The IRS criminal investigation chief, Guy Ficco, recently highlighted a concerning trend regarding taxpayers engaging in tax crimes related to cryptocurrency. Ficco pointed out that there has been a rise in “pure crypto tax crimes” falling under Title 26 of the US Code, specifically focusing on federal income tax violations. These crimes encompass various offenses such as failing to report income from crypto sales and concealing one’s actual basis in cryptocurrency.
Ficco emphasized that the issue of crypto tax crimes is expected to persist, with an observed uptick in tax-reporting offenses. He anticipated that the IRS would bring forth more charges in the coming year and beyond. Historically, IRS investigations into cryptocurrency have primarily been part of broader inquiries into scams and embezzlement. However, Ficco noted that cryptocurrency is becoming more prevalent and will likely play a more significant role in various criminal activities, including phone scams, romance scams, and pig butchering.
The IRS recently issued a reminder to individuals, emphasizing the obligation to report taxes on cryptocurrency transactions, such as selling crypto, receiving it as payment, or engaging in other related activities. Despite having tax reporting rules for crypto investors since 2014, compliance remains a significant challenge. A report from Divly in 2023 revealed that a meager 1.62% of US investors had paid the required taxes on their crypto holdings, only slightly surpassing the global average of 0.53%.
The IRS has ramped up its enforcement efforts concerning cryptocurrency, especially with the hiring of two experts dedicated to handling crypto-related matters. This heightened focus aligns with predictions of increased scrutiny from tax professionals, anticipating a “tidal wave” of regulatory measures. Guy Ficco’s predecessor, Jim Lee, also emphasized the agency’s intensified commitment to addressing tax issues, noting that half of the active crypto investigations in 2023 involved taxation concerns.
The surge in crypto tax crimes presents significant challenges for both taxpayers and regulatory authorities. As cryptocurrency evolves and integrates further into mainstream financial activities, ensuring compliance with tax regulations becomes paramount. The proactive enforcement measures by the IRS signal a growing emphasis on combating tax evasion and enforcing tax reporting requirements within the cryptocurrency landscape. Taxpayers engaging in crypto transactions must remain vigilant and adhere to the necessary reporting guidelines to avoid potential legal consequences.
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