In a report by Forbes, it was revealed that Damon Rowe, the Director of the Office of Fraud Enforcement at the U.S. Internal Revenue Service has announced that their office has operationalized and set forth a dedicated team of IRS Criminal Investigation agents to pursue the IRS' current bid to track down criminal activities, specifically, the omission of annual tax returns. Dubbed as "Operation Hidden Treasure," the task force is comprised of agents trained in cryptocurrency and virtual currency tracking.
The question here is whether this counts as federal overreach, when, for the most part of crypto's decade-long history, it has largely been ignored either as an inconsequential asset class that had no impact in the national economy, or as just another fad creating its own bubble. Since the rise of Bitcoin's price and the eventual development of blockchain technologies furthering the use value of cryptocurrencies, the space has attracted a lot of attention, and now, the IRS has its eyes on crypto once more.
Not too long ago, in 2015, the U.S. government tracked down, arrested, and eventually convicted Ross Ulbricht for the creation and operation of Silk Road, the infamous darknet market where Bitcoin was used to facilitate illicit sales. This precedent in governmental intervention on possibly criminal activities involving cryptocurrencies set forth the tone of how, years later, state agencies such as the IRS are now pursuing suspected tax crimes from among early adopters of the technology.
In a online discussion, RT correspondent Ben Swann said that “Anyone who had crypto, converted that into fiat dollar and didn’t pay taxes on it, or people who exchanged one token for another token, or people who move tokens out of exchange and into a cloud storage wallet,” adding that “It’s not billionaires like Elon Musk or Mark Cuban who are affected by this, it’s the everyday people who have made cryptocurrency successful who will be targeted by the IRS."
Carolyn Schenck, national fraud counsel in the IRS Office of Chief Counsel, stated during the Federal Bar Association presentation that the IRS is working closely with private contractors and vendors to develop tracing signatures that could detect possibly fraudulent activity. These parameters include analyses of transactions strategically placed below compliance requirements such as sending a sequence of transactions below $10,000 at a time, making use of shell corporations to conceal fund amounts, as well as "getting on and off the chain," according to Schenck.
However, it seems that the IRS has conflicting positions on what counts as criminal or fraudulent activity in relation to crypto. In an updated it was specifically stated that investors or holders who bought “virtual currency with real currency” i.e., convert from fiat to crypto, are not obliged to provide audit reports on those transaction based on an annual tax return sheet. The opposite goes forth when users cash out their crypto either through every-day purchases or as a means of repurposing and re-investing in other cryptocurrency assets: these are categorized by the IRS as applicably taxable.
Notably, agents assigned to Operation Hidden Treasure are reportedly training alongside the European Union Agency for Law Enforcement Cooperation (Europol). This means that there will be an international effort to curb crypto-related criminal activities with a broader spectrum of implementation across geopolitical divides.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.