Crypto has had a tough go of it lately. Smaller investors have lost life savings while larger investors nervously sit tight. Behind the up-and-down headlines, the Internal Revenue Service (IRS) is quietly pursuing Operation Hidden Treasure.
It should come as no surprise that the IRS is interested in your cryptocurrency transactions. While crypto mining and transactions enjoyed (or suffered, depending on your point of view) opacity in the past, the same is not true today. While you may still believe your crypto transactions are cloaked in anonymity, you could be in for a rude surprise with a crypto tax audit—or worse—if you are caught up in Operation Hidden Treasure.
As the name suggests, the Hidden Treasure initiative investigates taxpayers and entities who fail to report certain crypto transactions. Launched last year, the program is a joint effort between the IRS Fraud Enforcement office and the European Agency for Law Enforcement Cooperation (Europol).
Specifically, the IRS is looking at structured transactions, those that fall under $10,000 and are less likely to trigger concern for tax fraud. Working with private consultants, the IRS seeks to identify “signatures”—traces of potentially fraudulent activity like using shell companies, or laundering money—through the blockchain. During a tax conference hosted by the Federal Bar Association last year, National Fraud Counsel in the IRS Office of Chief Counsel said, “These transactions are not anonymous, we see you.”
The rules around crypto-reporting to the IRS can be confusing and subject to change. Basically, the IRS considers cyber currency as property, and making purchases or cashing out your crypto can be seen as taxable. Operation Hidden Treasure strives to identify tax evasion, money laundering, and failure to file appropriate reports. From large-scale movement of currency into virtual currency to hide or wash the funds, to being paid with crypto for a service you provide—knowing regulations around crypto-currencies are important. Just as you retain records for transactions performed with real currency, it is important to keep good records of your virtual transactions as well.
If you receive a letter from the IRS about virtual currency or a potential IRS criminal investigation into your crypto transactions, speak with an experienced tax attorney before you respond to the IRS.
Facing a tax controversy or criminal tax charge from the IRS?
Serving local and international clients from offices in Chicago and Cleveland, the tax group at Robert J. Fedor, Esq., LLC helps you respond strategically to questions about IRS audits, offshore tax investment, or payroll tax issues. Call 800-579-0997 or contact us today.