Bringing bitcoin into US, what taxes should I expect?

Question

My friend owns roughly $1M USD worth of Bitcoin. These coins are sitting on a (backed up and encrypted) hard drive in Brasil. He bought these coins legitimately, and has the paper trail to prove it.

He recently moved to the US, and now wants to get his coins and liquidate them.

I've been doing research on this topic, and I am unsure what kinda of taxes he will have to pay on these coins.

I've seen articles talking about capital gains tax from buying / selling coin, but he is not trading them in the US.

My thoughts lead me to think that this would be similar to him bringing over a ton of gold or other assets, and selling them off here, which makes me think of paying a sales tax.

As Bitcoin is still a newer development in the tax world, I am struggling to find any documentation on steps for this, so any feedback / options would be great.

Answer 1

In most countries, you are deemed to dispose of all your assets at the fair value at that time, at the moment you are considered no longer a resident. ie: on the day your friend leaves Brazil, Brazil will likely consider him to have sold his BTC for $1M.

The Brazilian government will then likely want him to calculate how much it cost him to mine/buy it, so that they can tax him on the gain. No argument about how BTC isn't "Fiat money" matters here; tax laws will typically apply to all investments in a way similar to stocks etc..

The US will likely be very suspicious of such a large amount of money without some level of traceability including that he paid taxes on any relevant gains in other countries. By showing the US that he paid appropriate 'expatriate taxes' in Brazil (if they exist; I am speaking generally and have no knowledge of Brazilian taxes), he is helping to prove that he does not need to pay any taxes on that money in the US. Typically the BTC then is valued for US tax purposes as the $1M it was worth when he entered the US becoming a resident there [This may require tax planning prior to entering the US] [see additional answer here: https://money.stackexchange.com/a/48031/44232].

Any attempt to bring the BTC into the US without paying appropriate Brazilian / US taxes [as applicable, I'm not 100% on either; check with a tax lawyer knowledgeable on both US & Brazilian tax law, because the amount of money is material] will likely be considered fraud. 'How to commit fraud' is not entertained as valid subject matter on this site.

Answer 2

This question is about PROPERTY acquired before becoming a resident of the US.

If you bought property before you were a resident, and sold it after you were a resident, then you pay capital gains tax on the whole thing. Just see if it qualifies for long term capital gains tax treatment, because it is a substantially lower tax rate. You either have a tax event or you don't, and there's nothing wrong with an audit to prove that, so don't worry too much about it (unless you have a legitimate reason to be worried). Simply having what YOU perceive as a lot of money, doesn't make the possible lack of taxes more or less serious.

If he has things that have declined in value, he can sell them at a loss this year and buy identical assets immediately. This is called tax harvesting and creates a loss that can offset capital gains tax.