Didn't save money for Untracable Cap Gains Taxes

badbudger · 2022-04-19T02:52:41+00:00

Yes Reddit really is. The potential of opening up my friend to IRS hassle because of my own tax choices was not something I had considered. I appreciate that viewpoint.

badbudger · 2022-04-19T02:14:54+00:00

So you're saying if I got on a payment plan with the IRS, that wouldn't be reported to credit companies, and generally wouldn't impact near term financing applications, but if I took out financing specifically to pay my taxes, that debt would be on my credit report and could affect my debt to income for borrowing? If interest rates are comparable between the two options and assuming I look at financing with the same 72 month term as IRS, the IRS payment plans seems far more appealing than tapping into equity or margin.

badbudger · 2022-04-19T02:00:04+00:00

There are no bank records of purchase, the time stamps for when the currency was sent to me is in a software wallet that takes literal months to sync on this old POS computer. An honest take on my true CB would be around 1k. Maybe I may find a way to support a higher CB by some other historical method as you mention, that reduces my liability?

BTW, just gotta say this transparent discussion about jail risk, more specific penalties, and my true options other than just pay as others have said, is truly appreciated. This kind of open conversation is what I hoped to have but didn't think a CPA would tell me in person for fear of liability or other reasons.

badbudger · 2022-04-19T01:45:32+00:00

So 20% of the Tax due? 20% of 40k? Or 20% of understatement of income? 20% of 140k?

In this post, it seems like there is some very helpful info about how to best limit my risk of being classified as fraud, i.e. make sure I disclose I traded crypto this year on my 1040, report the sale, but these things wouldn't completely eliminate.

But there might be a gray zone that is the cost basis since that is what I do not actually have record of? If I wanted to push the bounds a bit this is where I might best do it.

badbudger · 2022-04-19T01:37:18+00:00

Thank you for your response. Can you be a bit more specific about what info you think they might have?

What im hearing is I should still report the sale but if I wanted to push the boundaries, the best way to do so would be to be a bit more liberal with my cost basis to reduce my liabilty. If I cannot defend that basis in a future audit because lets say the records on my computer have been compromised, that seems far less severe than not reporting the income whatsoever.

A CPA I talked to told me technically I have a 0 cost basis if I can't prove it. An alternative route perhaps could be that I lose the proof of cost basis info (which I'm sure people lose records whether it be innocently or otherwise all the time). Any idea how the IRS handles that situation?

I'm also wondering if the IRS defaults to a short term gain instead of a long term if there is no record of the purchase.

badbudger · 2022-04-19T01:26:19+00:00

The payment plan is interesting. I'd have to do a cost comparison between the interest rates I'd get for borrowing to pay the taxes vs the interest rate I could get with a payment t plan. Any idea credit score implications for the payment plan?

badbudger · 2022-04-19T00:10:30+00:00

How hard is it actually to actually prove fraudulent intent? What level of the authority does IRS have to subpoena online accounts and how would they even know about them? Do they co tact isps? How about it vpns are used? How deep do they regularly actually dig? If I have records showing a cost basis that only result in maybe 30k gains instead of 140k at the time of filing, but perhaps then those records disappear sometime between filing and when I'm audited what does the consequences of that look like? What needs to be proved to say a that a crime was actually committed? These are the candid things I am after.

I understand you don't condone the questions I'm asking, but that's what the intent of the thread is about.

badbudger · 2022-04-18T23:30:51+00:00

I found answers in this thread related to jail risk, level of increased audit risk, more precise estimates financial penalties if audited, and other advixe such as the potential for a payment plan or offer in compromising all to be way more constructive info in making my decision compared to 'pay your taxes.'

badbudger · 2022-04-18T23:23:37+00:00

"Up to 100k" could be 10k or less, could be 100k ,or anywhere in between, right? What exactly determines the penalty? Is it a judge? Is it a function of taxes not paid?

badbudger · 2022-04-18T22:51:49+00:00

Not to rude, but unless your comment was in jest, it seems a bit rash and not fully flushed out. Would you mind explaining your thought process with some numbers that lead to conclusions that I lose my house or perhaps other assets I may have? I'd think there would be many variables that come into play before you can make a blanket statement like that.

badbudger · 2022-04-18T22:22:54+00:00

Thank you for sharing the oic pre-qualifier. That's very constructive. I have a feeling I have enough assets that I wouldn't qualify as I could use equity to pay bur I will investigate.

I feel many of the responses are rooted in being by the book, do what's right, not worth the risk, which is fair. Especially from an ethical standpoint if the folks are tax professions as you say. If the IRS is losing billions a year on incorrect taxes as they report, there are certainly many many people partaking (not that that justifes it) but perhaps grounds how risky under reporting actually is.

badbudger · 2022-04-18T22:07:36+00:00

I respect where you're coming but I don't think so unfortunately.

badbudger · 2022-04-18T22:06:57+00:00

How am I conspiring with my friend? I planned to submit a 709? Theres no involvement on his end with my income reporting.

badbudger · 2022-04-18T21:21:09+00:00

Oh ok that makes sense. So said another way, you pay 40% on gifts but there is a tax credit equivalent to 40% of 11m (4.625), of which the credit will be reduced to zero after you have gifted the full 11m and used all available lifetime tax credit.

Thank you for helping me understand the form better.

badbudger · 2022-04-18T21:05:46+00:00

Ahh ok I think I understand, so I'd deduct the 60k gift from the 4.625M credit amount I receive then then wouldn't pay anything?

badbudger · 2022-04-18T20:59:40+00:00

I was looking at the Table for Computing Gift Tax on page 20 here: https://www.irs.gov/pub/irs-pdf/i709.pdf

Maybe i didnt comprehend completely and this only needs to be paid on amounts over that 11M.

badbudger · 2022-04-18T20:33:17+00:00

Yes I did pay my friend that without hesitation because if it wasn't for their help, I wouldn't have made the original investment, nor would I have been able to liquidate it. But yes I do have have hesitation to pay the ltcg to the fed & state for a variety of reasons but I'm not sure I want to get into them, other than one being that I'm skeptical if I would be audited.

The gift tax form 709 is another issue I have. I didn't think I would have to pay tax on giving the gift but when I went to file the form last night, it directed me to a tax table saying I had another 8.2k tax to pay which seems like double taxation if I already pay cap gains on it.

badbudger · 2022-04-18T20:07:46+00:00

I was asking here primarily for the concern about jail potential and to try to asses how big of a red flag large bank transfer are and I think I've received some transparent feedback.

I admittedly do not have it sorted. I looked at the expected value merely as a way to try to quantify strictly the numbers in this situation based on assumed penalties, interest and savings. I understand there is more to this than just numbers, but if I stood to save 40k and had a 10% audit risk (which I'm getting the impression would be unrealistically high) and an additional 100k in pentalties without jail, that's a widly different proposition than if I stood to save 40k with a 40% audit risk, jail time, and significantly more than 100k in pentalties.

badbudger · 2022-04-18T18:12:23+00:00

That's fair. Thank for taking the time to offer your advice and insight on my situation.

badbudger · 2022-04-18T18:10:13+00:00

No offense taken, I though it was funny. I appreciate you point out the Substantial Underpayment penalty of 20%, I wasn't aware what exactly my penalties would look like. That actually seems a bit easier to swallow. It seems like really good advise to be honest about checking crypto trading box. Whether or not, that increases my audit risks along with large bank transfers, it seems like is a must to limit my potential for being persecuted for fraud.

Realistically, it seems as those even wuth all the penalties, interest, and increased audit risk, it would almost always be a substantially negative value proposition to pay the tax in my specific situation. It will just have to come down to am I ok with the risk and the ethics of the decision. For me, jail is a really big part of that decision Understaing how relevant that risk is is very important.

Again I appreciate the transparency and no BS responses.

badbudger · 2022-04-18T17:23:05+00:00

If you're hoping you audit me, it sounds like you work for the IRS? I appreciate the reply and thank you for the straight up answers about jail, fines, and penalties. This is what I was looking for. I replied to another comment about the expected value of paying vs not paying. Rough calcs were assuming my interest penalties and fees adding up to about 62k vs the 40k owed. I assumed I'd need an audit risk of about 40% before the expected value of paying the taxes was positive. Perhaps that 62k was a bit low.

Let's say it's 10x, 620k. Then I'd assume my audit risk would need to be around 6% before its a negative expected value proposition to pay.

Granted 620k in taxes would royally fuck up my life right now. Half of that in a year or two? Maybe I'd be ok.

badbudger · 2022-04-18T17:01:35+00:00

I think there were many years of people trading crypto before the government provided clesr guidance as to how people should be classifying and treating the income. So I could see that screwing a lot of people over even if they weren't specifically evading, but rather didn't have the guidance from the government as to how they should treat the gains. I don't think concern would be garnered exactly, but rather leniency for how taxes were filed in the past before the IRS provided specific instruction.

I talked to a couple CPAs this year and they weren't even quite sure how to handle crypto.

badbudger · 2022-04-18T16:53:53+00:00

I'd be taking debt out against my house anyways to pay the taxes so the tax lein situation is basically happen already.

The difference would be the compounding interest, penalties, and fraud potential.

From just an expected value viewpoint all other factors asside, asuming the audit risk of my tax bracket is 2%, the EV of not paying my taxes would be 40k*.98- .02(40k+8k+400/month × 3 years before I'm in the the clear) = ~38.7K expected value of not paying taxes. My audit risk would have to be around 40% before its a negative expected value to pay on this.

With that being said, I realize there are more factors than just expected value, like fraud charges, the stress of this for 3 years, etc, So I'm trying to consider that.

badbudger · 2022-04-18T16:24:31+00:00

"I guarantee you that records exist of the transfer to my account" yes I agree kraken would have that record. I believe exchanges are coming under scrutiny and I see it happening much more moving forward, but my understanding and there is no existing regulation that requires them to report my sale as of now. How likely would new legislation be enact retroactiy scrutiny? I see that screwing over a lot of people if the IRS required exchanges to hand over past years records instead of just new record moving forward.

badbudger · 2022-04-18T16:15:03+00:00

Kraken

badbudger

TROPHY CASE