CRYPTO CASES TO TOP CI’S “TO-DO LIST” IN 2023
You Can’t Hide Crypto Assets

The Internal Revenue Service’s (IRS) Criminal Investigation (CI) function is charged with investigating allegations of criminal tax fraud, and assisting the Department of Justice (DOJ) and the United States Attorney’s Office with the prosecution of those cases.

The Inflation Reduction Act is breathing new life into IRS enforcement action, including CI. Next year, the agency intends to hire an additional 360 special agents, agents who investigate alleged tax and financial crimes, along with another 150 professional support staff. These include computer, Internet and other technology experts trained to unravel complicated digital transactions. That will push CI’s workforce to 2,427 special agents and 1,088 professional support staff, the highest it’s been since 2010.

The complicated digital transactions awaiting scrutiny are crypto-currency transactions.  According to CI’s 2022 Annual Report,

Digital assets pose a significant risk of facilitating money laundering, cybercrime and ransomware, narcotics and human trafficking, terrorism, and proliferation financing. Digital assets may also be used as a mechanism to circumvent U.S. tax law and financial sanctions.

This is why CI is currently teeing up hundreds of crypto cases for investigation and potential prosecution. Such cases will be a priority throughout 2023. In fact, because of the rise in crypto cases overall, in 2021, the IRS created the Office of Cyber and Forensic Services to function under the umbrella of CI. That office unifies the agency’s digital asset investigations, cybercrime investigations, digital forensics, and physical forensics support teams, all in one place. A key priority, according to the Annual Report, is to investigate “the illicit uses of digital assets and how they can be used to exploit the U.S. tax and financial system.”

The Internal Revenue Code does not address the tax consequences of crypto currency in particular. A few years after its emergence on the scene in 2009 as a financial asset, IRS Notice 2014-21 deemed “virtual currency,” – Bitcoin in particular – as “property,” to be treated no differently than a share of stock or an automobile. The IRS refers to “virtual currency” as “convertible” currency in that it has a value measured in real currency, or it acts as a substitute for real currency. Any one of the hundreds (and growing) of today’s digital currencies meets this broad definition.

Of course, the mere investment in or use of digital currency is not at all illegal. Such assets provide great opportunities for both citizens and businesses. These include market innovation, expansion of access to a broad range of financial services and investments, reduction of costs associated with domestic and cross-border money transfers for both buyers and sellers, and the speed, safety and accuracy of merchant payments.

Tax problems with virtual currency arise as a result of two issues: 1) the failure to report the gains on trading crypto assets, and 2) failure to report income paid in the form of crypto assets. Let me address them in turn.   Want to read more?
PTT subscribers can get the entire article when they download their Sept-Oct 2022 issue of Pilla Talks Taxes.

Note: Dan also has an article on this on National Review Premium page. Click here to see his article

Reporting 

YOUR crypto currency

Check out Dan’s short video.

ARTICLES 
also found in Sept-Oct 2022 Issue

CRYPTO CASES TO TOP CI’S “TO-DO LIST” IN 2023
You Can’t Hide Crypto Assets

 WHITE HOUSE NOMINATES NEW IRS COMMISSIONER
Look for Danny Werfel to Take the Agency’s Reins

 THE 2022 PAUL R. TOM AWARD
And the Winner Is…

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