IRS Warns: Hundreds of Crypto Criminal Tax Cases Ahead; Hiring 300 special agents means more to follow | BakerHotelier

Take away food :

  • The 2022 IRS Annual Criminal Investigation Report highlights significant lawsuits and identifies cryptocurrency as a priority area heading into 2023.
  • Chief of Criminal Investigations Jim Lee reveals plans to hire 500 new staff to continue pursuing cases and warns that hundreds of crypto-related cases are ready to be publicly charged.
  • Taxpayers with a potential problem should consider resolving issues nowbefore tax officials target them in criminal prosecution.
  • Companies in this sector need to ensure that compliance addresses the risks of tax evasion in their business activities.

The 2022 annual report[1] from the IRS’ Criminal Investigations Division (CI) (the report) demonstrates an impressive year for enforcement, especially when it comes to cryptocurrency. Following the release, CI chief Jim Lee made it clear that the division will continue to closely monitor crypto transactions. He warned, “Expect more outward-facing tax crypto cases here in the near future” — “outward-facing” referring to accusations made publicly.[2] Lee also warned that criminal charges could result from “runaway transactions” (i.e. the process of converting digital assets into fiat currency). Bolstered by the prominent placement of disclosure language on the front of Form 1040, it can be expected that law enforcement will bring more criminal tax cases against those who fail to disclose transactions involving assets. digital. Given the division’s 90.6% conviction rate on cases accepted for prosecution in fiscal year 2022, businesses and individuals should act now to work with an attorney to ensure they are in compliance with all applicable laws and regulations.

Fiscal 2022 report touts major successes

According to the report, in 2022 the division identified $32.6 billion involved in fraud, including $5.7 billion in tax evasion, three times the amount of fraud identified by the division in the fiscal year. 2021. Additionally, the division seized approximately $7 billion in crypto, reportedly double the amount seized the previous year. In addition, more than 2,550 criminal investigations were opened, of which 1,564 resulted in convictions (resulting in the conviction rate of 90.6% mentioned above). Touting those victories in the report, Lee warned that “if a CI special agent has you in his [sic] crosshairs, chances are you’re going to jail. The report also details cybercrime as a major priority and area of ​​strength for the division, including the introduction of the Office of Cyber ​​and Forensic Services, which brings together various teams within the division to investigate misconduct related to cryptography. However, the battle has only just begun, according to Lee, who said the division is “just laying the groundwork to do more in 2023.”

Hundreds of Crypto Cases and Rise in Hirings for Upcoming IRS Criminal Investigations

In addition to his previous warnings, Lee publicly announced in a recent call with Bloomberg Tax that the division already has hundreds of crypto-related cases for which it expects to bring charges, an important announcement for all companies or individuals operating in the cryptocurrency space or who have engaged in asset transactions digital. Lee also noted that many of these cases will be related to off-ramp trades.

To support the division’s aggressive law enforcement efforts, including continued investigations and prosecutions, Lee announced plans to hire more than 500 new IRS employees, including 360 new special agents. In light of the ambitious hiring plan, the failure of taxpayers to report digital asset transactions is more likely to come under scrutiny by the division. This is a continuation of the division’s focus on digital asset enforcement, which began as early as 2019 when IRS Form 1040 first required front-page disclosure of asset activity. taxpayers’ virtual currency. In the updated 2021 Form 1040, language referring to “virtual currency” has been replaced with “digital asset” – likely a sign that the IRS is targeting a broader scope of reported transactions and will be aggressive against the sub -statement.

The IRS has been open about its aggressive stance on enforcement, its willingness to bring cases, and the types of cases it prioritizes. The IRS’ increased enforcement activity mirrors actions taken by other agencies in 2022 that also flagged the prioritization of crypto-related enforcement. For example, the Securities and Exchange Commission nearly doubled the size of its Crypto Assets and Cyber ​​Unit and the Department of Justice (DOJ) is making a concerted effort to improve policing with the Digital Asset Coordinator Network to be led by the National Cryptocurrency Enforcement Team. .[3] Now more than ever, it is imperative for businesses and individuals to take steps to comply with all applicable laws and regulations and ensure they have competent counsel in case they become the target. of an investigation.


[1] 2022 Annual Report, IRS CI Division, available at https://www.irs.gov/pub/irs-pdf/p3583.pdf. [2] “‘Hundreds’ of Crypto Cases Coming, IRS Criminal Chief Says”, Bloomberg Tax, November 3, 2022, 4:52 p.m., available at: https://news.bloombergtax.com/daily-tax-report/hundreds-of-crypto-cases -coming-irs-criminal-chief-says. [3] “SEC Signals Ramp-up in Crypto Enforcement by Nearly Doubling Its Crypto Assets Cyber ​​Staff”, BakerHostetler, 5 May 2022, available at https://www.bakerlaw.com/SEC-Signals-Ramp-Up-in-Crypto – Application-by-almost-doubling-of-his-crypto-assets-cyber-personal-unit; “DOJ Targets Cryptocurrency Fraud”, BakerHostetler, October 12, 2021, available at https://www.bakerlaw.com/DOJ-Targets-Cryptocurrency-Fraud. [View source.]

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