Robert J. Fedor, Esq., L.L.C.

Virtual currencies targeted by IRS

Across the world, people readily use computers to complete purchases and transactions. Traditionally, an individual is required to set up an account and pay for goods purchased online via a credit card or secured payment account such as PayPal. In recent years, however, a new type of virtual currency has gained popularity and the attention of both U.S. officials and the Internal Revenue Service.

Used as a means to transfer funds electronically, virtual currencies such as Bitcoin have recently come under scrutiny. Because transfers can be made anonymously and without the backing of any real financial agency, U.S. officials believe virtual currencies are readily used to transfer funds in illegal operations such as identify theft rings and drug trafficking operations. 

Additionally, U.S. officials now believe that people may be using virtual currencies in an attempt to evade taxes. An IRS official recently spoke about the matter saying such virtual currencies are being used to "transfer illicit funds as well as hide unreported income from the IRS,". In response, the IRS plans to target citizensthat use virtual currency exchanges and transfers.

Recently, roughly 70 people were arrested on charges related to tax evasion for allegedly attempting to hide unreported funds in excess of $5 billion dollars in offshore bank accounts. A criminal investigation into the matter is still ongoing. As the popularity and use of virtual currencies continues to grow among merchants and commercial businesses, it's likely that more people may unknowingly engage in tax-related crimes.

Individuals accused of tax crimes such as tax evasion would be wise to enlist the assistance of an attorney. A tax attorney who has experience handling matters related to tax evasion and tax fraud can evaluate a specific case and help provide for the best possible legal outcome.

Source: Financial Times, "US to crack down on virtual currency tax fraud," Kara Scannell, June 10, 2013