Those traders who do not report their cryptocurrency holdings could face criminal charges or fines. The agency is working jointly with blockchain analytics firms to detect transactions.
A task force that the US Internal Revenue Service (IRS) formed has the mission of reducing cryptocurrency tax evasion. The agency activated the so-called Operation “Hidden Treasure”, which goes against traders who do not declare their crypto-asset profits or holdings.
Agents specialized in tracking cryptocurrencies and services of blockchain analytics companies constitute the unit, according to business magazine Forbes. The department added functions of two IRS agencies: the Criminal Investigation Office and the Civil Anti-Fraud Office.
Carolyn Schenck, the IRS’s national fraud adviser, believes that the operation seeks to “find, track and attribute cryptocurrencies to American taxpayers.” The IRS admitted that it is working on identifying transactions and relating them to traders.
Seeking to Identify the Owners of Cryptocurrencies
Schenk highlighted that the IRS is analyzing blockchains and removing anonymity from cryptocurrency transactions. She added that doing so will allow them to track, find and seize cryptocurrencies in a civil and criminal environment. “We are watching you,” the official said.
The agency did not disclose which blockchain analytics companies are working with them to detect potential Bitcoin fraud. Among the companies that offer this type of service are Chainalysis, Elliptic, CipherTrace, and Coinbase.
The official reported on the patterns that they are looking for within the blockchains to determine whether there are suspicious transactions. These include recurring operations below USD 10,000, that is, just below the limit required to notify them. They are also going after users who use “shell” companies to hide funds and those who “get on and off the chain.”
Consequences of Not Declaring Cryptocurrencies
Failure to declare ownership of or earnings on cryptocurrencies could lead to civil or criminal consequences. The first case consists of fines of up to 75% of undeclared taxes. The second scenario involves court charges, and the user could go to prison if the authorities find him guilty.
Attorney and tax specialist Guinevere Moore believes that users should seek legal advice about the steps to follow. She suggests communicating with lawyers rather than with accountants as there is no principle of confidentiality with the latter. She also stressed that, in the case of the IRS, people should not “bury their heads in the sand.”
The IRS announced new measures to reduce tax fraud, but they have been tracking cryptocurrency transactions since 2015. With this escalation, they are telling traders to declare voluntarily rather than under outside pressure.
In October, the tax authority paid USD 1.25 million to companies Chainalysis and Integra FEC to increase their control over cryptocurrencies. The agency requested a system to track transactions on the Monero Network and the Bitcoin Lightning Network. All of the above shows that they are taking increasingly controlling actions to get Americans to reveal their holdings of Bitcoin.
By Alexander Salazar
