IRS-CI Continues to Investigate Unreported Cryptocurrency Gains

IRS-CI Continues to Investigate Unreported Cryptocurrency Gains

As detailed in a recent Forbes article, an experienced IRS Special Agent and cyber-crime coordinator for IRS Criminal Investigation reiterated that taxpayers should not fail to report or use cryptocurrencies to evade their taxes liabilities. As previously disclosed in IRS Criminal Investigation’s 2018 Annual Report (as well as in other publications and statements at other conferences), IRS-CI is committed to stopping the use of cryptocurrency in tax fraud cases. See IRS, Criminal Investigation Annual Report 2018 (2018) (further detailing its cryptocurrency efforts). This heightened commitment is necessary since the IRS estimates that potentially unreported cryptocurrency tax liabilities represent approximately 2.5 percent—or more than $11 billion—of the over $450 billion tax gap. See IRS, Information Reporting Advisory Committee Public Report (Oct. 2018).

During his appearance last week, IRS-CI Special Agent Gary Alford (quotation from Forbes) informed the audience that IRS-CI will be making cryptocurrency referrals (if they have not already been referred) for criminal prosecution:

We’re usually behind the curve — history is made and then we react to it. But in this case, we are ahead of the curve. We were there on ground zero, and we were waiting for the rest of the world to catch up to what we already knew… We already are aware that there were cases to be made, we just didn’t know if we were at the point where we can bring it for criminal prosecution. We believe we are at that point now. If we had 12 jurors and told them someone made all their money in bitcoin, we believe that they would understand.

IRS-CI gained this experience and knowledge regarding cryptocurrencies through its efforts to combat identify theft and is now using this experience in its investigations of more traditional tax crimes. As cryptocurrencies such as Bitcoin continue to appreciate after the lows of 2018, taxpayers should think twice about looking to sell and pocket their gains.

Furthermore, to better assist taxpayers in properly reporting any tax gains, the IRS has indicated it will be providing additional guidance later this month or early next month to supplement the guidance provided in Notice 2014-21. Kennyhertz Perry will issue a separate release once the IRS issues this guidance.

Taxpayers (and their tax professionals) should be forewarned if they believe they do not have to report gains from the buying and selling of cryptocurrency. Taxpayers should consult an experienced criminal tax attorney if they have questions about any unreported gains or applicable IRS guidance, or believe they become the subject of an IRS investigation.

About Kennyhertz Perry’s Tax and Regulatory and Compliance Practice Groups

Kennyhertz Perry advises clients on a wide range of tax counseling and tax litigation matters. Kennyhertz Perry has a nationwide tax litigation practice that is built upon the unique depth and breadth of experience gained by working on behalf of and against the government. Recognizing that one tax matter can involve both civil and criminal considerations, Kennyhertz Perry relies on its attorney’s comprehensive experience leading criminal and civil tax prosecutions and investigations for the U.S. Department of Justice to provide clients with valuable insights and practical strategies to effectively navigate and resolve their tax problems. Kennyhertz Perry’s tax litigation practice is led by Ben Tompkins, an attorney who worked both as a U.S. Department of Justice Tax Division Trial Attorney and an Assistant United States attorney prosecuting civil and criminal tax cases. Ben is the cryptocurrency subcommittee chair for the American Bar Association’s Criminal Litigation Committee and has written and spoken about the cryptocurrency enforcement efforts of the IRS and Department of Justice. His most recent publication for the ABA can be found here.

In a complex business environment with increased regulatory scrutiny around governance issues and stringent demands, Kennyhertz Perry brings a sophisticated understanding of the impact of these regulations on business and work with clients to identify and mitigate the risks of potential enforcement actions, navigate the complexity of the regulated world, and head off compliance issues before they arise. A former CFTC enforcement attorney and veteran in regulatory compliance and white collar defense, Braden Perry has expertise and consults with clients throughout the United States in areas of internal investigations, enforcement matters, regulatory issues, and corporate transactions, including cryptocurrency. Braden is a Certified Anti-Money Laundering Specialist (CAMS) and has a deep understanding and first-hand experience with BSA/AML, antitrust, securities, financial institutions, commodities, the Foreign Corrupt Practices Act (FCPA), and other emerging compliance and enforcement issues. Braden is also a frequent speaker on emerging legal topics such as cryptocurrency and featured as a regulator contributor and media source with a variety of financial and legal publications, including Reuters, Forbes, Institutional Investor, Motherboard, Compliance Week, Minyanville, Law360 and ValueWalk, and Nerd Wallet among others.

About Kennyhertz Perry, LLC

Kennyhertz Perry, LLC is a business and litigation law firm representing clients in highly regulated industries. The firm was founded by two veteran Kansas City attorneys, John Kennyhertz and Braden Perry. To learn more about the firm, visit kennyhertzperry.com.

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