Virtual Currency and Tax

The sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.

USING BITCOIN TO PAY FOR GOODS, SERVICES AND THE IRS

Despite the lack of consumer protection regulation, the IRS taxes Bitcoin.  Virtual currency can be treated as income for the purpose of tax reporting and as property for capital gains tax.

When examining the IRS approach to the taxation of virtual currencies, the most basic question is whether they will be treated as currency or property.

PAYING FOR SERVICES WITH BITCOIN

In IRS Notice 2014-2, wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.

INDEPENDENT CONTRACTORS

In IRS Notice 2014-21, payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.

BITCOIN AND THE CHANGING FEDERAL LAW LANDSCAPE

Virtual currency issued to fund software development projects is relatively new.  Not relying on the usual venture funding or traditional bank lending, software project managers seek financing directly from investors.   This is called crowdfunding.

The virtual currency is offered to the public in a coin offering.  It can be sold on an exchange or held in a wallet.  In pre-offer sales it must be held for a specified period of time.

The reason this new business financing paradigm developed was to free newer software projects from the usual financing framework (banks) and level the playing field.  Further, many investors view mining and exchanging this virtual currency as the new frontier for making money.

Bitcoin is one of over 2,500 different of virtual currencies. Virtual currency value often fluctuates by the hour. In some environments, virtual currency operates like “real” currency but it does not have legal tender status in any jurisdiction.

In light of these developments over the past year, people have asked me a number of questions about earning and trading Bitcoin, particularly as a non-US citizens in the US.

Here is one of them.

QUESTION #1

Is trading crypto currency considered “employment income” if I trade on my H visa in the US?

ANSWER #1

It depends. For people who use Bitcoin mainly as an investment, capital gains, as you may know, are taxed at lower rates than ordinary income. Think about Bitcoin in terms of common stock. If you sell stock within a year of buying it, the profit is taxed as ordinary income. But if you hold that stock for longer, it is taxed at the capital gains rate.

In IRS Notice 2014-21, the character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.

According to the IRS, when a taxpayer successfully “mines” Bitcoins and has earnings from that activity whether in the form of Bitcoins or any other form, he or she must include it in his gross income after determining the fair market dollar value of the virtual currency as of the day he received it.

If a bitcoin miner is self-employed, his or her gross earnings minus allowable tax deductions are also subject to the self-employment tax.

See:  https://www.irs.gov/pub/irs-pdf/i1040nre.pdf

LACK OF REGULATION

In order to purchase virtual currencies, you must buy directly from someone who owns them or through an exchange platform. These platforms tend to be unregulated.

Cybersecurity crime in the US continues to rise. The FBI reports 22,000 complaints per month in 2014, totaling $800 million in consumer losses per year (Source: https://www.fdic.gov/consumers/assistance/protection/cybersecurity3_10_16.pdf)

While securities accounts at U.S. brokerage firms are often insured by the Securities Investor Protection Corporation (SIPC) and bank accounts at U.S. banks are often insured by the Federal Deposit Insurance Corporation (FDIC), bitcoins held in a digital wallet or Bitcoin exchange currently do not have similar protections.

Dena Wurman is a New York licensed attorney who has practiced federal law since 2005. She blogs on topics that explain new federal regulations and how they relate to business. She was told at a recent blockchain meet-up event in Manhattan that there is a big need for good legal counsel in the blockchain space. She decided it’s worth exploring. This is a first in a series of articles.

Newer I-9

On July 17, 2017 the United States Citizenship and Immigration Services (USCIS) released an updated I-9 form.  On September 18, 2017, all employers will be required to use the revised form, so it makes sense to avoid any delay and begin use of the new version immediately.

What is an I-9 form and why do employers need to use it?  The Immigration Reform and Control Act of 1986 (IRCA) requires U.S. employers to verify the identity and eligibility to work on Form I-9.

All individuals, both U.S. citizens and aliens, hired on or after November 7, 1986 are required to complete the form when hired.

How do you complete the I-9?

As an employer, your duty is to verify that the employment documents employees present appear legitimate.  In order to avoid a claim of discrimination on the basis of citizenship status or national origin, an employer is not allowed to ask an employee for a specific document.  The employee’s duty is to fill out the form honestly.   The Immigration Act prohibits a person from forging or falsifying  any document for the purpose of obtaining a benefit.

When an employee presents documents from the acceptable list on the I-9 form, these are evidence of the employee’s right to work in the U.S.  Absent clear evidence of the contrary such as the  immigration enforcement informs you that the A# is wrong the employee says “I am not authorized to work,” the employer need not inquire further.

Once the I-9 is complete, rechecking documents is prohibited by IRCA.

Civil and criminal sanctions will be imposed on U.S. employers and individuals who, subsequent to November 6, 1986, hire or refer for a fee aliens who are not authorized to work in the United States.

Employers will need to adapt to these new changes no later than September 18, 2017 or face the possibility of large fines.

Call for a consult to determine what documents you need have on file to protect yourself.  Call (646) 580-0617 or complete the contact form on this website.

Dena Wurman is an expert in I-9 forms in the following industries:  Retail, Restaurant, Landscaping, Housekeeping, Maintenance, Construction.  Beware! If caught, a repeat-offender employer of illegal immigrants can face civil and criminal fines (up to $11,000 per employee) and jail time (up to five years).

Immigrants traveling

Immigrants traveling to the US have had a hard time during the past year.  Even US  permanent residents with green cards are experiencing difficulty returning to the US.  Especially those with criminal records seeking to be readmitted.  Non-citizens considering travel abroad should exercise caution.

Think before making any long trip, before seeking new immigration benefits, or applying for citizenship. You may be denied admission if these “inadmissibility” grounds apply if you:

(1) have abandoned or relinquished your permanent resident status,
(2) have been absent from the United States for a continuous period in excess of 180 days,
(3) have engaged in illegal activity after departure from the U.S.,
(4) have departed from the U.S. while in removal or extradition proceedings,
(5) have committed a criminal or related offense (including “crimes of moral turpitude”, drug trafficking, or prostitution),
or
(6) are attempting to enter at a place other than a designated port of entry or have not been admitted to the U.S. after inspection and authorization by an immigration officer.

What to some may seem relatively minor crimes, for example theft or domestic violence, may in fact be grounds for inadmissibility.  Inadmissability is a term used in immigration that means you will not be allowed to return to the US even if your family is there and you already have a green card.

If after having received your green card, you commit a crime (or more than one crime) these infractions would not come to the attention of immigration authorities until you travel abroad.  At that time you may be denied entry.

Since 9/11 the immigration service has developed elaborate systems to track travel in and out of the US.  All passports are now machine readable.  Fingerprinting technology has evolved over the past 15 years.  Paper-based systems have been phased out.  Most records are now electronic and it is easier than ever to match fingerprint records with immigration benefits and travel.

Given these new events, it is still possible to overcome an issue at the border with the right information.

Many of the grounds of inadmissibility can be waived in individual cases. For example, INA § 212(d)(3) allows the Secretary for Homeland Security to waive any of the grounds, except for a few security-related provisions, for nonimmigrants applying for a visa or seeking admission.

Waivers for permanent residents are more limited.

Are you a nonimmigrant or green card holder planning a trip?  Clear any concerns you have in advance with an immigration attorney.

H-4 Visa Holders May Lose Work Permit

There are indications that the Trump administration is preparing to issue regulations rescinding the ability of H-4 spouses to get work permits.  H-4 visas are given to the spouses of H-1B visa holders, highly-skilled foreign workers, the majority of whom are from India.

Until 2015, H-4 visa holders – who often had skill levels comparable to their spouses – were not allowed to work. In 2015, U.S. Citizenship and Immigration Services announced that some H-4 visa holders would be able to work if their spouses were on track for permanent residency in the U.S.

The primary visa holder had to be a beneficiary of an approved Form I-140, Immigrant Petition for Alien Worker, or a nonimmigrant seeking lawful permanent residence to work and remain in the United States beyond the six-year limit on their H-1B status.

If the application was approved, the eligible spouse would receive a Form I-766, Employment Authorization Document (EAD), allowing them to work during the period of its validity.  The EAD validity period generally will match the H-4 spouse’s authorized period of admission, up to three years.

The 90-day period for adjudicating these I-765 applications, however, does not begin until the companion extension application is approved.

Travel Ban Highlights

Since January 2017, three executive orders referring to immigrants have been issued by the president.  All are controversial.  In addition to funding a wall between the US and Mexico and re-prioritizing deportations, there is a proposed travel ban.

Of the three orders, the travel ban was re-written and issued again.

What is the travel ban?  The purpose of the ban is to freeze travel from primarily Muslim countries.  In early February a Washington court stopped (enjoined) the ban.

The president then drafted a new order rather than appeal this old one.

After releasing this new presidential order, a federal court in Hawaii came out with a nationwide injunction striking down all of the travel ban.

As of March 16, 2017, there is  no suspension to travel to the U.S.

Deportation Facts

The Executive Office for Immigration Review (EOIR) operates immigration courts all over the U.S.  EOIR is responsible for all hearings to deport immigrants illegally present in the U.S.

If you are a non-citizen, or an attorney with a non-citizen client, this article will cover a few key terms so that you may respond appropriately. The notice always used is most commonly referred to as an “NTA.”

A Notice to Appear (NTA) advises the immigrant or attorney to appear before an immigration judge.

Service by mail is sufficient if there is proof the government attempted to deliver the NTA to the last address provided. After receiving the NTA it is important to meet with an attorney and discuss the factual allegations presented in it. It is possible that the government may have alleged facts that are not accurate in the notice.  One strategy an attorney may use is to challenge or concede to charges in this document.

Most scheduled hearings are what the court calls “master calendar hearings.”

A master calendar hearing is an individual’s first appearance before an Immigration Judge. The purpose of the master calendar hearing is to advise individuals of their rights, explain the removal charges filed, take pleadings, identify and attempt to narrow the factual and legal issues, and set deadlines for filing any papers needed for subsequent hearings.

So that you may have the opportunity to secure counsel, the law requires 10 days to elapse between service of the NTA and the first removal hearing.

Once the 10 days have elapsed, the government is free to pursue a removal hearing regardless of whether you have legal representation.

It is worth noting that the Department of Homeland Security (DHS) does not have permission to search your home without your consent. The NTA is not a warrant.

The government needs a warrant signed by a court (not an administrative agency such as the DHS) to search your property.  You do not have to say anything to an immigration enforcement officer. Immigration is a civil matter.

Courts have said that immigration law is second only to tax law in its complexity.

Attorney Dena Wurman has represented clients in immigration hearings and removal proceedings for over a decade. If you received an NTA to appear, she is qualified and experienced to represent you, your client or your family member. For a confidential consultation call (646) 580-0617 or email dena@wurmanlegal.com

Dual Intent Visa

 

When applying for a visa to visit or work in the US, the immigration authorities are going to look very closely at your reasons for visiting or working.  More importantly, they will want to know whether members of your family already reside in the US.  The service looks at these areas because they reveal what your real reason is for visiting.

Different visas have restrictions on what you can do while using them.  For example, a B visa is intended for tourist-type activity and strictly prohibits working for payment in the U.S.

Non-immigrant visas, such as a B visa, are for individuals with permanent residence outside the U.S.  who wish to be in the U.S. on a temporary basis – for tourism, medical treatment, business, temporary work or study.

On the other hand, an H visa is a “dual intent” visa.   Dual intent means you plan to visit and work and at the same time may stay for the longer term and apply for a green card.

Applying for an H1B and a green card at the same time is possible in this instance.

However, applying for a B visa and a green card at the same time is not.

When applying for either a visa or green card (which includes the authorization to work in a virtually unrestricted way) you must match your current visa intent with your future plans.

Your “intent” is a major factor the government looks at when approving your application to stay and work in the U.S.  If your intent doesn’t match, our application will be denied.

 

Qualifying Continuing Residence

If you are interested in keeping your green card and applying for U.S. citizenship, this article will explain why travel abroad may hinder qualifying for continuing residence.

If in fact you want to keep your permanent resident card, you may need to prove to the government that you are living here most of the year.

In order to meet this continuous residence requirement, the government will look very carefully at your time spent away from the U.S.   This applies in two very important instances.   In order  to 1) keep your green card or 2) apply for U.S. citizenship.  There are few exceptions.

An important term the government uses to track whether you meet this requirement is ‘continuity.”

Continuous U.S. residence can be broken by traveling and working in a foreign country.

An example of how this may happen is traveling frequently as a green card holder.  This time away can also add an element of uncertainty to a U.S. citizenship application.

Generally, there are two basic requirements for U.S. citizenship.  One is good moral character. The other is to live at least half of the year in the U.S. (continuity.) This time is counted very carefully on the N-400 citizenship application form.  An applicant must wait three or five years as a green card holder before applying for citizenship.

For citizenship, after the required three or five years pass, a green card holder submits forms to the government along with supporting documents. These forms are then reviewed by a government official and approved by this official. There is also an exam and an English test.

The government has a lot of leeway in approving applications.  Even if your application is denied, you can take it to another government court to appeal a denial.

Let’s look at an example of travel/work abroad that caused an official to deny an application for U.S. Citizenship.

The details of the case were as follows. The citizenship applicant spent more than half the year working abroad for a gas company “subsidiary” of Chevron.  If the employee worked for a U.S. company, this would fall under an exception to the continuous residence requirement for citizenship. The reviewer was not persuaded that the subsidiary  was in fact a U.S. company.

In October 2010 the application for citizenship was denied by the immigration officer. On appeal, the court found the subsidiary company was in fact a U.S. company because company shares were traded on the U.S. stock exchange.

Here is an example of how a government immigration official opinion may be overruled on appeal. It also shows how there are exceptions to rules that may apply in individual cases, depending on the facts of the case.

Thankfully, our system has checks and balances to offer people who want to become citizens a second chance.

Routine immigration employment forms

Immigration forms are widely available on the internet. Many routine immigration employment forms may be completed by non-attorneys.

After an application is submitted and approved, frequently the same approach may be used again.

There may be a few adjustments.

For example, many immigration forms are updated annually.  Some filing locations change.  In some cases it would be a good idea to contact an attorney for advice on filing an updated form.  Particularly, if an employee has an arrest and conviction for a crime.

Barring any new events that may occur between filing periods, human resource professionals may have the ability to complete many forms with minimal training.  These applications include:

    • TPS
    • NAFTA Canada/Mexico TN Visa
    • Employment Authorization

Need help with an unusual case? Simply request an assessment of your issue by completing the contact form on this website.

This office is happy to set up a conference call with your staff!

Non-compete Agreements

By Dena Wurman, MPA, JD

A non-compete agreement is a contract.  Usually an employer has the employee sign one before starting to work at the new company.

The purpose is to prevent an employee from working for a competitor.  Most courts have found these agreements to be legally binding as long as there are reasonable limitations as to the geographical area and time period.

If the terms are reasonable, a court may prevent an employee from exploiting information derived from the current employer or working for a new employer.

In a case well-known in the tech industry, Amazon.com Inc. v. Zoltan Szabadi, Amazon went to court in Seattle to enforce their non-compete agreement.  Amazon tried to prevent a former employee from working for competitor (Google.)  The employee signed a non-compete with Amazon.

In response, the employee filed a Motion for Summary Judgment, to nullify the agreement. Court denied in part, granted in part so the employee was freed from some of his obligations to Amazon.  But not all of them.

Seattle courts have generally permitted reasonable non-compete agreements. In Washington, a court will enforce a reasonable non-compete if:

1) The restraint is reasonably necessary to protect the business or goodwill of a

party;

2) The restraint does not impose upon the individual any greater restraint than is reasonably necessary to protect the business or goodwill; and

3) The public is not injured as a result of the loss of service and skill of the individual.

Legislators in Washington are trying to change the law now.

According to proponents of a house bill, non-competition agreements are used too often. They cause waste. They inhibit individuals from moving between jobs. They are oppressive. The agreements are expensive to challenge in court. Why not just use a nondisclosure agreement instead?

According to opponents of the proposed bill, nondisclosure agreements are insufficient to protect an employer’s investment. Employers provide employee training. Departing employees can steal business. An employee could go to court to get the agreement invalidated, or an employer may not attempt to enforce the agreement if they believe it is unenforceable.

In my own practice, I have had experience with non-competes in the health care and aviation industries. In both cases, there was no litigation. In one health care case, the employer waived the non-compete clause when the employee agreed to voluntary termination. In another, it was modified to a more reasonable geographic region from a worldwide restriction, before it was signed.

Attorney Dena Wurman has helped individuals, business owners, organizations and attorneys in employment matters, most recently as Outside Counsel to the University of New Mexico.