united-states cryptocurrency tax-law
Can you avoid paying taxes on the Bitcoins you&#39;ve sold by using a shell company outside of the U.S. and transferring the coins to it before selling?
<p>Can you avoid paying taxes on the Bitcoins you've sold by using a shell company outside of the U.S. and transferring the coins to it before selling? I am wondering if there's a legal flaw in the system that allows you to sell bitcoins through a shell company to avoid paying taxes or to lower the amount of taxes paid on any profit made.</p>

<p>Suppose you could.  Now the proceeds of the sale belong to the shell company.  What good does that do you?</p>
<p>If you want to use the money to buy stuff for yourself, the shell company has to pay it back to you as a dividend or salary or something, and that payment will be taxable income to you personally.</p>
<p>This might even come out worse for you: if you had held the bitcoins for more than a year, and sold them yourself, you could benefit from the lower long-term capital gains tax rate.  But if you collect the funds as salary or dividend, you pay the higher ordinary income tax rate.</p>

<p>You can transfer the Bitcoin to a company, but then your shell company (i.e., you) owes taxes on the value of that transaction. You might be able to set up a shell company in a tax haven with no or de minimis taxes on such transactions, but doing so effectively puts an IRS target on your back.</p>
<p>There's undoubtedly some other (more complicated) way to do it legally, but it will require the help of a tax lawyer who is going to cost you more than you save in taxes.</p>

<h2 id="irs-has-all-those-loopholes-patched">IRS has all those loopholes patched.</h2>
<blockquote>
<p>if there's a legal flaw in the system that allows you to sell bitcoins through a shell company to avoid paying taxes or to lower the amount of taxes paid on any profit made.</p>
</blockquote>
<p>No.</p>
<p>The IRS spends a lot of lawyer time identifying and patching these holes. I once read a wonderful quote from a judge, who said roughly &quot;Tax law is elaborate because the methods employed by tax evaders are elaborate&quot;.</p>
<p>This indicates a long, long &quot;arms race&quot; between the IRS and tax evaders.  A novice trying to enter that field will simply repeat early mistakes made by previous traders.</p>
<p>The pros are working the cutting edge of that arms race.  They are also using CPA's to be a &quot;prosecution shield&quot; -- they are not making those tax decisions alone, they are relying on the advice of professionals. When you rely on the advice of professionals, you cannot face criminal prosecution <em>or even penalties</em> - just the tax owed and interest.</p>
<h2 id="not-gonna-work-though.your-contribution-is-taxable-the-day-you-contribute-it">Not gonna work, though. Your contribution is taxable the day you contribute it.</h2>
<p><em>Because</em> your company is being formed to hold investment assets.  (IRC 721(b)). Your contribution of the crypto-&quot;currency&quot; to the company is considered a sale event, and  you must treat it as a capital gain for tax purposes.</p>
<p>Gory details <a href="https://www.smithlaw.com/media/alert/108_wrogers.pdf" rel="nofollow noreferrer">here</a>.</p>
<p>The fact is, you had the asset, and then, it &quot;went away&quot; on a particular date.  IRS wants the capital gains tax - they won't care where it went, unless you can show its disappearance is to a destination that is tax-exempt for you -- such as a contribution to a non-investment company you own, or to a charity*.</p>
<p>Since IRS wouldn't care if the company was on Mars, it doesn't help your taxes to use a foreign company.</p>
<hr />
<p>* Charities are the best deal ever: you never have a tax bill (the charity pays the capital gains, at their somewhat lower capital-gains rate of 0%), and you get to deduct the appreciated amount as a charitable contribution if you held the asset &gt;1 year.</p>
