The IRS is on to Crypto – JD Supra.
The IRS Chief of Criminal Investigation, Don Fort, recently stated: “It’s possible to use Bitcoin and other cryptocurrencies in the same fashion as foreign bank accounts to facilitate tax evasion.”
The IRS Criminal Investigation Unite (IRS-CI) has a number of investigators that are focusing on international crimes. These are crimes that arise from:
- Outflow of funds from Switzerland
- Non-compliant Expatriates under FATCA
- Taxpayers that are using Cryptocurrency to avoid taxes
After Coinbase, where the IRS was successful in issuing a “John Doe” summons and identifying customers, the IRS concluded that many Cryptocurrency users are not paying taxes. Cryptocurrency transactions are not linked to a specific person through transparent identifiers. They operate under a secure identifier using a unique string of characters enabling payments to an individual or entity via Blockchain transactions. Cryptocurrency transactions are called “Pseudo-anonymous” because although a person’s name, physical address, or email cannot be found in the actual transaction, a person’s identity can be “tracked down” using public address info and IPs (Internet Protocol Addresses). According to IRS, understanding Blockchain is critically important to itself and other federal agencies.
Blockchain is a digital shared ledger of transactions. Blockchain transactions are executed in real time across a network of computers. These transactions are cryptographically validated, without a Central validating authority. Once validated, the transactions are added on a new “block” at the end of a “chain”. The types of transactions that can occur on a Blockchain are money transactions, contracts, medical records – assets describable in digital form.
Besides adding an internal Blockchain technology team, the IRS utilizes outside vendors like Chainalysis in New York City; which has tools permitting institutions and law enforcement to trace specific transactions on a Blockchain. Its customers include the IRS, FBI, DEA and Europol.
Although Blockchain technology could be the way of the future, its lack of regulation and legal supervision has potential for slowing its wide spread adoption by legitimate business users. So, for now, Blockchain is interpreted and perceived to be a platform with less than an acceptable level of widespread public trust.
Tracing Cryptocurrency transactions has high importance to the IRS. IRS learned from Coinbase that a significant number of Crypto investors are not paying taxes on their profits. Don’t be a victim of your own making. If you are an investor in Crypto currency, it is best to report your gains and losses.