IRS Intensifies Efforts to Combat Crypto-related Tax Evasion

According to a report from the criminal investigations division of the Internal Revenue Service (IRS), tax evasion has become a major area of ​​focus in cryptocurrency investigations. More than half of all investigations conducted in the last fiscal year were related to tax issues.

This news coincides with the IRS actively seeking input from stakeholders on its upcoming cryptocurrency-focused framework.

Tax crimes related to cryptocurrencies increased

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

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

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

📊 Our FY23 Annual Report highlights more than 2,600 investigations, $37.1 billion identified for tax and financial crimes. #CIHR #By the numbers#WhatWeDoCounts
https://t.co/B1hZw8ClXm pic.twitter.com/EZWQKNB2uu

— IRS Criminal Investigation (@IRS_CI) December 4, 2023

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

According to Jim Lee, head of the IRS Crime Investigation Unit, the growing adoption of digital assets has led to a simultaneous increase in tax-related investigations, which is expected to continue. Deliberate evasion of payment obligations is one of the main crimes under scrutiny, with taxpayers intentionally hiding cryptocurrency ownership to safeguard their assets.

The IRS Crypto Mission

The Internal Revenue Service (IRS) began its mission to address cryptocurrency markets in 2015, launching investigations into cryptocurrency-related crimes. The IRS has reportedly successfully seized over $10 billion in crypto assets since its initial actions.

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

The agency is diligently formulating new regulations, aimed specifically at brokers and intermediaries involved in the cryptocurrency business. The IRS is actively seeking comments from various stakeholders regarding proposed cryptocurrency tax reporting measures through January 25, 2024.

These upcoming regulations will be incorporated into the American Families Plan Act of 2023, requiring cryptocurrency exchanges and brokers to report cryptocurrency transactions exceeding $10,000 to the IRS and taxpayers. Additionally, this framework requires crypto companies to maintain knowledge of their customers and retain complete records of transactions.