The Internal Revenue Service’s Criminal Investigations Unit is reportedly grappling with a surge in cryptocurrency-related tax evasion cases, which was revealed by Department Director Jim Lee in a recent call with reporters.
Investigations range from failure to report capital gains to deliberate withholding of disclosure of cryptocurrency ownership.
Until three years ago, the IRS investigative department primarily focused on cryptocurrency-related money laundering cases. However, the current situation shows a significant change, with almost half of cases now related to taxes. This trend highlights the growing focus on ensuring compliance in the area of cryptocurrency taxation.
The IRS Investigations Division recently played a pivotal role in the Binance investigation, resulting in a historic $4 billion settlement. Not only did Binance promise to pay out billions of dollars, it also pleaded guilty to failing to comply with registration requirements and operating as an unlicensed money transfer business. Former CEO Changpeng Zhao pleaded guilty to violating anti-money laundering laws and resigned from his role as part of the settlement.
Despite the settlement, Binance did not escape legal responsibility. The company was sued by the U.S. Securities and Exchange Commission for allegedly commingling funds and offering unregistered securities. The outcome of these legal battles will continue to shape the regulatory environment for cryptocurrency exchanges.
The IRS is actively working to build a comprehensive cryptocurrency framework that goes beyond individual cases. The agency extended the tax rule comment period in October after receiving significant public feedback. Coinbase, a major player in the cryptocurrency industry, criticized the proposed rule for introducing reporting requirements that are “difficult to understand and overly burdensome.” Lawmakers have urged the Internal Revenue Service (IRS) to accelerate enactment of cryptocurrency tax regulations first introduced last August, emphasizing the urgency of addressing regulatory clarity in the cryptocurrency tax landscape.