Articles Posted in tax evasion

Leona Helmsley, Jim Thorpe, Webster Hubbell,  Alphonse Capone, and Peter Madoff are among many convicted of tax crimes such as  tax evasion and tax fraud. The government generally targets groups like tax preparation firms and entities that are mainly cash based.  But, the criminal division of the IRS has begun a more targeted approach to investigate and prosecute tax crimes in the cryptocurrency arena.  Crypto investment schemes, for example, require investors to produce cash, but then convert the fraud proceeds to cryptocurrency to purposefully circumvent financial reporting requirements.  These type of cases thus also involve potential money laundering, wire fraud and structuring charges,

The “newer” question on page 1 of the Tax Form 1040 now has a question that states, “At any time during the past year did you receive any financial interest in virtual currency?” In 2019, this question was only on Schedule 1.  As of 2020, it is on page 1 of the Tax Form 1040.  This is specifically targeted to combat cryptocurrency tax evasion.

Under 26 U.S.C § 7206(1), it is a criminal offense to file a tax return the filer knows is materially false.  So, if you do not check that box on that first page, AND have substantial income in crypto, you might be targeted by the IRS.  Remember cryptocurrencies are essentially similar to common stocks.  This means a taxpayer must report their gains in cryptocurrencies on Form 8949.  These gains are passed through to Schedule D on personal returns.  The filer is responsible for paying capital gains tax on the net gain for the year.  The government is long since versed in understanding the intricacies of the market like the role of hardware wallets, the use of DEXs, on-chain information, and how to track crypto movement across distributed ledgers.   Please see here for a recent  example of a case where non-payment of federal income tax on cryptocurrency earnings led to a conviction.