IRS steps up crackdown on cryptocurrency-related tax evasion

Tax fraud has become a significant focus of cryptocurrency investigations, with more than half of all investigations in the most recent fiscal year being tax-related, according to a report from the Internal Revenue Service’s (IRS) criminal investigation division.

The news coincides with the IRS actively seeking stakeholder input on its upcoming cryptocurrency framework.

Cryptocurrency tax crime surges

The report shows that three years ago, more than 90% of active cryptocurrency investigations focused on money laundering. However, in the last fiscal year from October 2022 to September 2023, tax-related issues accounted for about half of digital asset investigations.

As a result, the U.S. Internal Revenue Service (IRS) is stepping up its efforts to combat cryptocurrency tax fraud. The agency’s criminal investigation division reported a significant increase in the number of investigations into digital asset reporting in its annual report.

The report mentioned that the department launched at least 2,676 cases in fiscal year 2023 and identified more than $37 billion in transactions related to financial and tax crimes.

The investigation focused on the following areas:

• Undeclared cryptocurrency holdings;

• Undeclared capital gains from cryptocurrency transactions;

• Income generated from mining activities;

• There is even the practice of concealing cryptocurrency holdings.

According to Jim Lee, Chief of the IRS Criminal Investigation Division, the growing popularity of digital assets has led to a simultaneous increase in tax-related investigations, which is expected to continue. Intentional evasion of payment obligations is one of the main crimes examined, where taxpayers intentionally conceal their ownership of cryptocurrencies in order to protect their assets.

The IRS’s Cryptocurrency Mission

The U.S. Internal Revenue Service (IRS) began investigating cryptocurrency crimes in 2015 in an effort to address issues in the cryptocurrency market. Since the start of the operation, the IRS has reportedly successfully seized more than $10 billion in crypto assets.

In 2019, the IRS introduced a new rule for U.S. taxpayers requiring them to report all digital asset transactions in an effort to reduce tax evasion.

The agency is working to develop new regulations specifically targeting brokers and middlemen involved in cryptocurrency businesses. The IRS is actively seeking comments from various stakeholders on the proposed cryptocurrency tax reporting measures, with a deadline of January 25, 2024.

These upcoming regulations, which will be included in the American Family Planning Act of 2023, will require cryptocurrency exchanges and brokers to report cryptocurrency transactions to the IRS and taxpayers when the transaction amount exceeds $10,000. In addition, the framework will require cryptocurrency businesses to know their customers and keep detailed transaction records.