Tax crimes involving cryptocurrency are on the rise, according to IRS criminal investigation chief Guy Ficco. Ficco highlighted a surge in what he referred to as “pure crypto tax crimes” falling under Title 26 of the US Code, which deals with federal income tax violations. These crimes include failure to report income from crypto sales and concealing one’s actual basis in cryptocurrency. Ficco noted that this trend is likely to continue, with an uptick in tax-reporting crimes expected. The IRS is poised to bring forth more charges related to crypto tax crimes in the upcoming year.
Crypto’s Growing Role in Financial Crimes
In addition to tax-related offenses, Ficco emphasized that cryptocurrency is increasingly playing a significant role in broader financial crimes such as scams, embezzlement, phone scams, romance scams, and pig butchering. The pervasiveness of crypto in these illicit activities is a cause for concern as it opens up new avenues for criminal behavior. While IRS investigations have traditionally focused on fraud and scams involving cryptocurrency, the recent shift towards tax crimes signals a shift in enforcement priorities.
Despite existing tax reporting rules for crypto investors since 2014, compliance remains a challenge. A report from Divly in 2023 revealed that only 1.62% of US investors adequately reported their taxes on crypto transactions, slightly higher than the global average of 0.53%. These findings underscore the widespread issue of underreporting and non-compliance among cryptocurrency investors. The IRS has been stepping up its enforcement efforts in response to these challenges.
With the IRS ramping up its focus on cryptocurrency tax crimes, taxpayers are likely to face increased scrutiny. The agency recently hired two crypto experts to spearhead enforcement efforts and is expected to intensify its investigative activities in the coming months. Tax professionals are bracing for a “tidal wave” of audits and investigations related to crypto tax compliance. Ficco’s predecessor, Jim Lee, also emphasized the IRS’s heightened attention to tax issues in the cryptocurrency space, indicating a shift towards more proactive enforcement measures.
The rise of crypto tax crimes presents a significant challenge for taxpayers and authorities alike. As cryptocurrency continues to gain mainstream adoption, ensuring proper tax compliance and reporting practices is essential to avoid legal repercussions. With the IRS doubling down on enforcement efforts, taxpayers must stay vigilant and adhere to tax regulations to prevent falling afoul of the law.
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