The US Internal Revenue Service’s (IRS) criminal investigative unit says crypto tax investigations are on the rise.
The unit notes in a new annual report that the number of digital asset tax investigations has increased as crypto assets have become more mainstream.
“These investigations consist of unreported income resulting from failure to report capital gains from the sale of cryptocurrency, income from mining cryptocurrency, or income received in the form of cryptocurrency, such as wages, rental income and gambling winnings.
[Criminal investigation] also sees payment evasion violations, where taxpayers fail to disclose ownership of cryptocurrency in an effort to protect their holdings.”
Jim Lee, the head of the IRS’s criminal investigative unit, says the law enforcement agency is “reaping the benefits” of investments in cyber capabilities and training.
“Our partnerships with the private sector have created opportunities for us to solve the world’s most complex crypto-related crimes. We remain focused on stopping those who seek to exploit new technology for nefarious purposes, limiting illicit financing and identifying national security risks.
We know that digital assets provide opportunities for responsible financial innovation, and most people who use cryptocurrency do so for legitimate purposes.
But we also know that digital assets pose a risk for facilitating money laundering, cybercrime and ransomware, narcotics, human trafficking, terrorism, proliferation financing and tax crimes.”
Lee notes that chain-hopping has made tracking digital assets more difficult.
Chain hopping is a form of money laundering that involves converting one type of crypto asset into another and moving funds across multiple chains, according to the U.S. Department of Justice (DOJ).
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