New IRS Operation Threatens Crypto Tax Dodgers With Jail

The IRS is training and hiring specialists to hunt for U.S. taxpayers with undisclosed crypto holdings.

Shutterstock image by FOTOKITA

Key Takeaways

  • Operation Hidden Treasure is designed to trace and prosecute U.S. citizens evading their crypto taxes.
  • The IRS is searching for indications such as blocks of transactions made just below $10,000.
  • Crypto users should be aware that they do not share confidentiality privileges with their accountants, only their lawyers.

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A newly launched IRS initiative called Operation Hidden Treasure was announced on Friday as part of a crackdown on widespread crypto tax evasion.

IRS Searching For Telltale Signs of Tax Evasion

Operation Hidden Treasure was announced at a Federal Bar Association presentation on fraud on March 05. The operation is specifically designed to root out people using crypto and virtual currency to evade taxes.

Carolyn Schenck of the IRS stated that the agency was looking for “tax evasion signatures.” These include structuring financial activity in blocks of $10,000 or less in order to fly under the radar of the IRS and its Form 8300 requirements.

While exchanges like Coinbase, for example, report tax information to the IRS with accounts over a certain transaction and balance threshold, the IRS is now training operatives to search for signs that crypto users are willfully avoiding detection.

Schenck stated that the IRS is using specialist vendors and trained agents to analyze and de-anonymize crypto transactions so that they can track and seize crypto in “both a civil and a criminal setting.”

Jail Time for Crypto Tax Dodgers

IRS Criminal Investigation Division Chief James Lee spoke at the presentation, outlining the consequences of tax evasion.

“People have to know there’s a consequence for being willfully noncompliant,” said Lee, “and that consequence is going to jail.”

If the government cannot prove that tax evasion was deliberate, there are still civil consequences including a 75% penalty on the understated tax.

Solicitor Steve Tosher stated that “We expect to see more referrals for criminal prosecution and assertions of the 75% civil fraud penalty.”

Of course, the crypto tax procedure is notoriously opaque, with many users unclear on how to pay crypto taxes.

For those with undisclosed crypto taxes, consulting a tax lawyer is perhaps the best option. Crypto users would do well to remember that they do not share attorney-client privileges with their accountants, and their accountants could be summoned to testify against them. This is not the case with tax lawyers.

The IRS recently stated that it’s not necessary to pay taxes on Bitcoin buys made in dollars, offering U.S. citizens a way to reduce their crypto taxes. However, the new operation may mark the dawn of a new era for crypto taxes.

The government has been slow to catch up with the crypto industry, but regulation has finally arrived.

“These transactions are not anonymous,” said Schenck. “We see you.”

Disclosure: The author held Bitcoin at the time of writing

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