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.

Contact Conaway & Strickler, PC if you have any questions on these complex federal criminal tax issues.  Our experienced federal criminal defense attorneys are here to help.

Tax evasion is the most common federal tax crime and involves the failure to report taxes, reporting taxes inaccurately, or failing to pay taxes. Federal law defines the crime broadly; 26 U.S.C. 7201 states, “[a]ny person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony. . .” The penalties for tax evasion can include significant monetary fines, imprisonment, or both.

To establish a case of tax evasion, the Government must prove three elements beyond a reasonable doubt:

1. The Defendant attempted to evade or defeat a tax or payment of a tax;

2. An additional tax was due and owing; and

3. The Defendant acted willfully.

The Government is generally required to prove that the taxpayer owed substantially more tax than was reported; however, the Government does not necessarily need to prove the exact amount of tax evaded. In most tax evasion cases, this comes in the form of understatements or omissions of income, claims of fictitious or improper deductions, false allocations of income, or improper claims of credit or exemption.

The Government can offer direct or circumstantial evidence to prove the required elements. This may include evidence of specific transactions affecting taxable income which were inaccurately reported, unexplained increases in the taxpayer’s net worth or expenditures not reflected in the taxpayer’s net worth, or evidence of taxable receipts in a taxpayer’s bank deposits.

Finally, the language of the statute gives the crime of tax evasion a broad scope. Specifically, the crime of tax evasion applies to “[a]ny person” – not just individual taxpayers. Tax evasion under 26 U.S.C. 7201 can also be used to prosecute an individual taxpayer’s tax preparer, accountant, or bookkeeper, a corporate officer attempting to evade their corporation’s tax, or the administrator of an estate attempting to evade the estate’s tax. Further, the statute applies to “any tax” and tax evasion in “any manner” (emphasis added).

Recent tax evasion cases include the federal criminal jury trial of reality TV stars Todd and Julie Chrisley. They were convicted of tax evasion and other charges. The DOJ alleged the Chrisleys knew the law was clear on taxable income and were required to file and pay taxes. The IRS CID agent on the case was quoted as saying, “These convictions should send a clear message regardless of your fame or notoriety, everyone will be held accountable for paying their fair share of taxes.” As a result of their case, they unfortunately are now in prison.

For more information on criminal tax charges, please contact us. We are more than happy to discuss your situation.