IRS Steps Up Fight Against Crypto Tax Evasion

In a recent report, the Internal Revenue Service (IRS) signals a heightened focus on combatting tax evasion within the cryptocurrency space. More than half of the investigations conducted in the last fiscal year were related to tax matters, marking a significant shift from the previous emphasis on money laundering.

Crypto Tax Crimes Surge

Three years ago, the majority of cryptocurrency investigations targeted money laundering. However, the latest report reveals that tax-related issues accounted for about half of the digital asset investigations in the fiscal year ending September 30, 2023.

The IRS is intensifying efforts to tackle crypto tax fraud, reporting an increase in investigations into digital asset reporting. In the 2023 fiscal year, the Criminal Investigation Unit initiated at least 2,676 cases, identifying over $37 billion in transactions associated with financial and tax crimes.

Focus Areas in Investigations

The investigations primarily revolved around undisclosed cryptocurrency holdings, unreported capital gains from transactions, income generated from mining activities, and concealing cryptocurrency assets.

According to Jim Lee, head of the Crime Investigation Unit at the IRS, the surge in digital asset adoption has led to a proportional increase in tax-related investigations, with deliberate evasion of payment obligations a key focus.

IRS's Crypto Mission

Initiating its mission in 2015, the IRS has successfully seized over $10 billion in crypto assets. In 2019, a mandate required U.S. taxpayers to report all digital asset transactions to combat tax evasion.

The IRS is actively formulating new regulations targeting brokers and intermediaries in the crypto business. Stakeholder input is sought until January 25, 2024, with proposed measures set to become part of the American Families Plan Act of 2023. The regulations mandate reporting of crypto transactions exceeding $10,000 and require crypto businesses to maintain customer knowledge and transaction records.