IRS Plans to Prosecute Hundreds of Tax Evasion Cases Involving Cryptocurrency

 Posted on December 13, 2022 in Tax Audits

The Criminal Investigation (CI) division of the IRS regularly investigates taxpayers who are suspected of tax evasion, tax fraud, and other offenses. These investigations may be related to tax audits, or they may be performed independently. Those who are accused of committing tax-related offenses may not only face penalties for non-payment of taxes or failure to submit the proper information to the IRS, but they may also be subject to criminal prosecution. In recent years, offenses related to cryptocurrency have been a significant concern for the IRS. Agency officials have stated that hundreds of cases involving virtual currency and tax evasion or other offenses are likely to be prosecuted within the next year.

The IRS's Increased Focus on Cryptocurrency

As more and more people invest in cryptocurrency, use virtual currencies to make payments and purchases, and receive digital assets as income, the IRS has begun to scrutinize these transactions and enforce compliance with tax laws. It has also been able to prosecute some major cases involving tax fraud and other related offenses. In just one example, the founders of Bitqyck, a cryptocurrency investment company, were convicted of tax evasion after defrauding investors of around $24 million. The defendants in this case had failed to file corporate tax returns, and they had underreported their income to the IRS, resulting in tax losses of more than $1.6 million. In addition to being sentenced to prison, the defendants were required to pay a civil penalty of $8.3 million to the U.S. Securities and Exchange Commission.

While high-profile cases prosecuted by the IRS that involve millions of dollars may receive the most attention in the news, the hundreds of cryptocurrency investigations that are currently being performed are likely to involve smaller amounts. Currently, the IRS is using "John Doe" summonses to gather information about cryptocurrency transactions, and in many cases, these summonses involve transactions of $20,000 or more. These summonses may be served on third parties, such as cryptocurrency exchanges, in order to identify virtual currency owners and determine whether they have violated tax laws. Summonses may be used to identify "off-ramping" transactions in which cryptocurrency is exchanged for legal currency issued by the U.S. or other countries, as well as virtual currency that was received as income and was not properly reported to the IRS.

Anyone who owns or trades virtual currencies should be aware of the possibility that they could face penalties for failure to comply with reporting requirements or non-payment of taxes that apply to transactions. While cryptocurrency owners may expect that they can complete transactions anonymously, more tools are available to the IRS to help uncover these transactions and identify taxpayers who have violated tax laws. The IRS is also seeking to promote awareness of the requirements that apply to cryptocurrency owners to ensure that it can demonstrate that offenders intentionally failed to report transactions or pay taxes. This will allow the IRS to pursue criminal tax evasion charges against these taxpayers.

Contact Our San Jose, CA Tax Lawyer

Cryptocurrency owners will need to be sure to understand when they are required to report transactions and the taxes that they will be required to pay. Failure to meet these requirements can result in serious penalties, including criminal charges in some cases. At John D. Teter Law Offices, we can provide guidance to taxpayers who trade or invest in virtual currency, ensuring that they can avoid potential penalties. We can assist with tax audits or other IRS investigations, help defend against charges of tax evasion, and address any other issues related to cryptocurrency. To learn how we can help with cases involving tax compliance, contact our San Jose tax law attorney at 408-866-1810.

Sources:

https://news.bloombergtax.com/daily-tax-report/irs-crypto-tax-criminal-cases-bolstered-by-john-doe-summonses

https://www.irs.gov/pub/irs-pdf/p3583.pdf

https://cointelegraph.com/news/irs-prepares-for-an-increase-in-crypto-cases-in-the-upcoming-tax-season