Operation Hidden Treasure is NOT a Treasure for Crypto Holders

On March 6, 2021, Forbes reported that Damon Rowe, Director, Fraud Enforcement Office, Internal Revenue Service, Washington, DC, remarked that the IRS “added some crown jewels,” including a dedicated team of IRS Criminal Investigation professionals who are working on “Operation Hidden Treasure.” The Director’s remarks occurred at the Federal Bar Association presentation of March 5^th and 6^th.

Operation Hidden Treasure is a joint effort between the civil office of fraud enforcement and the criminal investigation unit of IRS that will train agents to look at blockchains to root out tax evasion among cryptocurrency users. It will exist as part of the office’s emerging threats mitigation team.

What is currently known regarding Operation Hidden Treasure?

• It is comprised of agents who are trained in cryptocurrency and virtual currency tracking, and who are focused on taxpayers who omit cryptocurrency income from their tax returns.
• It is a partnership between the office of civil fraud enforcement and the criminal investigation unit to root out tax evasion from cryptocurrency owners.
• It is looking for “tax evasion signatures” including “structuring,” transactions in increments of less than $10,000 to avoid certain reporting requirements, “the use of nominees, shell corps” or “getting on and off the chain”.  IRS is working with sophisticated consultants to identify and investigate tax evasion signatures.
• It is “all about finding, tracing, and attributing crypto to U.S. Taxpayers.”
• It is “analyzing blockchain and de-anonymizing [crypto] transactions” to be “able to track, find, and work to seize crypto in “both a civil and a criminal setting.”

Carolyn Schenck, (National Fraud Counsel & Assistance Division Counsel for the IRS Office of Chief Counsel) had a message for crypto traders who are would-be tax evaders: “We see you”

In 2020, Taxpayers who engaged in transactions involving virtual currency will need to answer a Yes or No Question on page 1 of Form 1040 or Form 1040-SR. The question is: “At any time during 2020, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?  This yes or no question requires an answer. Approved electronic income tax filing software will not file a form 1040 or 1040-SR unless the question is answered by the Taxpayer.  This question first appeared in the 2019 Schedule 1 of Form 1040. Moving the Question from Schedule 1 of the 2019 Form 1040 to the first page of Form 1040 and 1040-SR in 2020 is an enforcement escalation trigger for the IRS.

Taxpayers ought to gather documents and organize tax records

The Internal Revenue Code and regulations require Taxpayers to maintain records that support the information provided on tax returns. Taxpayers should maintain records documenting receipts, sales, exchanges or other dispositions of virtual currency and the fair market value of the virtual currency.

Virtual Currency is a priority for the IRS

IRS states that Taxpayers need to understand their obligations involving virtual currency.  IRS will take steps to ensure fair enforcement of the tax laws for those who do not follow the rules involving virtual currency. Given the evidence of the IRS increasing cryptocurrency reporting compliance enforcement, it is essential for cryptocurrency account holders that have failed to fulfill their cryptocurrency reporting compliance obligations to seek the assistance of a qualified and specialized tax advisor.  

Who is your qualified and specialized tax advisor?  ©