Cryptocurrency is transforming the tax landscape by introducing new challenges in reporting and compliance. The decentralized and often anonymous nature of crypto transactions complicates the ability of the Internal Revenue Service (IRS) to track taxable crypto income and enforce tax laws, prompting the agency to develop new strategies and partnerships to address these issues.
The IRS expects a rise in crypto tax evasion cases as taxpayers file their returns, with a focus on “pure crypto tax crimes” involving unreported income and concealed crypto assets. To address these issues, the agency is collaborating with blockchain companies to enhance their ability to trace and investigate complex crypto transactions. Significant crypto asset seizures and increased civil and criminal tax enforcement efforts are on the horizon.
If you have failed to file a tax return for one or more years, have a history of not reporting taxable crypto transactions or have taken a Crypto reporting position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore Crypto income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
If you need help resolving your tax issues, get help from our Dual-Licensed Tax Lawyers & CPAs at the Tax Law Offices of David W. Klasing by calling (800) 681-1295 or clicking here to arrange a reduced rate initial consultation.
IRS Predicts Increase in Crypto Tax Evasion Cases
As of April 2024, the IRS is anticipating a surge in crypto tax evasion cases. Guy Ficco, the head of the IRS’s criminal investigation division, expects more Title 26 crypto cases this year and in the future. While the IRS has previously linked crypto to various financial crimes, especially income tax evasion, Ficco foresees a rise in direct crypto tax crimes.
Pure Crypto Tax Crimes
Over the years, the IRS has investigated crypto assets as part of broader tax fraud cases, schemes, and money laundering operations. Ficco highlights the emergence of “pure crypto tax crimes,” which directly violate federal income tax laws related to cryptocurrency. These crimes include failing to report income from crypto sales or hiding the true origin of crypto assets. The IRS has already observed an increase in such cases and expects this trend to continue.
Collaboration with Blockchain Companies
To combat crypto tax evasion, the IRS has partnered with blockchain companies like “Chainalysis.” This collaboration provides the agency with advanced tools for analyzing complex crypto transactions, aiding in the detection and investigation of tax offenses. By using Chainalysis and other technologies, IRS agents can trace money movements and gather critical information about cryptocurrency ownership. This partnership has significantly enhanced the IRS’s ability to identify and address crypto tax crimes.
Significant Seizures and Enforcement Efforts
Crypto-related financial crimes have led to some of the largest asset seizures in US history. The IRS’s Criminal Investigation division has played a crucial role in these efforts, demonstrating the agency’s commitment to tackling crypto tax evasion. As taxpayers prepare to file their returns, the IRS is ready to handle the expected increase in crypto tax crime cases, reflecting the growing importance of digital assets in the financial landscape.
Importance of Legal Support
Obtaining legal support can be crucial for those encountering tax issues related to cryptocurrency earnings. The complexities of crypto taxation require specialized knowledge to navigate IRS regulations and compliance requirements. Our Dual-Licensed Tax Lawyers & CPAs routinely provide essential guidance, help mitigate potential civil and criminal tax penalties, and represent clients in disputes with the IRS. Effective legal support ensures that individuals and businesses manage their crypto assets in accordance with the law and minimize the risk of severe legal & financial consequences.
Common Examples of Tax Evasion Involving Cryptocurrency
Tax evasion can arise in many different forms. With the rise of cryptocurrency, these forms are even more numerous.
Using Multiple Wallets
Using multiple cryptocurrency wallets to hide assets is another tactic used for tax evasion. By spreading crypto holdings across several wallets, some people attempt to conceal the total amount of their assets. This makes it harder for the IRS to track the full extent of someone’s cryptocurrency wealth. However, this strategy can backfire if the IRS uncovers the hidden wallets.
Offshore Accounts
Some individuals use offshore accounts to hide their cryptocurrency assets from the IRS. They transfer their crypto holdings to exchanges or wallets based in countries with less stringent tax laws. This can make it difficult for the IRS to trace these assets. However, international cooperation between tax authorities is increasing, making it riskier to hide assets offshore.
False Reporting of Transactions
Another method of tax evasion involves falsely reporting cryptocurrency transactions. This can include underreporting the value of crypto trades or claiming fake losses to offset gains. By providing incorrect information, individuals try to reduce their taxable income. The IRS has become more adept at detecting these false reports, increasing the risk of audits and penalties.
Using Privacy Coins
Privacy coins, like Monero or Zcash, offer enhanced anonymity features, making transactions harder to trace. Some people use these coins to hide their crypto activities from the IRS. While privacy coins can provide legitimate privacy for users, they can also be misused for tax evasion purposes. The IRS has developed tools to investigate transactions involving privacy coins, making this method less secure.
Engaging in Peer-to-Peer Transactions
Another common form of tax evasion is engaging in peer-to-peer (P2P) transactions without reporting them. It can be tempting to avoid reporting these transactions when you buy or sell cryptocurrency directly with another person, rather than through an exchange. However, even P2P transactions are subject to tax laws, and failing to report them can lead to significant penalties.
Using Unregistered Exchanges
Using unregistered or less-regulated cryptocurrency exchanges is another method of tax evasion. These platforms may not report transactions to tax authorities, allowing users to avoid detection. However, using these exchanges carries significant risks, including legal repercussions if the IRS discovers undeclared assets.
Bartering with Cryptocurrency
Bartering with cryptocurrency without reporting the transactions is another way individuals evade taxes. If you exchange goods or services for cryptocurrency, the value of the crypto received should be reported as income. Some people avoid reporting these barter transactions, hoping to escape tax liabilities.
Call Our Law Firm for Help Resolving Your Tax Issues
If you have encountered a tax-related legal issue related to your cryptocurrency seek help from our Dual-Licensed Tax Lawyers & CPAs by calling the Tax Law Offices of David W. Klasing at (800) 681-1295 or clicking here to arrange a reduced rate initial consultation.
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