Willful and non-willful tax flubs are different. Taxes are complex, and innocent tax mistakes can often be forgiven — maybe with no penalty. Even if there is a penalty, non-willful is vastly lower than willful. In a criminal tax case, this fundamental dichotomy can mean the difference between innocence or guilt, freedom or incarceration.
But penalties in civil cases can be plenty bad — and most tax cases are civil — and to the United States Internal Revenue Service, bad intent may not be bad at all. With crypto, the IRS has said it is digging hard, investigating both tax evasion and just poor compliance. But any interaction with the IRS can routinely involve some kind of penalty. Sometimes, the IRS uses the threat of penalties to encourage payments. But in other cases, the IRS pursues penalties with a vengeance.
A good example is offshore accounts, which have strong parallels to crypto tax-compliance issues. Both willful and non-willful failures to report offshore accounts can be penalized. Civil penalties for non-willful violations can be $10,000 per account per year. But if the IRS says you were willful, you can pay up to $100,000 or 50% of the amount in the account. This is for civil cases, imposed in the context of regular IRS audits, even through the mail. If the IRS says you were willful and wants big penalties, you can pay them or push back through the IRS Appeals Division. IRS Appeals is the classic place where the IRS and taxpayers settle disputes.
But sometimes, either the IRS or the taxpayer won’t budge. Some courts say willfulness is a resolution to disobey the law, but one that can be inferred by conduct. Watch out for conduct meant to conceal. However, much less can now be willful. The IRS penalizes for willful blindness and recklessness. The IRS often refers to Section 6672 of the tax code, which involves payroll taxes. Every employer must withhold taxes and promptly send the money to the IRS. If you don’t, Section 6672 permits the government to collect it from officers, directors and even just check-signers — any “responsible” person who willfully fails to pay employment taxes. Willful mean in this context is very favorable to the government.
Taxpayers are readily found to be willful if they merely ought to have known there were a risk withholding taxes were not being paid, and if they were in a position to find out. The IRS usually wins these payroll tax cases, so willful in this context means pretty little. Aren’t foreign bank accounts different? The IRS appears not to think so. In the case Bedrosian v. the U.S., Arthur Bedrosian opened two Swiss bank accounts in the 1970s but did not tell his accountant until the 1990s. The accountant advised him to do nothing. He said it would be cleared up at Bedrosian’s death when the assets in the accounts were repatriated as part of his estate. But in 2007, a new accountant listed one account and not the other. Eventually, Bedrosian amended his tax returns to correctly report both accounts. The IRS said the violation was willful and slapped on a penalty of $975,789 — 50% of the maximum value of the account. The District Court for the Eastern District of Pennsylvania found Bedrosian’s actions “were at most negligent,” and that the omission of the large account was “unintentional oversight or a negligent act.” So, the government appealed to the 3rd U.S. Circuit Court of Appeals. The 3rd Circuit reversed the lower court’s decision due to the IRS’ arguments about the much harsher willful standards from Section 6672 payroll tax cases. The 3rd Circuit cited two Section 6672 cases and quoted the standard for reckless disregard from one. The Bedrosian case was remanded to the District Court to apply the new standard.
The fear is that willfulness is beginning to look quite broad — just as the IRS likes. The IRS can almost always show willfulness any time payroll taxes were not paid. The flimsy “in a position to find out” standard in the context of Section 6672 noncompliance is very broad. In short, is the government seeking a sort of carte blanche when it comes to proving willful FBAR penalties (i.e., when one fails to report a foreign bank account)? The Justice Department’s reply in the Bedrosian case claims that the taxpayer, by signing and filing his or her return without reviewing it, “ought to have known” that there was a “grave risk” the form might not be accurate. This argument suggests an attempt to use the signing of a return as inherent reckless disregard of the duty to report foreign accounts. The Justice Department has successfully argued in other cases that merely signing a return without the proper box checked is per-se willfulness — see United States v. Horowitz, et al., 123 AFTR 2d 2019-500 (DC MD); Kimble v. United States, 122 AFTR 2d 2018-7109 (Ct. Fed. Cl.). The courts in both cases said taxpayers have constructive knowledge of the content of their tax returns and cannot claim ignorance. In Horowitz, the taxpayers are arguing on appeal that the Section 6672 standard is inappropriate because FBAR willfulness occurs in a much different context.
Former CFTC Chair Giancarlo Suggests That The FED Should Create a Digital Dollar
Christopher Giancarlo, the former chairman of the Commodity Futures Trading Commission (CFTC) believes it’s time for the Federal Reserve to issue a fully digital currency on Feb. 21. Giancarlo told Yahoo Finance’s On the Move program that the Federal Reserve must issue a digital currency in order to compete with China’s central bank digital currency (CBDC).
The former CFTC chairman highlighted that online shopping would benefit from the U.S. offering a digital payment option as there won’t be any intermediary fees involved like with the traditional debit and credit cards. Giancarlo also added:
“When we talk about a digital dollar we’re talking about in the virtual world, to have that same immediacy of payment that we have in the analog human world.”
Giancarlo believed that a digital dollar is agnostic to other initiatives in the cryptocurrency space. He said that Bitcoin and innovations like Facebook’s Libra have their own “value propositions” and could co-exist with a central bank issued digital currency (CBDC). He expressed that:
“I think the market is always better when there is a lot of competition out there… An instrument like Bitcoin may serve to the equivalent to the digital dollar might be equivalent to the digital gold.”
Giancarlo has also advocated that the U.S. regulatory framework needs updates to adapt to the changes that cryptocurrencies bring to the financial institutions. He says:
“It’s going to change things dramatically and our laws need to evolve with that as they’ve done over the 90 years, now they need to evolve again.”
Giancarlo is involved with a Digital Dollar project that is supported by a global consulting giant Accenture, which is allegedly collaborating with Sweden’s central bank on its own digital currency known as the e-krona. This project was initially started by Giancarlo with the goal of establishing a non-profit foundation to study prospects for converting the dollar into a “fully electronic currency based on blockchain.”
It was reported earlier this month that the U.S. Congressman Bill Foster (D-IL) has questioned the Chair of the Federal Reserve Jerome H. Powell on U.S’s CBDC progress at a hearing on monetary policy. He specifically cited China’s plan to implement the digital Yuan among countries involved in its Belt and Road initiative and that it could jeopardize the dollar’s world reserve currency status.
Crypto Makes A Cameo On The Simpsons Where Jim Parsons Explains It’s ‘Cash of the Future’
One of the latest episode of “The Simpsons” aired has just aired featuring Jim Parsons of Big Bang Theory appearing as a guest star to explain cryptocurrencies and how a blockchain works. In the song and dance predicts cryptocurrency to be the future money, the animated ledger states: “Each day I’m closer, to being the cash of the future. Not in your wallet, I’m in your computer! At the end of Jim’s talk, there is a subliminal message on screen. It further explains how cryptocurrencies work, part of which says:
“Using the word “cryptocurrency” repeatedly while defining cryptocurrency makes it seem like we have a novice’s understanding of cryptocurrency. Well that is a total pile of cryptocurrency. In this system, rules are defined for the creation of additional units of cryptocurrency. They can be generated by fiat like traditional currency or just thrown around randomly or all given to LeBron.”
The crypto community welcomed the episode. Altcoin Daily account has commented:
“The Simpsons did it! Cryptocurrency explained to Lisa by the great Jim Parsons on #TheSimpsons! It’s the money of the future! Bullish!”
Some comments to the tweet also pointed out that the Simpsons has a reputation for predicting the future over the years. Ten years ago it showcased Donald Trump as the president of the U.S., and more recently guessed the Game of Thrones series finale.
What Business Sectors Are Realizing the Full Potential of DeFi Protocols In 2020?
As the new decade unreels, a new wave of disruption seems to be coming to the shores of the global financial system. That wave is called decentralized finance protocols. Decentralized finance, or DeFi, simply refers to financial software that is built on the blockchain to make it easy for anyone to piece together digital assets and financial smart contracts. Think of DeFi as a Lego system for the finance industry. According to Defi Pulse, an analytics site that tracks the sector’s growth, the entirety of the DeFi ecosystem achieved its highest valuation in 2019 when its value peaked beyond $600 million in June. In 2020, the value locked in the entire ecosystem has more than doubled, peaking at a value of $1.2 billion.
Incidents such as the global financial crisis of 2008 highlight serious weaknesses in the traditional global financial system. DeFi is emerging as a palatable solution to provide an alternate future for the traditional financial sector. In fact, beyond the finance sector, DeFi has the potential to increase innovation as well as improve operational efficiencies in various ways. As DeFi applications widen across different sectors and industries, more and more investments are steadily pouring into the DeFi ecosystem.
The DeFi ecosystem has largely been populated by Ethereum-based protocols as a result of its early beginnings at the tail end of 2018 with the launch of MakerDAO. However, more diversity is underway as the sector matures and increases in liquidity, a report says. From decentralized credit and lending systems, predictions markets and asset management, DeFi’s applications have caused quite a stir in the mainstream space for their capacity for enabling multiple efficiencies. As DeFi solutions continue to grow while bringing about financial inclusion and empowerment, here is a look at the sectors where DeFi is flourishing in 2020.
Prediction markets are created for the benefit of researchers, speculators and traders looking to bet on future events. Generally, their main purpose is for market participants to take advantage of the outcomes of events. The predictions can range from exchange averages to quarterly sales reports of a specific company, to elections and even commodity prices. One of the companies using Ethereum’s blockchain to bring about decentralization to this sector is Veil, which is built on top of Augur (Ethereum’s leading prediction market protocol) and enables anyone to create, report and trade in their predictions. From politics, finance, sports and worldwide events, the Augur predictions market can correctly rule on the occurrence of real-time events while ensuring trustless communication and bet settlements on a decentralized network. Another company at the forefront of enabling decentralized finance in the predictions market is Gnosis. With Gnosis, anyone can create customized forecasting applications with conditional tokens that make it possible to trade the outcome of an event.
If blockchain was the internet, then digital wallets would serve as the equivalent for browsers. Simply put, digital wallets act as the gateways to blockchain, and therefore all interactions with the blockchain are made on a digital wallet. However, finding a balance between simplicity and security while developing digital wallets is a challenge. Also, managing digital wallets requires accurate knowledge of private and public keys, as mismanagement of these keys can lead to irreversible losses of the wallet’s contents. Furthermore, the steep learning curve — not to mention technical talk about hot and cold wallets — mostly goes over most people’s heads. These challenges can become barriers to mass adoption. DeFi tools can, however, be used to improve simplicity in terms of asset management on a digital wallet. MetaMask is a good example of how this can be done. The company has created a platform that enables interactions with distributed networks on a simple browser. This means an Ethereum decentralized application can be run on a browser without the need for using the full Ethereum node. Users can also open a wallet on their browser in just 30 seconds without giving up personal details. Balance — an Ethereum wallet developing company that is working to build a simple, user-friendly interface for an open-source financial system — is also pioneering this sector. In terms of security and simplicity, Argent has boosted security and simplicity by giving users full control of the wallet. Users also get to choose easy-to-read wallet addresses unlike the complex cryptographic texts found in most digital wallets.
Another application that gets as close to a decentralized bank as it can is Zerion. The company has created a simple user interface with support for multiple wallets, not to mention a detailed transaction list of users’ DeFi investments.
Managing a digital wallet can be complicated for most people. Not only can a user lose their crypto funds through exchange hacks or misplacement of a private key, simply sending crypto to a wrong address leads to an irreversible loss of crypto funds. For that reason, providing DeFi insurance is a sure way of giving users a decentralized experience similar to what traditional companies are offering in the sector. DeFi insurance protocols like Etherisc can be used to collectively build risk transfer solutions. With Etherisc, whenever certain conditions are met as a result of unprecedented weather calamities, flight delays or attack from hackers, a smart contract self-executes to dish out immediate payouts. Nexus Mutual is also implementing DeFi insurance, but instead of only covering risky events, they cover users against the failure of smart contracts. By pulling funds from multiple individuals into a smart contract, several people get to share risks, thereby eliminating the need for an intermediate insurance company. As a result, DeFi is also making insurance payouts more cost-effective.
It goes without saying that in a digital world, the most important data is personal data. However, there is less and less privacy at a time when such data is increasingly being referred to as the new money. Multiple online businesses such as exchange platforms and even social media companies are beginning to ask users for their passport and national identification documents to prove nationality or address for verification. Unbeknownst to most people, personal data stored by most centralized institutions can easily be stolen and sold to third parties, especially if users have weak passwords. Decentralized identifiers easily solve this problem by enabling users to create and manage their data, therefore, reducing the risks that come with centralized storage of personal data. Selfkey, for instance, offers decentralized identifiers that not only eliminate the need for centralized authorities but also give users self-sovereignty over their data. Instead of disclosing too much personal data while interacting with online platforms, Selfkey users can selectively choose what data to disclose during authentication processes. Other companies building tools to enable online data privacy include Civic, a wallet provider for safe crypto and personal data management; Telegram Passport, offering unified authorization for online identity verification made by the creators of the Telegram messenger and Telegram Open Network; and uPort, a company focused on creating scalable and secure data exchanges.
Freelance work and the gig economy is seen by most to be the future of work. However, even as the number of freelancers in the modern workplace continues to grow, one of the biggest challenges that freelancers face is getting paid for their work. From delayed payments to high fee charges from third-party service providers, freelance workers are mostly forced to move from one platform to the other as a result of a poor payment structure. With decentralized finance, smart contracts can be used to guarantee payment for work done. Also, since crypto payments are instant and global, the gig economy can get rid of third-party service providers who charge exorbitant fees. Gitcoin is one of the companies pioneering DeFi in the freelance and payments sector, providing a marketplace for open-source development. Once an open-source project is complete, funds from the users of the product are directed to developers who contributed to the open-source project. Ethlance is also making life easy for freelancers with its autonomous platform that connects freelancers to employers with zero service fees and free membership. Freelancers can also use services such as the Ink Protocol to access a decentralized payment system that can be integrated with any marketplace. The platform enables peer-to-peer transactions with a reputation system that can be imported or exported for use on multiple marketplaces.
Given that there are multiple inefficiencies in the current global financial system, DeFi tools offer an easy solution that can eradicate cybercrime, increase liquidity and reduce costs. Furthermore, DeFi protocols are capable of giving everyone access to quality financial services regardless of their status or location.
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