Is it possible to deduct Cryptocurrency ransom payment from your taxes?

Is it possible to deduct Cryptocurrency ransom payment from your taxes?

Cryptocurrency News
July 7, 2021 by Delnia
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Around 2,000 years ago, during the Han era, China made peace with some of the Central Asian nomadic peoples robbing Silk Road commerce for a quick buck. It did so to complete the Silk Road trade route, which ran from China to Europe, and to ensure a large source of income from luxury goods commerce.
Is it possible to deduct Cryptocurrency ransom payment from your taxes?

Any Cryptocurrency ransom payment is treated as property rather than cash, so be mindful of the tax consequences in the United States.

Cyber attackers are taking advantage of companies’ weak cybersecurity precautions as commerce has increasingly migrated to the digital sphere during the global COVID-19 epidemic. They’re utilizing ransomware to encrypt these businesses’ data until a cryptocurrency ransom payment in Bitcoin is paid. In 2019, it used Bitcoin to pay for 98 percent of ransomware payments (BTC).

Anne Neuberger, the United States’ senior national security advisor for cyber and new technologies, claims that:

The quantity and size of ransomware attacks have dramatically risen. […] The United States is collaborating with nations across the worldwide perpetrators and countries that harbor them responsibly and responsibly combat ransomware’s danger on our own. The private sector has a distinct and critical role.

At Antidolos ICO IEO rating and review, you can read and know more about this news.

What do others tell about Cryptocurrency ransom payment?

President Joe Biden’s administration is moving to regard cyberattacks as a national security issue, even though they are projected to cost $1 trillion per year and frequently take the form of ransomware. Intelligence agencies have determined that they represent a significant threat to the country, putting petroleum, food supply, and medical systems in jeopardy.

The profits of a cryptocurrency ransom payment made by Colonial Pipeline to the organization known as “DarkSide” were recently confiscated by the U.S. Department of Justice, totaling 63.7 BTC (worth roughly $2.3 million at the time. It did so in collaboration with the Department of Justice’s Ransomware and Digital Extortion Task Force, which works with domestic and international government agencies and private-sector partners to address this serious criminal threat.

Following the money remains one of the most fundamental yet effective tools we have,” said Lisa Monaco, the Department of Justice’s deputy attorney general. She went on to say:

cryptocurrency ransom payment is the gasoline that drives the digital extortion engine, and [..] the U.S. will utilize all available instruments to make these assaults more expensive and profitable for criminal organizations.

We will continue to employ all of our available resources, as well as our domestic and foreign relationships. To disrupt ransomware attacks and safeguard our private sector partners and the American public. Said Paul Abbate, deputy director of the Federal Bureau of Investigation.

U.S. tax implications of Cryptocurrency ransom payment

One question to consider is whether the payment of ransomware can be a “normal and necessary” expense of the business. And deducted from taxable income as a loss of theft under Internal Revenue Code Sections 162(a) and 165(a). Which allows for the deduction of any losses not covered by insurance or other means. The Internal Revenue Service’s definition of theft appears broad enough to include a cyberattack. Also, allow ransomware payments made in Cryptocurrency to be deducted as a business expense for federal tax purposes.

However, if the cryptocurrency ransom payment in Cryptocurrency is an unlawful bribe, illegal kickback. Blackmail payment, or other illegal payment. Such as one given to a group designated as a terrorist organization under any U.S. statute. It is not tax-deductible under Section 162(c). As a result, a taxpayer should differentiate illegal payments from ransomware Cryptocurrency payments by emphasizing property theft. When paying a ransomware demand in Bitcoin to a cybercriminal with a known connection to a sanctioned or boycotted foreign government. Questions of legality may emerge.

Tom Robinson, Elliptic’s co-founder and principal scientist offered the following example. “Elliptic was the first to discover the Bitcoin wallet used by the DarkSide ransomware gang to accept a crypto ransom payment of 75 bitcoins from Colonial Pipeline. […] DarkSide is an example of ‘Ransomware as a Service’. Which is said to be based in Eastern Europe (RaaS).”

The ransomware developer creates the virus under this operational model, while the ransomware affiliate infects the target computer system and negotiates the cryptocurrency ransom payment with the victim organization. This new economic model has revolutionized ransomware. Allowing individuals who lack the technical skills to build malware but are willing and able to infiltrate networks to participate.

Cryptocurrency ransom laundered on the dark web market

Ransomware attackers may even offer a discount to a targeted organization if it spreads the virus to other businesses. According to a study released by Flashpoint and Chainalysis, these BTC ransom payments are subsequently laundered on dark web markets.

Any Cryptocurrency ransom payment is taxed as property rather than money. As a result, taxpayers must keep thorough records of these Cryptocurrency ransom payment transactions, disclose any profits, and report the fair market value of any mined Cryptocurrency price on their tax returns.

Furthermore, the Financial Crimes Enforcement Network, or FinCEN. Regulates cryptocurrency-related transactions under the Bank Secrecy Act (BSA). Stating that “a money transmitter is an administrator or exchanger who (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason.

As a result, a Cryptocurrency transmitter must perform a risk assessment. Establish a written anti-money laundering policy. Designate an individual compliance officer, and execute other action items required by the BSA.

Other benefiting and responsible participants in a Bitcoin ransom payment at ICO scams may face criminal and tax fraud/evasion fines, it should be emphasized. For example, John McAfee, the creator of the antivirus business that bears his name. He recently accused in the USA of multiple tax offenses connected to nominee-held Bitcoin transactions. If convicted, he faced many years in prison. This might influence his choice to commit himself to a Spanish jail after a judge decided that he could extradite to the U.S.

To sum-up

FBI Director Christopher Wray told the Senate Appropriations Committee that ransomware victims should not pay a ransom to recover their data or restore network access. He stated, “In general, we would oppose paying the Cryptocurrency ransom payment because it promotes more of these assaults. And honestly, there is no assurance whatsoever that you will get your data back,” adding. There is no guarantee anything that you will get your data back. We need to make hacking and illegal activity more difficult and painful for them. He went on to say:

We took over 1,100 actions against cyber adversaries last year. Including arrests, criminal charges, convictions, dismantlement. And disruptions, and we facilitated many more through our committed partnerships with the private sector. International partners, and federal, state, and municipal entities.

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References:
https://cointelegraph.com/news/are-cryptocurrency-ransom…

https://cointelegraph.com/news/not-like-before-digital-currencies…
https://cointelegraph.com/news/cybercrime-task-force-monitoring…

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