In early March, the Internal Revenue Service (IRS) announced “Operation Hidden Treasure,” a new fraud enforcement initiative focused on detecting unreported crypto-related income.
The Operation, announced at a Federal Bar Association virtual tax conference, is a joint effort between the IRS Criminal Investigation (CI) Division and the newly created IRS Office of Civil Fraud Enforcement.
At the Bar Association conference, the IRS revealed that a dedicated team of agents has been trained to identify the digital “signatures” of crypto-related tax evasion — e.g. “structuring” a higher-value transaction as several sub-$10,000 transactions to avoid reporting obligations, and using anonymized ownership vehicles (a/k/a “shell” corporations) — and in methods of attributing seemingly unrelated transactions (whether effectuated on-chain or even “off-chain”) to a common U.S. taxpayer.
Failing to report crypto-source income completely and accurately may result in criminal tax charges and jail time and/or civil penalties of up to seventy-five percent (75%) of the understated tax liability. If digital assets are held in offshore entities, additional charges may apply.
We have been advising on tax compliance for digital assets for many years. Please see our articles here. For questions or concerns about crypto-related tax compliance, please contact our tax and asset protection attorneys at Gallet Dreyer & Berkey, LLP. We remain at the forefront of tax-planning and wealth-preservation strategies incorporating digital assets.