that trigger their adjustment. However, other limitations will change because the increase in the index did meet the statutory thresholds.

Franchise Tax Board (FTB) Audit Issues

The FTB has published articles that focus on common audit issues for both individual and business entity taxpayers. This article focuses on individual taxpayers.

Six common tax audit issues currently affecting personal income taxpayers are:

In summary judgment, a district court has found an executor and trustee liable under the federal priority statute for distributions and disbursements they made while gift taxes owed by the decedent had remained unpaid.

The IRS has finally released information on federal estate and gift tax exemptions for 2017.  

Individuals will have a federal estate tax exemption of $5.49 million (less lifetime taxable gifts) beginning in 2017.  The federal estate tax exemption applies both to lifetime taxable gifts (those exceeding the annual exclusion amount discussed below) and gifts at death -- either outright or in trust.  So, an individual who makes lifetime taxable gifts of $1.0 million, would only be able to leave an additional $4.49 million free of federal estate tax at death.  If his or her estate exceeded $4.49 million, then the amount above the federal estate tax exemption would be taxed at 40%.

Couples are able to shelter a total of $10.98 million ($5.49 million each), and various mechanisms exist to make sure that each spouse can fully utilize his or her own federal estate tax exemption and/or his or her predeceased spouse's unused estate tax exemption.   

The Tax Court has determined that a taxpayer failed to show that under Code Sec. 6664(c)(1) his reliance on persons he thought to be tax professionals established a reasonable cause and good faith defense to the Code Sec. 6662(a) accuracy-related penalties.