Americans looking for a tax break on bitcoin profits

Overseas-resident Russian Katie Ananina has spent the past three years helping people evade taxes on their Bitcoin profits. It’s all part of their mission to teach the man one tax evasion case at a time.

As the name indicates, Plan B passport offers crypto-rich customers a path to a second pass in their choice of seven, mostly tropical, tax haven states, all of which are exempt from capital gains tax on crypto holdings.

“I was smart enough to find out that $ 200 worth of bitcoins will eventually be worth $ 100,000,” Ananina said. “I don’t think the government should have 40% of that.”

Origin story

Ananina is not your stereotypical bitcoin maximalist, a term used to describe people who believe that bitcoin, and not necessarily other cryptocurrencies, is the future of finance.

Born and raised in Chelyabinsk, a city in central Russia, 145 km north of the border with Kazakhstan former professional sailboat racer moved to the States in 2016 after receiving a green card thanks to her status as one of the world’s best female sailors.

She didn’t speak English five and a half years ago, but you never knew when you met her.

For Ananina, the appeal of Bitcoin was exposed when she saw the Russian currency drop 50% in the two months she lived in Spain while competing for the Russian national sailing team in early 2015.

“My professor of macroeconomics couldn’t explain this to me. I didn’t get a chance to go through my equations and find out what happened,” she said. “I realized I wasn’t happy with the way money worked.”

This is how Ananina’s days as a Bitcoin evangelist began.

But being a Bitcoin Maxi doesn’t just mean believing in a currency, according to Ananina. She wholeheartedly believes in jurisdiction arbitrage, which for her means abandoning the rules of a government over her actions and finances and going to the place that best suits her at the moment.

“When the government starts to influence me, I’ll take everything [my assets] in my hands and go somewhere else, “she said.

This mindset led the 26-year-old entrepreneur to start her own business to help others. Ananina says several bitcoiners she knows who have held the cryptocurrency for more than a boom-and-bust cycle are considering getting a second pass to avoid paying capital gains taxes on their holdings.

How it works

Plan B Passport helps hundreds of people from countries like the US, UK, Australia, and Canada obtain a second passport in one of seven countries each year: St. Kitts and Nevis, Antigua and Barbuda, Dominica, Vanuatu, Grenada, St. Lucia, and Portugal. The company works with any government’s residency or citizenship-through-investment programs.

“It’s an attractive way to attract foreign investment and is particularly important in countries with few natural resources,” said Ernest Marais, attorney at Andersen International Tax Firm.

Marais, who has extensive experience advising clients on cross-border tax structuring, told CNBC that these types of passport purchase programs are commonly found in tax havens – or sometimes referred to as “International Finance Centers”.

“In St. Lucia, you can get citizenship by investing $ 100,000 (donation), $ 250,000 (government bonds), or $ 300,000 (real estate),” Marais continued via email.

Ananina says the average check for her customers is between $ 130,000 and $ 180,000.

“It’s basically a donation to the country’s sustainable growth fund,” she said. “So clients donate $ 100,000 or $ 150,000, plus some due diligence fees, government fees, and then $ 20,000 towards my legal fees.”

Typically, families choose St. Kitts, while St. Lucia is the most popular program for individual applicants as it is one of the cheaper travel destinations and has a fairly short application turnaround time.

According to Ananina, business has never been better.

“My only marketing channel is Twitter,” she said. “I literally don’t spend a single cent, but I’m fully booked for consultations three weeks in advance.”

Giving up US citizenship

In the United States, the IRS handles virtual currencies, which include bitcoin, as well as other cryptocurrencies. as property. This means that Bitcoin is taxed in a similar way to stocks or real estate.

“Basically, the taxpayer’s base in the bitcoin is what the taxpayer bought it for, and if the taxpayer sells or exchanges that bitcoin, it’s a taxable transaction,” explains Jon Feldhammer, Partner at the law firm Baker Botts and former senior litigation attorney for the IRS.

“The taxpayer’s income or loss is determined by taking the selling price and subtracting the taxpayer’s base,” he said.

Let’s say the taxpayer buys a bitcoin for $ 10,000 and sells it for $ 50,000. That person would face $ 40,000 in taxable capital gains. A second pass does not automatically solve your tax problems.

“If a taxpayer has a green card, is a US citizen or a US resident alien, the taxpayer owes US tax on any crypto profits they have, regardless of where the cryptocurrency or the taxpayer is located” , explained Feldhammer. “It doesn’t matter whether you are dual citizens; if you are a US citizen, you owe US ​​taxes on your worldwide income.”

Ananina says that as a result, many of her American customers are either planning to forego their US citizenship or are considering that option for a later life.

A Plan B Passport client, who spoke to CNBC on condition of anonymity, said he had spent the last decade traversing Southeast and Central Asia and was seriously considering giving up his U.S. passport once he was officially a citizen from St. Kitts is. He said the $ 180,000 cost was well worth it as it was only 1% of his net worth and capital gains taxes on his crypto holdings would be millions.

This person chose the “first” Caribbean passport as it describes it as it is the oldest, most respected of the programs and offers the most visa-free travel.

But he cautions those looking to apply to prepare for a month-long process of heavy paperwork, including police checks and medical exams.

Emigrants would also note that US citizens charge a fee for release.

“When a US taxpayer emigrates overseas, they are generally subject to ‘exit tax,’ which is essentially the tax the taxpayer would pay if they sold all of their possessions the day before giving up their citizenship,” said after Field hammer.

Technically legal

In contrast to tax evasion, in which a person deliberately hides their income, tax avoidance is perfectly legal, even if it is perceived as unjust by large parts of the population.

However, Marais notes that the IRS and tax authorities are stepping up their efforts to track digital currency holdings through some of the centralized crypto exchanges. “The reach of the IRS is global, especially with the Foreign Account Tax Compliance Act,” he said.

Feldhammer was with the IRS Counsel as he made significant strides in taxing US taxpayers who purposely hid assets overseas to avoid US taxes.

“A combination of whistle-blowers, legislative changes and significant international pressure has made it extremely difficult for a US person to hide assets overseas,” Feldhammer said. “The US can do the same for crypto and is already considering changing its laws to do just that.”

The US Treasury Department Has suggested extensive reporting for crypto that would make crypto just as difficult to spend as it is cash without reporting.

The IRS is also stepping up its efforts domestically to track down non-compliant US taxpayers using John Doe subpoenas, a tool that enables the government to obtain information on a large group of unidentified taxpayers. In this case, the subpoenas were issued to various crypto exchanges in order to find people who made transactions in cryptocurrency worth at least 20,000 USD from 2016 to 2020.

Issuing these subpoenas one by one is a clumsy way to catch non-compliant U.S. taxpayers, but it can be effective, according to Feldhammer.

Because of this, many exchanges shun Americans altogether. Marais tells CNBC that Valr, the second largest crypto exchange in South Africa, does not affect US citizens.

Despite not breaking the law, Ananina endures the wrath of law enforcement.

“Every time I cross the border, I am detained at the airport for three hours,” claims Ananina. “You ask me a lot of questions and every piece of luggage goes through the craziest test. You literally turn my socks over.”

But she says border guards can’t get them down.

“When I cross the border on foot, it’s a lot easier, so I literally started flying into Tijuana and walking across the border into San Diego,” she said. “It’s a much faster route.”

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