IRS Intensifies Efforts to Combat Crypto-related Tax Evasion

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Accord­ing to a report from the Inter­nal Rev­enue Ser­vice (IRS) crim­i­nal inves­ti­ga­tions divi­sion, tax eva­sion has emerged as a sig­nif­i­cant area of focus in cryp­to inves­ti­ga­tions. More than half of all probes con­duct­ed in the last fis­cal year were relat­ed to tax matters.

This news coin­cides with the IRS active­ly seek­ing input from stake­hold­ers on its upcom­ing frame­work cen­tered around cryptocurrencies.

Crypto Tax Crimes Surged

The report indi­cates that three years ago, more than 90% of active cryp­tocur­ren­cy inves­ti­ga­tions pri­mar­i­ly focused on mon­ey laun­der­ing. How­ev­er, tax-relat­ed issues account­ed for approx­i­mate­ly half of the dig­i­tal asset inves­ti­ga­tions in the pre­vi­ous fis­cal year, which began Octo­ber 1, 2022, and end­ed Sep­tem­ber 30, 2023.

There­fore, the IRS is inten­si­fy­ing its efforts to com­bat cryp­tocur­ren­cy tax fraud. The agency’s Crim­i­nal Inves­ti­ga­tion Unit report­ed an increase in the num­ber of inves­ti­ga­tions into dig­i­tal asset report­ing in its annu­al report.

In the paper, the unit men­tioned that they ini­ti­at­ed at least 2,676 cas­es in the 2023 fis­cal year. They iden­ti­fied over $37 bil­lion in trans­ac­tions asso­ci­at­ed with finan­cial and tax crimes.

The inves­ti­ga­tions pri­mar­i­ly cen­tered around undis­closed hold­ings of cryp­tocur­ren­cies, unre­port­ed cap­i­tal gains from cryp­tocur­ren­cy trans­ac­tions, income gen­er­at­ed from min­ing activ­i­ties, and even con­ceal­ment of cryp­tocur­ren­cy holdings.

Accord­ing to Jim Lee, the head of the Crime Inves­ti­ga­tion Unit at the IRS, the grow­ing adop­tion of dig­i­tal assets has led to a con­cur­rent rise in tax-relat­ed inves­ti­ga­tions, which is antic­i­pat­ed to con­tin­ue. Delib­er­ate eva­sion of pay­ment oblig­a­tions is one of the main offens­es under scruti­ny, with tax­pay­ers pur­pose­ful­ly con­ceal­ing own­er­ship of cryp­tocur­ren­cies to safe­guard their assets.

IRS’s Crypto Mission

The Inter­nal Rev­enue Ser­vice (IRS) ini­ti­at­ed its mis­sion to address cryp­to mar­kets in 2015, com­menc­ing inves­ti­ga­tions into cryp­to-relat­ed crimes. Accord­ing to reports, the IRS has suc­cess­ful­ly seized over $10 bil­lion in cryp­to assets since its ini­tial actions.

In 2019, the IRS intro­duced a new man­date for U.S. tax­pay­ers, requir­ing them to report all dig­i­tal asset trans­ac­tions to mit­i­gate instances of tax evasion.

The agency is dili­gent­ly for­mu­lat­ing new reg­u­la­tions, specif­i­cal­ly tar­get­ing bro­kers and inter­me­di­aries involved in the cryp­to busi­ness. The IRS active­ly seeks input from var­i­ous stake­hold­ers regard­ing pro­posed cryp­tocur­ren­cy tax report­ing mea­sures until Jan­u­ary 25, 2024.

These forth­com­ing reg­u­la­tions will be incor­po­rat­ed into the Amer­i­can Fam­i­lies Plan Act of 2023, neces­si­tat­ing cryp­to exchanges and bro­kers to report cryp­to trans­ac­tions sur­pass­ing $10,000 to the IRS and tax­pay­ers. Addi­tion­al­ly, this frame­work man­dates that cryp­to busi­ness­es main­tain knowl­edge of their cus­tomers and retain thor­ough trans­ac­tion records.

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