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Report Predicts Increase in Crypto Tax Evasion Cases for IRS in the US

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IRS Expects to See Spike in Crypto Tax Evasion Cases in the US: Report

In the US, where approximately 40 percent of adults currently hold cryptocurrency assets, there is an expected surge in tax evasion cases. The Internal Revenue Service (IRS) is already preparing to address these cases, as revealed by Guy Ficco, the chief investigating officer of the IRS in the US, at the Chainalysis Links event in New York. Ficco mentioned that the agency has observed an increase in ‘pure crypto tax crimes’, distinct from fraud, money laundering, and scams.

The US imposes taxes ranging from zero percent to 20 percent on long-term capital gains, with individuals making up to $44,626 in profits from cryptocurrency activities in 2023 exempt from long-term Capital Gains Tax. Short-term capital gains are subject to taxes of up to 37 percent based on profits in the US.

Individuals in the US who deliberately misreport their cryptocurrency profits during tax filing are prosecuted under the Title 26 tax code. The IRS is actively working to identify and prosecute individuals falling under this category to combat crypto tax evasion.

In anticipation of the growing number of crypto tax evasion cases, the IRS is collaborating with various law enforcement divisions to enhance the process of criminal identification. Additionally, the IRS has joined forces with Chainalysis, a blockchain analysis firm, to study potential vulnerabilities in Web3 protocols that cybercriminals could exploit.

Simultaneously, an alarming incident of international tax evasion cases emerged in 2023, as per a report by Divly, a Sweden-based tech research firm. The report disclosed that only 0.53 percent of global crypto holders paid taxes on their crypto earnings in 2022, with countries like the Philippines and India showcasing extremely low percentages of crypto taxpayers.

In India, where all crypto profits are taxed at 30 percent, crypto platforms are integrating taxation services to enable users to calculate and fulfill their tax obligations. The Indian Web3 community believes that compliance with tax regulations could lead to greater government support for the sector’s growth. Taxnodes, a crypto taxation firm, even announced a unique incentive of providing complimentary NFTs to individuals paying their crypto taxes through their platform.

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