Global Tax Enforcement and Crypto

On: March 27, 2020

As cryptocurrency grows into a mature industry, these still largely unregulated financial tech platforms have drawn increasing scrutiny from global tax authorities because of their apparent ease of use for evading taxes. But don’t think it’s that easy to get away with concealing crypto holdings and profits from the IRS. The vast, publicly accessible digital record keeping of most blockchains might make it easy pickings for global tax enforcement. The bigger fish in the crypto markets (referred to as crypto whales in the blockchain industry, a term adopted by mainstream news outlets) are especially likely to draw the eye of the authorities charged with ensuring tax compliance. Small businesses that accept a steady stream of crypto payments, or small business owners who have accrued an above average amount of personal wealth, and use crypto as an investment to grow their savings should take notice. In July 2018 President Donald Trump instructed the US Attorney General to create a Department of Justice task force to fight financial fraud and prosecute financial crimes, with a particular interest in investigating cryptocurrency. That same month the United States joined five other world powers to create a global tax enforcement agency called the Joint Chiefs of Global Tax Enforcement (or J5 for short). The five countries leading it are the US, UK, Canada, Australia, and the Netherlands. The U.S. Internal Revenue Service Criminal Investigation office heads up the US arm of the global tax enforcement group. A few months earlier the SEC began cracking down on cryptocurrency as well, especially with regard to ICOs that violate securities regulations. A year after the J5 had formed, the crypto world saw that it was no showboat operation, but a real show of force against tax non-compliance by holders of digital assets. By June 2019, the J5 had opened 50 lines of inquiry into crypto tax non-compliance. The Sydney Morning Herald reported these stern words from Australia Tax Office deputy commissioner Will Day: “At no other time have criminals been at greater risk of being caught.” At a J5 meeting in November, Ryan Korner, executive special agent in charge of the Los Angeles Field Office of IRS Criminal Investigations, said:

“The goal of the week was to remove some barriers and work together collaboratively to identify the most egregious tax offenders in the world. Cybercrimes and the cybercriminals who commit them don’t have any borders and it’s imperative that we work together to protect the global financial system and the integrity of each nation’s tax system.”

IRS Criminal Investigation Chief Don Fort said:

“The J5 is made up of the best and brightest of each of our countries so it makes sense to host events like the Challenge where we can get together, cut through red tape, and make real investigative strides. This is not an exercise dealing with hypothetical scenarios. These are real investigators, using real data, finding real criminals through leads generated this week.”

Tax evasion and unintentional tax non-compliance can be costly. If you own a significant amount of digital assets, consult a leading tax attorney to make sure you’re compliant, and find legal tax strategies to save money when you file.