So, from what I gather, if you're looking to dodge taxes, the main way to do that is to move to a different country. But, you actually have to give up your US citizenship, because if you’re still a citizen, the government expects you to pay up even if you’re living somewhere else and are a citizen there. They'll still want their cut if you’re a US citizen.
So, that raises the question: if they believe you owe them something, would they go after you in a different country if you’re no longer a US citizen?
I guess it really depends on the country you’re in.
Like, if you’re in Germany or the UK versus Belarus or Russia.
I can totally see Russia or Belarus telling the US to just back off if they come asking for money or requesting them to hand someone over for taxes.
But what about Germany, the UK, or any of their allies? If the US had a suspicion that a new citizen there might owe taxes on their crypto.
And let’s not forget, you’re now paying whatever taxes the new country wants, and you’re following all their laws.
I might be overthinking this, but I’m asking for a friend. This friend, who is definitely not me, isn’t even sure if they owe anything since they had a bunch of losses and didn’t really make much... Plus, it’s tough for them to figure it out since they didn’t keep track of all their trades. And with the IRS being as harsh as they are, even if you owe just a few cents, they’ll start piling on interest every single day.
The US tax system is pretty unique and if you want to avoid paying any taxes in the US after you leave you will have to pay an exit tax to the IRS.
If you are a citizen of the US, but living/working abroad your income will still be subject to US Income tax laws.
The only way around this is to renounce US citizenship and pay an exit tax !!
https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-about-international-individual-tax-matters
I can remind you of a story about a Russian businessman who was a US citizen and broke the law. He then did not have time to change citizenship and failed the deal as a US citizen, but forgot to pay taxes.
Oleg Tinkov will pay a $ 506 million fine for the settlement of tax claims in the United States
https://time.news/oleg-tinkov-will-pay-a-506-million-fine-for-the-settlement-of-tax-claims-in-the-united-states/
This is the founder of one of the largest banks in the Russian Federation - Tinkoff Bank
Consider the plight of a child born to parents who were in the U.S. temporarily (legally or not). That child is a U.S. citizen, whether they want to be or not, and they must pay U.S. taxes.
Furthermore, if the person opens an account at a bank and the bank finds out that they are a U.S. citizen, it will pass their information to the IRS.
In addition, the person may not be able to open a bank account because many banks do not allow U.S. citizens to have accounts.
It depends on couple of things,
1. Which country you are moving in and if that country is an ally of US or not.
2. If you have taken up dual citizenship or completely given away US citizenship. If dual citizenship is active, you still have to pay taxes based on the certain number of days you have stayed in US
3. If the country is not an US ally, do they any agreement for handing over criminals/frauds made in US. A lot of countries actually do have this in place
4. How much money you actually owe to IRS
It's best to consult with a criminal lawyer specialized in financial crime.
To give more info.
My friends situation is that they have no idea how much money they owe, the IRS does not know about this money because it's simply potential taxes owed during anonymous crypto trades, maybe. As far as the gov is concerned, they owe nothing because they aren't aware that anything even exists.
However, if in the future, crypto makes lots of holders now millionaires, in order to cash out, tons of money would be owed, that's not the problem. The problem lies in when the gov says "how did you get all of this" and it's stated that it was bought during the bear market (like this current one, and this is a hypothetical for the future) BUT you can't prove what you bought from it, and you might have owed money from like kind crypto trades.
So... because of that, and the fact the IRS is out to get innocent people just trying to make it out of poverty. The only solution is to revoke citizenship and move to another nation if crypto ever makes one a millionaire because they wont just accept you paying them taxes they ask for and move on. they'll try to make it like you're a criminal and you have to risk going to prison if you lose a legal battle at worse, or, pay crap tons of fees at best.
This form may help - 8854
https://www.irs.gov/pub/irs-pdf/f8854.pdf
Im no US tax expert by any means, by have a look at this form- it may give you a few answers?
You must pay tax on unrealized capital gains on all property if your income or net worth are above certain thresholds.
https://www.irs.gov/individuals/international-taxpayers/expatriation-tax
If the trades associated with any if the centralized exchanges then IRS will know about the earnings made through the cryptocurrency so you have to pay whatever the tax needs to be paid or else you ( friend) will be in trouble because on many occasions US forced many tax evaders who moved to EU to handover them to US because they committed tax evasion but the scenarios or different when people moved from other countries especially from 3rd world countries EU government denied the request of respective governments.
If the person has to move to another country yet then its better to consult the financial advisor who may guide better because they know the laws and probably the loopholes if there is any.
Apart from that, his friend should be taxed for the trades made.
OP, what you comment has already been discussed in other threads, and it is not a rare situation. There were people who got Bitcoin when it was worth little and now find they have a large capital.
I already commented that it is preferable to act before the capital becomes very large because when it is already large and you have no way to prove where it comes from you run into a problem, and the solutions are two:
1) Pay lawyers and tax advisors to help you to legalize it, which will have high costs and you cannot trust 100% that you are not going to have problems with the justice.
2) Go to another crypto-friendly country, which also has costs. It also has emotional implications.