Key takeaways:
- The frequency of investigations pertaining to digital asset reporting has increased, according to the United Internal Revenue Service’s (IRS) Criminal Investigation (CI) Unit.
- The IRS started requiring US taxpayers to report on digital asset transactions, specifically in 2019.
The frequency of investigations pertaining to digital asset reporting has increased, according to the United Internal Revenue Service’s (IRS) Criminal Investigation (CI) Unit.
The IRS investigation arm said in its annual report, which was made public on December 4 that during the fiscal year 2023, it had opened over 2,676 cases and discovered over $37 billion in tax and financial crime-related activity. The team said that it had seen a spike in connected tax inquiries as a result of an increase in the use of digital assets.
According to the Criminal Investigation Unit, these investigations focus on unreported income from failing to disclose capital gains from the sale of cryptocurrencies, income from mining cryptocurrencies, or income received in the form of cryptocurrencies, including wages, rental income, and winnings from gambling. They continued by saying:
“CI is also seeing evasion of payment violations, where the taxpayer fails to disclose ownership of cryptocurrency in an attempt to shield holdings.”
The IRS started requiring US taxpayers to report on digital asset transactions specifically in 2019. Since then, it has added this question to tax forms annually. Although “most people using cryptocurrency do so for legitimate purposes,” according to CI chief Jim Lee’s assessment, digital assets have the potential to be used to finance illegal operations like ransomware attacks and terrorism.
Since 2015, when it started stepping up its efforts to look into offenses involving cryptocurrencies, the IRS has taken control of almost $10 billion worth of digital assets. To lower the number of cases of tax evasion, the government group has also suggested new rules on the reporting obligations for brokers.
The Blockchain Association mostly opposed the tax legislation that the IRS had suggested in a letter of opinion pushed on November 14. The Blockchain Association opposed the proposal, claiming that many participants in the cryptocurrency space would find it challenging to abide by the regulations should they be put into effect.
