IRS:CI Reports Surge in Digital Asset Tax Evasion Cases in 2023

The Criminal Investigation Unit of the Internal Revenue Service (IRS:CI) has observed a notable increase in tax investigations related to digital assets, as detailed in its annual report released on Monday. This rise is attributed to the growing mainstream adoption of cryptocurrencies.

Key Findings from the Report The report highlights several types of digital asset investigations, including those involving unreported income from cryptocurrency transactions. These cases often involve failure to report capital gains from cryptocurrency sales, income from mining activities, or earnings received in cryptocurrency forms, such as wages or rental income.

Additionally, the IRS:CI has noted a rise in evasion of payment violations. In these instances, taxpayers have failed to disclose their cryptocurrency holdings, presumably to conceal their assets.

Throughout 2023, the IRS:CI initiated over 1,400 tax crime investigations, leading to recommendations for 665 prosecutions. Out of these, 655 cases resulted in sentencing.

Rising Cybercrime Concerns The IRS:CI’s report also addresses the darker side of cryptocurrency, acknowledging its role in enabling cybercrime. Cybercriminals are increasingly using sophisticated methods to steal and launder large sums of cryptocurrency.

Particularly concerning are “pig butchering” scams, where fraudsters build trust with victims to eventually access and control their digital assets. The IRS:CI has identified significant financial losses from these scams, with the highest reported loss nearing $2 million and average losses in the hundreds of thousands.

Cryptocurrency and Global Threats The IRS:CI report further discusses the risks posed by cryptocurrencies in facilitating activities like money laundering, cybercrime, terrorism, and other illegal trades.

In a specific reference, the report mentions the terrorist group Hamas and its attack on October 7th, which resulted in the death of 1,200 Israelis. Israel’s subsequent military actions reportedly led to over 15,000 Palestinian casualties.

Financial audit firm BitOK, based in Tel Aviv, estimates that Hamas received approximately $41 million in cryptocurrencies between August 2021 and June 2023.

Legislative Response to Cryptocurrency Challenges In response to these challenges, both the U.S. Senate and House held hearings last month to discuss regulatory issues in the cryptocurrency industry. House Financial Services Committee Chairman Patrick McHenry emphasized the bipartisan agreement on the necessity of holding bad actors accountable, especially in the digital asset ecosystem.