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The IRS is preparing to crack down on "hundreds" of crypto tax cheats

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(Kitco News) - The United States Internal Revenue Service (IRS) criminal investigation division is gearing up to crack down on cryptocurrency tax evaders in the upcoming tax season, according to a recent report from Bloomberg Tax. 

IRS Criminal Investigation division chief Jim Lee recently stated that the unit is in the process of building “hundreds” of crypto cases, many of which will soon be made public. 

Previously, the agency focused its investigations on things like money laundering, but tax cases have seen a sizeable jump and now make up about half of all investigations. “In the last three years I’ve really seen a shift” in digital asset investigations, Lee said.

The main areas of focus in these cases include things like “off-ramping” transactions, where digital assets are exchanged for fiat currency, as well as people being paid for work in crypto and not reporting that income on their taxes. 

The IRS originally created the Office of Cyber and Forensic Services last year in an effort to combine its digital asset investigation, cybercrime investigation, digital forensics, and physical forensics support efforts into one cohesive unit. According to Lee, the office is capable of tracing any crypto transaction. 

On Thursday, the agency’s Criminal Investigation division released its annual report, which detailed a number of its crypto successes, including the March 2022 sentencing of Bitqyck founders Bruce Bise and Samuel Mendez for tax evasion. 

Over the course of 2022, the IRS reported that 2,077 special agents in the division dedicated nearly 70% of their time to investigating tax-related crimes such as tax evasion and tax fraud. The other 30% of their time was spent on money laundering and drug trafficking cases.  

These criminal investigations led to the seizure of roughly $7 billion worth of cryptocurrencies in fiscal year 2022, which was double the previous year’s total, according to Lee. 

The IRS ramps up its effort to crack down on crypto tax evaders

While the landscape may have changed, requiring agents to become more comfortable navigating the world of Web3, Lee indicated that it was just another day at the office for most agents, and they stand ready to go where needed to perform their duties. 

“We’ve been doing it for more than 100 years, and we’ve followed criminals into the dark web and now into the metaverse,” Lee stated. 

This ramp-up in crypto-related enforcement follows the introduction of a new “Digital Assets'' category by the IRS ahead of the upcoming tax season. Cryptocurrencies, non-fungible tokens (NFTs), and stablecoins are all now grouped under the Digital Asset label. 

With the percentage of the population that claims to own crypto rising steadily, regulatory bodies around the world have been increasing their reporting requirements and enforcement actions. According to Lee, the IRS is expecting a “more significant” hiring increase throughout the remainder of the fiscal year.

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