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Increased Incidence of Tax Crimes Related to Cryptocurrency
In a recent interview with CNBC on April 12, IRS criminal investigation chief Guy Ficco highlighted a concerning trend of taxpayers engaging in tax crimes involving cryptocurrency. Ficco emphasized the growing prevalence of what he referred to as “pure crypto tax crimes” falling under Title 26 of the US Code, which specifically addresses federal income tax violations.
Nature of Pure Crypto Tax Crimes
These tax crimes typically entail taxpayers failing to report income generated from cryptocurrency sales or attempting to conceal their true basis in cryptocurrency assets. Ficco expressed alarm over the increase in tax-reporting infractions related to cryptocurrency and foresees the IRS pursuing additional charges in the foreseeable future.
Historically, IRS investigations predominantly focused on broader cryptocurrency-related offenses such as scams and financial misappropriation. However, Ficco acknowledged a significant shift as cryptocurrency continues to permeate various aspects of criminal activities, including phone scams, romance scams, and other illicit behaviors distinct from tax-related offenses.
Challenges in Tax Reporting Compliance
Recent admonitions by the IRS reiterated the obligation for individuals to report taxes on cryptocurrency transactions, whether they involve selling cryptocurrency, receiving it as payment, or engaging in other forms of crypto-related activities. Despite the IRS’s consistent enforcement of tax reporting rules since 2014, compliance remains a recurrent issue among cryptocurrency investors.
A study conducted by Divly in 2023 revealed alarmingly low rates of tax compliance in the US, with only 1.62% of investors complying with tax obligations on cryptocurrency transactions. This figure barely surpasses the global average of 0.53%, indicating a widespread disregard for tax reporting requirements in the cryptocurrency sphere.
Intensified IRS Enforcement Efforts
To address the escalating challenges posed by cryptocurrency tax evasion, the IRS bolstered its enforcement capabilities by recruiting two cryptocurrency experts in February. Reports by CNBC have underscored the anticipatory efforts of tax professionals bracing for heightened scrutiny and enforcement actions by the IRS.
Ficco’s predecessor, Jim Lee, also stressed the agency’s heightened emphasis on tax-related issues concerning cryptocurrency in late 2023, revealing that half of the active cryptocurrency investigations at the time centered on tax violations. These developments signal a proactive approach by the IRS in curbing tax crimes and enhancing compliance within the burgeoning cryptocurrency landscape.
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