55-year-old faces tax issues with unfiled returns and crypto holdings
A 55-year-old individual who hasn't filed taxes in 20 years is concerned about potential liabilities, especially with $1 million in cryptocurrency assets and an impending layoff. The situation highlights risks of long-term tax non-compliance in the U.S. Financial experts advise immediate action to mitigate penalties.
The individual, aged 55, revealed in a query to MarketWatch that they have not filed federal income tax returns for the past 20 years. This spans from approximately 2004 to the present, during which time they accumulated significant wealth in cryptocurrency, now valued at $1 million. The person is also facing job loss, adding urgency to their financial concerns.
According to the article, the querent asked, "I haven't filed taxes in 20 years. I'm 55 and about to get laid off. I've $1 million in crypto. Am I in big trouble?" This personal account underscores the complexities of tax obligations for crypto investors, particularly those who have delayed compliance.
Financial advisor and certified public accountant Mark J. Kohler, responding in the piece, emphasized the severity of the situation. He stated, "Yes, you are in big trouble, but it's not hopeless." Kohler explained that the IRS has a Voluntary Disclosure Program, which allows taxpayers to come forward and potentially avoid criminal charges by paying back taxes, interest, and penalties. For non-filers, the program can reduce penalties from up to 25% for failure to file to more manageable levels if addressed proactively.
Background context reveals that cryptocurrency transactions are taxable events under U.S. law, treated as property by the IRS since 2014 guidance. Gains from selling or trading crypto must be reported on capital gains taxes, with rates depending on holding periods—short-term up to 37% and long-term up to 20%. The individual's $1 million in holdings likely includes unrealized gains that could trigger substantial tax bills upon liquidation, especially without prior filings.
Kohler advised starting with gathering records of all income and crypto transactions over the 20 years, noting that the IRS statute of limitations for assessments is generally three to six years, but non-filing extends this indefinitely. He recommended consulting a tax attorney immediately, warning that the impending layoff could complicate matters by reducing income needed for settlements.
The response also touched on state taxes, which vary but often mirror federal requirements, potentially compounding liabilities. While the advisor did not specify the individual's location, the advice applies broadly to U.S. residents. No criminal intent was implied, but Kohler cautioned that willful evasion could lead to audits or prosecution.
This case illustrates broader implications for crypto holders amid increasing IRS scrutiny, including new reporting rules for digital assets starting in 2023. Tax professionals urge compliance to avoid escalating penalties, which can reach 75% for fraud cases, though most non-willful oversights qualify for relief programs.