Rising Tax Evasion Cases Linked to Cryptocurrency in the USA

In recent years, citizens in the United States have increasingly turned to tax evasion schemes involving cryptocurrencies. According to the head of the Criminal Investigations Division at the Internal Revenue Service (IRS), there has been a noticeable rise in cases related to tax evasion associated with digital assets.

A few years ago, the majority of cryptocurrency investigations (over 90%) were primarily focused on money laundering, as revealed by Jim Lee, the head of the IRS Criminal Investigations Division. However, in the past year, approximately half of all digital asset investigations conducted by the IRS were linked to tax-related issues.

The latest annual report from the division, covering the period from October 1, 2022, to September 30, indicates that investigations now encompass a wide range of issues. These include taxpayers failing to report income from capital gains or mining activities and individuals intentionally concealing their crypto holdings.

Since the 2019 tax year, the IRS has required individuals to disclose whether they engaged in cryptocurrency transactions. This requirement was part of broader efforts to combat tax evasion related to digital assets.

The role of the IRS division was instrumental in the criminal case against Binance, the world's largest cryptocurrency exchange. Last month, the company admitted guilt in violating U.S. sanctions and combating money laundering, agreeing to pay a $4.3 billion fine.

Several government agencies were involved in the resolution, including the Department of Justice, the Department of the Treasury, and the Commodity Futures Trading Commission. The IRS operates under the Department of the Treasury.

Binance's CEO, Changpeng Zhao, acknowledged criminal charges and agreed to step down from his position within the company. Zhao faces a potential prison sentence of up to 10 years, although it is expected that he will receive no more than 18 months under a plea deal, which seemingly spared him from more severe penalties faced by other prominent crypto criminals. The Department of Justice has yet to determine the exact length of the prison term they will seek for him.

According to the court lawsuit, Binance also allowed over 1.1 million transactions worth more than $898 million to take place on its platform between U.S. and Iranian customers.

The IRS has also been involved in several major seizures of digital assets, including the record-breaking return of bitcoins worth $3.6 billion stolen during the hack of the Bitfinex cryptocurrency exchange in 2016.