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IRS Expects Surge in Crypto Tax Crime Cases as Tax Season Concludes

As the tax season draws to a conclusion, the Internal Revenue Service (IRS) of the United States is getting ready for the possibility of an increase in the number of cases involving crypto tax crimes. Guy Ficco, the head of the IRS’s criminal investigative division, has said that he anticipates an increase in the number of Title 26 crypto cases that will be prosecuted this year and in the years which will follow .

Over the course of many years, the Internal Revenue Service (IRS) has been conducting investigations into crypto assets, often as a component of bigger fraud cases, schemes, embezzlements, and money laundering operations. On the other hand, Ficco draws attention to a phenomenon known as “pure crypto tax crimes,” which are defined as infractions of federal income tax laws that are directly associated with cryptocurrency.

According to Ficco, these offences related to cryptocurrency might manifest themselves in a variety of ways, including the failure to disclose money derived from the sale of cryptocurrency or the effort to conceal the actual foundation of cryptocurrency assets. The Internal Revenue Service has already seen an increase in the number of instances of this kind and believes that there will be much more rise in the future.

The Internal Revenue Service (IRS) has been working with blockchain companies like as Chainalysis in order to solve the issues that are created by crypto tax evasion. Through this agreement, the agency is able to acquire important tools for analysing complicated crypto transactions, which helps in the identification and investigation of tax offences in a more effective manner.

Agents of the Internal Revenue Service are able to track money transactions and discover essential information about cryptocurrency ownership by using Chainalysis and using other technologies. Because of this partnership, tax offences using cryptocurrencies have been identified and addressed, which has proved to be an important advancement.

It should be brought to your attention that financial crimes using cryptocurrencies have also resulted in some of the greatest seizures that the United States government has ever carried out. Over the course of the last several years, the Internal Revenue Service’s Criminal Investigation division has significantly contributed to these efforts, further highlighting the agency’s dedication to the fight against crypto tax evasion.

On April 15, taxpayers will be filing their returns, and the Internal Revenue Service is getting ready to deal with the expected increase in instances of cyber tax crime. It is a reflection of the rising significance of digital assets in the wider financial environment that the agency is concentrating its efforts on ensuring tax compliance in the cryptocurrency market.

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EY Launches Crypto Tax Reporting App to Assist Businesses with US Tax Filings

Ernst & Young (EY) is launching a crypto Software as a Service (SaaS) to offer step-by-step guidance that assists with US cryptocurrency tax filings. The cryptocurrency application is a web-based enterprise-grade tax engine and is fully automated to support the crypto tax process.

The SaaS, EY CryptoPrep supports a number of major cryptocurrencies and exchanges and works by aggregating and reconciling transaction data. This then allows the engine to appropriate tax rules to deliver a detailed account of the capital gains or losses in crypto.

EY CryptoPrep provides a completed Form 8949 from the Internal Revenue Service (IRS) for all applicable tax years. This technology and service are available to EY’s clients based on EY TaxChat and EY Blockchain Analyzer as a managed service.

Marna Ricker, EY Americas Vice Chair of Tax Services said that their clients are increasingly holding and trading cryptocurrencies, which highlights the need for this new innovative solution to solve the complex issues surrounding crypto tax filing. She added:“The EY Foundry, our internal corporate venturing unit, created EY Crypto-Prep to modernize the crypto tax accounting process.”

The IRS keeps an eye on crypto tax evasion

The IRS has requested help from independent consultants to crack down on non-compliance in cryptocurrency tax.

The IRS sent out a Statement of Work (SOW) on May 12, 2020, soliciting private contractors to aid in auditing tax returns related to virtual assets.

In October 2019, the IRS announced the addition of a question to the US tax return form obligating citizens to disclose their cryptocurrency holdings as well as gains and losses.

However, the IRS has not clarified the 2019 crypto tax guidelines.

EY and tax

Dennis Post, EY Global Blockchain Tax Leader told Blockchain.News, “We basically see two developments where tax will be significantly impacted by blockchain (besides crypto). Firstly, we see that blockchain will help to create more robust tax systems, for example in the financial services sector (withholding tax) or in global trade (VAT, customs). At EY we are fully embracing the opportunity blockchain brings in reducing manual labor and paper-based processes, and we are in the process of developing blockchain platforms that solve tax problems. Secondly, we are building solutions that can connect to commercial blockchains to calculate the tax consequences of these transactions.”

John McAfee Indicted for Tax Evasion and for Fraudulently Promoting ICOs Through Twitter

The United States Department of Justice (DOJ) is charging John McAfee with tax evasion and failure to file tax returns, according to an unsealed indictment that was revealed yesterday.

McAfee sued for financial fraud

John McAfee, the founder of the anti-virus software company, was seized and arrested in Spain. He was indicted for numerous counts of tax evasion and for purposely failing to file tax returns, following investigations that date back to earlier this year. Per the complaint, McAfee also leveraged his fame to generate income, by attracting investors for seven initial coin offerings he touted through Twitter. The report read:

“From at least November 2017 through February 2018, McAfee leveraged his fame to make more than $23.1 million U.S. Dollars in undisclosed compensation by recommending at least seven ‘initial coin offerings’ or ICOs to his Twitter followers.”

McAfee clashes with tax regulators

In addition to failing to declare income he earned through promoting cryptocurrency securities, the Department of Justice also accused McAfee of earning millions on the side through consulting work, speaking engagements, and selling the rights to his life story for a documentary. Investigations by the United States Securities and Exchange Commission (SEC) revealed that McAfee made over $23.1 million from recommending the cryptocurrency offerings on Twitter. Federal prosecutors alleged that they were all materially misleading.

McAfee failed to file the appropriate tax returns for these sources of revenue between 2014 and 2018. Rather, the generated income was laundered through other entities and nominees by the crypto millionaire to evade taxes. In addition, the suit alleges that McAfee hid other assets from the Internal Revenue Service (IRS), notably a yacht, a vehicle, and property by declaring it under others’ names.

Currently, McAfee is pending extradition to the US, where he will be trialed for the crimes he has committed. If convicted for tax evasion, McAfee could potentially be facing up to five years in prison, for each count of tax evasion he is charged with. The crypto millionaire will also face supervised release, restitution, and monetary penalties.

McAfee’s Bitcoin price predictions

McAfee has been known for previously making crazy price predictions on Bitcoin and for walking back on them. The ruse was used to attract new users and to draw public interest in Bitcoin, perhaps to pump its price. As the mainstream cryptocurrency is known for its scarcity, its value would surge with an increased demand, potentially benefitting Bitcoin whales.

Peter Schiff’s Bank Investigated in Global Tax Evasion Probe, Gold May Be Dirty

Peter Schiff’s Euro Pacific Bank is currently under investigation by the Australian Tax Office for hosting numerous financial accounts linked to suspected money laundering and tax evasion crimes.

Offshore bank for tax evasion?

The Puerto-Rico based offshore bank, founded by American celebrity investor Peter Schiff, is currently being scrutinized by law investigators for helping numerous clients in tax evasion schemes and its professional conduct is currently being reviewed and questioned.

According to Australian news outlet The Age, multiple subpoenas are being issued in Amsterdam, the United States, Canada, and the United Kingdom to millionaires who have leveraged the Caribbean bank’s services to store their assets, in what reports call “the world’s largest tax probe,” conducted under Operation Atlantis. “Hundreds of account holders” from Euro Pacific are suspected of financial foul play, and investigators are currently reviewing the financial transactions of Euro Pacific clients to uncover tax evasion misdoings.

Among the wealthy Australian customers’ figures Simon Anquetil, a Sydney-based businessman who was held responsible for one of Australia’s biggest tax fraud crimes. According to The Age, should Euro Pacific be found guilty of harboring financial fraudsters and of conducting business illicitly, its partners Westpac and Perth Mint will also be held accountable.

Former Australian Federal Police investigator John Chevis revealed that he was very surprised when he discovered through investigations in 2017 that Perth Mint and Euro Pacific were connected. He disclosed that gold reserves, Peter Schiff’s favorite asset, may potentially be tainted at Perth Mint, bringing to question Euro Pacific’s integrity. Clarifying on the matter, he stated:

“I think there’s a significant risk that some of the gold held within the Perth Mint by customers of the Euro Pacific Bank may be held beneficially for criminals in other parts of the world.”

Defending his bank, CEO Peter Schiff denied that there had been any foul play at his bank. He said:

“It’s got nothing to do with reality. There’s a lot of things that a government could believe that might not be true.”

Euro Pacific targeted by Bitcoin hackers

He then stormed out of the interview. Peter Schiff, a seasoned American broker known for his anti-Bitcoin stances, has long publicly made it known that he was no fan of the mainstream cryptocurrency, even taking to Twitter in many instances to dispute the value of the digital currency.

Official reports shed insight on potential reasons behind the investor’s fear of Bitcoin, as it was disclosed that Euro Pacific Bank had previously targeted in a Bitcoin extortion scam. Per the Age’s report, former IT director of Euro Pacific John Ogilvie had encountered suspicious scammers in the past that brought to question the bank’s security and the employers’ use of legal loopholes to aid customers in “stashing untaxed income.” Ogilvie said:

“Anderson (Schiff’s business partner)’s computer was hacked three times over a two-year period, and at one point, Russians tried to extort the bank for a ransom of 1000 bitcoins, worth millions of dollars.”

Further investigations are still being carried out at the time of writing, as Euro Pacific is currently still being probed by tax investigators.

Image source: Gage Skidmore

Crypto Founder of Ethereum-Based Oyster Protocol Arrested for Tax Evasion in Exit Scam

The founder of Ethereum-based smart contract platform Oyster Protocol has been arrested following an exit scam in which he reaped a multi-million dollar profit.

Amir Bruno Elmaani, also known as “Bruno Block,” was arrested and charged with tax evasion fraud. According to the official report from the US Securities and Exchange Commission (SEC), Block allegedly made millions in profit from the initial token offering of Oyster’s native crypto Pearl but failed to declare the earnings. The profit reaped was equivalent to around $90,000 in value back then, or 300 Ether (ETH), and most of the Pearl tokens earned was sold on a secondary market.

Per the official announcement of the Securities and Exchange Commission (SEC):

“As alleged, Amir Bruno Elmaani purported to establish a high-tech method of financing a high-tech business, but the underlying scheme was old-fashioned fraud and tax evasion.”

Elmaani touted his own cryptocurrency and blockchain project and then proceeded to convert his Pearl tokens to other cryptocurrencies. However, he failed to report his crypto earnings. Instead, he “capitalized on the investments of those who purchased virtual currency through Oyster Pearl” by acquiring lavish purchases such as spending over $10 million in yachts, and over $1.1 million on real estate.

Elmaani filed a false tax return to the Internal Revenue Service (IRS) and failed to declare the income earned on cryptocurrencies. Using the pseudonymous name “Bruno Block” and operating through shell companies, Elmaani also held various assets. Using his internal administrative access to blockchain technology, Elmaani also minted new Pearl tokens, which he then converted to other cryptocurrencies. He then cashed out the profit by using his friends and family’s names to receive digital currencies, which he then proceeded to transfer to his own bank account.

Currently, the founder has been charged with two counts of tax evasion, after being arrested by law officials in West Virginia. This translates to a potential five years in prison.

SEC undecided on how to define crypto like XRP

The SEC has been trying to make a move on regulating cryptocurrencies, as the latter has been gaining mainstream traction. However, it appears that it is lagging behind in establishing clear cryptocurrency regulations, as opposed to its counterparts China and Singapore.

According to Ripple blockchain firm’s CEO Brad Garlinghouse, “the US is out of synch with other major economies like Japan, the UK, and Singapore, where you do have a single, clear regulatory framework that has provided a level playing field” for crypto and blockchain businesses.

US IRS May Auction off the $1.2B Worth of Crypto Seized This Year

An exclusive report on Bitcoin (BTC) and crypto-related forfeitures by the United States Internal Revenue Service (IRS) has revealed that the tax agency has realised about $1.2 billion in cryptocurrency seizures this fiscal year.

While the figure may appear little compared to the broader crypto industry market capitalisation size, the CNBC led report highlighted the growing trend of these seizures from 2019.

“In the fiscal year 2019, we had about $700,000 worth of crypto seizures. In 2020, it was up to $137 million. And so far in 2021, we’re at $1.2 billion,” said Jarod Koopman, director of the IRS’ cybercrime unit. Koopman’s team are often involved in cybercrime operations that bother on tax evasion.

Besides digital assets, other items are often seized. However, the management of the seized asset, which eventually culminates in an asset auction, suggests that the seizure for this year may also be subjected to a public auction as the IRS is known for. Per the report, the practice started with the clampdown on Silk Road, a dark marketplace where users can anonymously trade all forms of contraband items, including heroin and arms. With crypto serving as the legal tender on the platform, the US government held as much as $1 billion in Bitcoin and altcoins seizures after the platform’s takedown.

Unlike the growing list of Wall Street firms like Square, Tesla and MicroStrategy who invests in Bitcoin to HODL, the US government often subjects the seized assets to public sales, a move that costs a loss of about $9.9 billion per premature liquidation.

While the sales may be convicted as a loss, the proceeds from the auction activities, according to Koopman goes to US agencies that make requests for it, subject to approval from the Treasury.

“Agencies can put in requests to gain access to some of that money for the funding of operations,” said Koopman. “We’re able to put in a request and say, ‘We’re looking for additional licenses or additional gear,’ and then that’s reviewed by the Executive Office of Treasury.”

Funding public services may at least be considered a win in the US tax regime’s broad crypto seizure, auctions, and liquidation game.

Spain Strengthens Crypto Oversight to Settle Tax Debts

The Spanish Ministry of Finance, under the leadership of María Jesús Montero, is taking significant steps to enhance its control over cryptocurrencies within the country. The ministry is actively working on legislative reforms targeted at the General Tax Law, particularly focusing on Article 162. These reforms aim to empower the Spanish Tax Agency with the authority to identify and confiscate crypto assets from taxpayers who have pending tax debts. This move is part of a broader effort to combat tax evasion and align with the European Union’s regulatory framework.

A recent royal decree that came into effect on February 1 has expanded the scope of entities that can perform tax collection duties, extending beyond traditional banks to include electronic money institutions, which are now required to report all card transactions. This expansion is a clear indication of the Spanish government’s commitment to tightening its grip on tax collection and ensuring compliance in the rapidly evolving cryptocurrency market.

Additionally, Spain is preparing to adopt the Markets in Crypto-Assets Regulation (MiCA), the first comprehensive crypto framework by the European Union, by December 2025, six months ahead of the official deadline. This proactive stance highlights Spain’s dedication to creating a robust regulatory environment for cryptocurrencies.

Spanish residents with crypto assets on platforms outside Spain are obligated to declare these assets by the end of March 2024, with the declaration period for Form 721 having started on January 1, 2024. However, it’s important to note that only individuals with crypto assets exceeding €50,000 are required to report their holdings. Those with self-custodied wallets must disclose their holdings through the standard wealth tax form 714.

These developments come as countries worldwide are increasingly recognizing the need to tax cryptocurrency holdings amidst the market’s expansion. Spain’s efforts to enhance its cryptocurrency monitoring and taxation mechanisms are part of a global trend towards greater transparency and regulation of digital assets.

South Korea's National Tax Service Advances on Cryptocurrency Oversight with Integrated Management System

South Korea’s National Tax Service (NTS) has taken a significant step forward by initiating the development of an ‘Integrated Cryptocurrency Management System.’ Aimed at bolstering tax compliance and combating evasion, the system is scheduled for completion in 2025.

The move comes at a time when Bitcoin and other cryptocurrencies have seen a resurgence in market interest, with Bitcoin reaching a record high of $69,000 in November 2021. The investment in cryptocurrencies has surged, particularly following the approval of a Bitcoin spot ETF in the United States, which has fueled a rapid increase in cryptocurrency investments.

To address the regulatory challenges posed by the anonymity and decentralization inherent in cryptocurrency transactions, the NTS has chosen GtiC as the leading consultant for the preliminary phase of the system’s construction. The system will analyze and manage transactional information collected under the mandate that obligates virtual asset service providers to report their transaction details.

The push for a comprehensive system to monitor virtual asset transactions is driven by the increasing prevalence of money laundering, unconventional inheritance and gift transfers, and offshore tax evasion associated with cryptocurrency dealings. Although virtual asset service providers have been obligated to report transaction data following amendments to the Corporate Tax Act and Income Tax Act, there has been an absence of an adequate system to analyze and manage this information.

By establishing the ‘Integrated Cryptocurrency Management System,’ the NTS aims to prevent tax evasion using cryptocurrencies and ensure fair taxation. This initiative aligns with the global trend of increasing regulatory scrutiny over virtual assets. According to a report by PwC, the European Union is in the process of establishing market regulations for virtual assets, and the United States has introduced new tax reporting requirements for cryptocurrencies. These regulatory efforts are based on recommendations from the Financial Action Task Force (FATF) and aim to maintain the transparency and order of financial markets, prevent crimes and misuse, and protect investors.

The NTS’s system is expected to increase the transparency of cryptocurrency transactions, aiding in the prevention of tax evasion and the realization of fair taxation. As the world increasingly moves towards a regulated cryptocurrency environment, South Korea’s proactive steps in this direction are a noteworthy development in the global financial landscape.

The news of South Korea’s tax authority developing an ‘Integrated Cryptocurrency Management System’ is a testament to the country’s commitment to adapting to the evolving financial ecosystem and maintaining compliance with international standards.

Binance Executives Face Tax Evasion Charges in Nigeria Amid Naira Manipulation Allegations

As the cryptocurrency landscape continues to evolve, legal scrutiny around the operations of exchanges intensifies. In a significant development, Tigran Gambaryan, a US-based executive of the global cryptocurrency exchange Binance, along with Nadeem Anjarwalla, has been charged with tax evasion in Nigeria. This case comes amid allegations of naira manipulation, putting the spotlight on the regulatory challenges faced by crypto entities across the globe.

Gambaryan, who has been a vocal figure in the cryptocurrency domain, was detained alongside Anjarwalla following an investigation into the alleged manipulation of the naira, Nigeria’s local currency. The charges come as part of a broader crackdown on irregular financial activities associated with cryptocurrency transactions in the country.

The situation in Nigeria reflects a pattern of increased regulatory action against cryptocurrency exchanges and their executives worldwide. This has raised questions about the compliance measures implemented by such platforms and the broader implications for the crypto industry’s future.

The Nigerian authorities’ decision to adjourn the case until April 19 offers a window for the defense to prepare and respond to the charges. The legal proceedings will be closely watched by crypto enthusiasts and regulatory bodies alike, as they may set a precedent for how cryptocurrency-related cases are handled in the African continent and beyond.

Binance, founded by Changpeng Zhao, has been at the center of several regulatory inquiries in different jurisdictions, including the United States and the United Kingdom. The exchange has often emphasized its commitment to compliance and cooperation with regulatory bodies to foster a more secure and regulated cryptocurrency environment.

The charges against Gambaryan and Anjarwalla also bring into focus the broader theme of currency manipulation allegations within the crypto space. Given that digital assets often transcend national borders, national authorities are increasingly vigilant about potential impacts on local financial stability and sovereignty.

As the case unfolds, it will be essential to monitor the implications for Binance’s operations in Nigeria and the exchange’s broader relationship with global regulators. The outcome could influence regulatory approaches to cryptocurrency exchanges and their compliance frameworks, especially in emerging markets where digital currencies have seen rapid adoption.

The crypto community awaits the resolution of this case, which could impact not just Binance’s operations but also shape regulatory policies in the dynamic and often unpredictable crypto landscape.

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