IRS Detects Rise in Cryptocurrency Tax Investigations

Regarding digital asset reporting, the Criminal Investigation (CI) Unit of the United States Internal Revenue Service (IRS) has documented a rise in the number of investigations.

The IRS investigative arm stated in its annual report published on December 4 that for the fiscal year 2023, it had initiated over 2,676 cases and identified over $37 billion in proceeds associated with tax and financial crimes.

The team reported that due to digital assets’ increased use, there has been a rise in tax investigations.

According to the Criminal Investigation Unit, the subjects of these inquiries are unreported earnings arising from the neglect of disclosing capital gains from cryptocurrency sales, profits generated from cryptocurrency mining, or wages, rental income, and gambling winnings denominated in cryptocurrency.

“CI is also observing instances of payment evasion in which taxpayers conceal their cryptocurrency holdings by failing to disclose ownership.”

The IRS began requiring U.S. taxpayers to report specifically on digital asset transactions in 2019. In subsequent years, the IRS has added this information to tax forms.

Jim Lee, the chief information officer of CI, stated in the report that while “the majority of cryptocurrency users do so for lawful intentions,” digital assets pose a threat of financing terrorism, ransomware attacks, and other illegal activities.

Since 2015, when it initiated a heightened investigation into cryptocurrency-related offenses, the Internal Revenue Service has seized over $10 billion worth of digital assets.

In an effort to reduce instances of tax evasion, the government entity has suggested additional regulations regarding the reporting requirements of intermediaries.