The Internal Revenue Service (IRS) criminal investigation unit, previously pivotal in the Binance Holdings Ltd. probe, is witnessing a notable increase in cases related to cryptocurrency tax evasion. According to Jim Lee, the chief of the IRS’s criminal investigation division, there has been a shift in focus over the past year, with approximately half of the active digital-asset investigations now involving tax matters.
Changing Landscape of Crypto Investigations
Lee revealed that three years ago, the majority of crypto investigations—more than 90%—primarily dealt with money laundering. However, in the fiscal year spanning from October 1, 2022, to September 30, 2023, tax-related issues took precedence, constituting over 50% of the investigations. These cases encompass a spectrum of concerns, ranging from failure to report income from capital gains or mining activities to deliberate non-disclosure of cryptocurrency holdings.
The IRS has been actively engaged in the fight against cryptocurrency tax fraud, with the Criminal Investigation Unit initiating at least 2,676 cases during the 2023 fiscal year. These investigations revealed transactions amounting to over $37 billion associated with financial and tax crimes.
Increased Scrutiny on Digital Asset Reporting
Jim Lee emphasised that the growing adoption of digital assets has contributed to the surge in tax-related investigations. The deliberate evasion of payment obligations, where taxpayers purposefully conceal ownership of cryptocurrencies to safeguard their assets, is a primary focus of scrutiny.
The IRS’s mission in addressing crypto markets began in 2015, leading to successful seizures of over $10 billion in crypto assets. In 2019, the agency introduced a mandate requiring U.S. taxpayers to report all digital asset transactions as part of a broader effort to curb digital-asset tax evasion.
Future Regulations and Stakeholder Input
Looking ahead, the IRS is actively formulating new regulations aimed at brokers and intermediaries involved in the crypto business. The agency is soliciting input from various stakeholders until January 25, 2024, for proposed cryptocurrency tax reporting measures. These regulations, slated to be incorporated into the American Families Plan Act of 2023, will mandate crypto exchanges and brokers to report transactions exceeding $10,000 to the IRS and maintain comprehensive customer knowledge and transaction records.