Can you avoid paying taxes on the Bitcoins you've sold by using a shell company outside of the U.S. and transferring the coins to it before selling? I am wondering if there's a legal flaw in the system that allows you to sell bitcoins through a shell company to avoid paying taxes or to lower the amount of taxes paid on any profit made.
Suppose you could. Now the proceeds of the sale belong to the shell company. What good does that do you?
If you want to use the money to buy stuff for yourself, the shell company has to pay it back to you as a dividend or salary or something, and that payment will be taxable income to you personally.
This might even come out worse for you: if you had held the bitcoins for more than a year, and sold them yourself, you could benefit from the lower long-term capital gains tax rate. But if you collect the funds as salary or dividend, you pay the higher ordinary income tax rate.
You can transfer the Bitcoin to a company, but then your shell company (i.e., you) owes taxes on the value of that transaction. You might be able to set up a shell company in a tax haven with no or de minimis taxes on such transactions, but doing so effectively puts an IRS target on your back.
There's undoubtedly some other (more complicated) way to do it legally, but it will require the help of a tax lawyer who is going to cost you more than you save in taxes.
IRS has all those loopholes patched.
if there's a legal flaw in the system that allows you to sell bitcoins through a shell company to avoid paying taxes or to lower the amount of taxes paid on any profit made.
The IRS spends a lot of lawyer time identifying and patching these holes. I once read a wonderful quote from a judge, who said roughly "Tax law is elaborate because the methods employed by tax evaders are elaborate".
This indicates a long, long "arms race" between the IRS and tax evaders. A novice trying to enter that field will simply repeat early mistakes made by previous traders.
The pros are working the cutting edge of that arms race. They are also using CPA's to be a "prosecution shield" -- they are not making those tax decisions alone, they are relying on the advice of professionals. When you rely on the advice of professionals, you cannot face criminal prosecution or even penalties - just the tax owed and interest.
Not gonna work, though. Your contribution is taxable the day you contribute it.
Because your company is being formed to hold investment assets. (IRC 721(b)). Your contribution of the crypto-"currency" to the company is considered a sale event, and you must treat it as a capital gain for tax purposes.
Gory details here.
The fact is, you had the asset, and then, it "went away" on a particular date. IRS wants the capital gains tax - they won't care where it went, unless you can show its disappearance is to a destination that is tax-exempt for you -- such as a contribution to a non-investment company you own, or to a charity*.
Since IRS wouldn't care if the company was on Mars, it doesn't help your taxes to use a foreign company.
* Charities are the best deal ever: you never have a tax bill (the charity pays the capital gains, at their somewhat lower capital-gains rate of 0%), and you get to deduct the appreciated amount as a charitable contribution if you held the asset >1 year.