California Law Firm Predicts Surge in IRS Crypto Prosecutions 

Klasing Associates, a law firm based out of the United States, has predicted an incoming barrage of lawsuits against cryptocurrency tax evaders by the Internal Revenue Service (IRS). According to a recent blog post, the California law firm explained that there would be a significant surge in the number of criminal tax prosecutions and crypto examinations conducted by the nation’s tax authority in the nearest future, as the IRS gears up to expand its scope of investigating cryptocurrencies. 

Gearing Up to Chase Tax Evaders

As Klasing’s report explained, the IRS published a new Form 1040 last year, which includes questions on whether taxpayers had sent, received, exchanged, sold, or acquired any cryptocurrencies. As the firm pointed out, the inquiry itself proves that the IRS is now looking into crypto holders who are actively paying their taxes and those who aren’t.  

The law firm also opined that the revenue agency is looking to separate the responsible crypto taxpayers from those who are using virtual currencies as a means of evading taxes so that it can focus its wrath on them. It added that the Criminal Investigation division of the IRS already admitted that it would be focusing on crypto tax enforcement going forward, and this is just the first phase of its keeping to that commitment. 

The IRS’ newfound focus on Americans evading taxes with cryptocurrencies isn’t entirely surprising. Cryptocurrency exposure among Americans has been on the rise, meaning that more people will be looking to use the assets for some of their many benefits. However, the government is growing increasingly worried about their use for criminal activities- including and especially tax evasion and money laundering. 

Steve Mnuchin, the Secretary of the Treasury, has come out on multiple occasions to explain that the current administration is looking into developing cryptocurrency policies that will help prevent the assets from being used as “Swiss bank accounts.” His concern has been largely shared by several regulatory bodies, including the IRS. 

The IRS Has Made Considerable Progress on Crypto Tax Enforcement 

It’s also worth noting that the IRS had done its bit to improve on the oversight of cryptocurrencies with respect to tax compliance. Apart from the update to the Form 1040, the tax authority released cryptocurrency guidance last October, focusing on how crypto holders are to remit taxes after a cryptocurrency airdrop or hard fork. While many- including members of Congress- criticized the guidance as being vague or non-specific, it showed laudable commitment by the agency nonetheless. 

The IRS has now picked up from where it stopped last year, as it invited several crypto insiders to a March 3 summit in Washington D.C. earlier this week. As Bloomberg Tax reported, the summit will focus on striking a balance between taxpayer service and regulatory enforcement, with topics of discussion including preparing tax returns, updates to cryptocurrency technology, regulatory compliance and enforcement, and the possible issues faced by crypto exchanges.