Crimes like money laundering and tax evasion are nothing new. What is new are certain technologies, like virtual currency, that can enable criminal tax offenders. For example, some people use Bitcoin – which, compared to credit or debit, provides relative (though not complete) anonymity – to mask illegal purchases made on the Dark Web, or to conceal their income from the government. However, the IRS has evolved to keep pace, allocating many of its limited resources toward combating cybercrime. This has translated to an intensified crackdown on the cryptocurrency industry, as seen in the creation of the J5 taskforce, the mass mailing of warning letters to Bitcoin holders, and the IRS’ legal battle with Coinbase. Unfortunately, the government’s efforts to fight crypto-financed crime have also swept thousands of innocents, legitimate Bitcoin users into the mix. If you have a Bitcoin wallet or account and have engaged in unreported cryptocurrency transactions, protect yourself from IRS penalties – or worse, Bitcoin tax evasion charges – by working with an experienced Bitcoin tax lawyer from the Tax Law Office of David W. Klasing.
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In October 2019, the U.S. Department of Justice (DOJ) announced “the takedown of the largest Darknet child pornography website, which was funded by Bitcoin,” scoring a major victory with the indictment of 23-year-old Jong Woo Son, described by the DOJ as “a South Korean national, [who] was indicted by a federal grand jury in the District of Columbia for his operation of Welcome To Video, the largest child sexual exploitation market by volume of content.”
Notably from a tax perspective, the website “offered… videos for sale using the cryptocurrency Bitcoin” (whose value, as of mid-December 2019, stands at roughly $7,200 per coin). By working with British and South Korean authorities, the IRS Criminal Investigation Division (IRS-CI) managed to identify and track down 337 people, making arrests in more than three dozen countries. One country was the United States, which yielded nearly 100 arrests (including at least three arrests of California residents in San Diego, San Francisco, and Hot Springs).
It is to build cases like this that IRS-CI aggressively investigates unreported cryptocurrency transactions. As IRS-CI Chief Don Fort stated, “Through the sophisticated tracing of Bitcoin transactions, IRS-CI special agents were able to determine the location of the Darknet server, identify the administrator of the website and ultimately track down the website server’s physical location in South Korea.”
While most people use cryptocurrency for perfectly innocent purposes, such as supporting charities, sending money to their friends, or investing in gold and other precious metals – famously, the first-ever Bitcoin transaction involved pizza – IRS-CI is aggressive about auditing and investigating individuals with unreported transactions or accounts as part of its broader push against cybercrime. As Fort has explained, cybercrime “is the next wave of crime that is going on in front of our eyes,” adding, “The movement of money occurs in a split second and it requires us to really employ new ways of investigating and solving these crimes…”
One of those “new ways of investigating” is the increased use of data analytics, which continuously grows more refined. Another is, as Fort emphasized, “collaboration and partnership” – not only with foreign governments and law enforcement agencies, but also private industry. For example, companies like Chainalysis have provided the IRS with software that helps the government detect tax fraud, as written about in Fortune.
IRS-CI prioritizes the investigation of crimes that are funded by cryptocurrency. While that frequently translates to an emphasis on non-tax crimes and money laundering, tax offenders can also be swept up in the mix. If the IRS believes that you are using Bitcoin to conceal income and avoid paying taxes, you are at risk for civil and criminal penalties. Therefore, it is vital to comply with IRS Bitcoin reporting guidelines. For confidential Bitcoin tax help in a reduced-rate consultation, contact the Tax Law Office of David W. Klasing online, or call (800) 681-1295 today.>
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