Get Your Crypto Tax in Order, IRS Warn Hundreds of Evaders
The tax collection agency of the United States is doubling down on tackling cryptocurrency tax evasion.
The Internal Revenue Service (IRS) Criminal Investigation division said it is preparing “hundreds” of cryptocurrency tax evasion cases, according to chief Jim Lee.
Many of these cases concern “off-ramping,” in which investors have failed to declare exchanges of crypto into fiat currency. Other cases involve individuals receiving payment in cryptocurrency then neglecting to report the income.
Lee said that investigations surrounding digital assets have become much more prominent over the past three years. Whereas most cases previously concerned money laundering, cases of crypto tax evasion now comprise nearly half the total.
To account for this growing proportion, the agency established the Office of Cyber and Forensic Services last year. This consolidated investigative units for cybercrime with digital assets, as well as digital and physical forensics.
The division chief highlighted one high-profile case from earlier this year, in which Bitqyck founders Bruce Bise and Samuel Mendez were sentenced for tax evasion. At $7 billion, Lee said the amount of cryptocurrency seized this year doubled the amount from the year prior.
Hiring Spree to Aid Crypto Tax Investigations
To aid in these investigative efforts, Lee said the Criminal Investigation division intends to hire more than 500 employees. Within the next fiscal year, Lee said the division would onboard 360 special agents, as well as 150 additional workers.
The closure of the division’s training academy, as well as testing sites, had hampered hiring efforts in 2020 and 2021. Consequently, the division chief remarked that increasing headcount would be his highest priority the coming year.
How to Report Crypto Taxes
While this news may be concerning to cryptocurrency investors, it’s not too late to learn how and what to declare. Although termed cryptocurrency, the IRS considers the digital assets to be property, so it treats any appreciation or depreciation of these assets as capital gains and losses.
Crypto investors hoping to avoid paying these taxes need only adhere to the Bitcoin maxim: HODL. Simply buying crypto is not itself a taxable event. Consequently, those who have bought crypto but have yet to sell do not have to pay taxes on their holdings.
However, investors must pay taxes upon selling or trading their crypto in a way which is recognized as a gain. The tax rate on the gain will depend on whether investors held the asset for over or under a year.
On the other hand, reporting a loss on a crypto investment can offset other gains up to $3,000. Unfortunately, this is only the case if total losses outweigh total gains. Still, this could come in handy for many investors who have suffered through the crypto winter this past year.
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