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Internal Revenue Service Criminal Investigation (IRS-CI) recently released its Fiscal Year 2024 (FY24) Annual Report, providing insight into the types of crimes the agency is focused upon, as well as the first criminal sentences in areas of focus. Of note, the IRS-CI confirms the first time a U.S. taxpayer has pleaded guilty to tax evasion on income generated by cryptocurrency sales and a “historic financial settlement” of $4 Billion with Binance Holdings Limited, reportedly the largest cryptocurrency exchange worldwide.
The CEO of Binance has pleaded guilty to the failure to “maintain an effective money-laundering program.” This means the IRS has successfully brought prosecutions resulting in criminal pleas of guilt against the two largest cryptocurrency exchanges. Part of the guilty plea by Binance included an admission the exchange “turned a blind eye to its legal obligations … (and) willful failures (that) allowed money to flow to terrorists, cybercriminals and child abusers.” The report also noted that defendants in cybercrime cases “continue to receive prison sentences averaging more than five years.”
[Note to those attempting to hide income and assets through cryptocurrency: how long do you think it will take for the IRS to use these convictions at the two largest crypto exchanges in the world to leverage information on individual wallets, account holders, and unreported cryptocurrency income by U.S. taxpayers?]
The Internal Revenue Service Criminal Investigation (IRS-CI) FY24 Annual Report noted one of the unit’s first successes: Al Capone. “As with Al Capone, financial trails eventually lead to criminals’ downfall. Our agents are the best at following the money trail.” Years later, the IRS has deployed extensive data processing systems and leading-edge artificial intelligence to assist with the task of poring through information flowing into the agency to identify specific U.S. taxpayers and corporate entities with unreported or under-reported income. These state-of-the-art tools enhance the IRS's capacity for “following the money trail.”
“In FY24, IRS-CI initiated more than 2,667 criminal investigations, obtained 1,571 convictions, and reclaimed its 90% conviction rate. The agency’s investigative work identified over $9.1 billion in fraud from tax and financial crimes, obtained court orders totaling $1.7 billion in restitution to the IRS, and seized criminal assets totaling approximately $1.2 billion.”
Internal Revenue Service Criminal Investigation (IRS-CI) now has 20 offices throughout the United States and 14 “attaché posts abroad,” including new offices in Nassau, Bahamas, and Singapore.
U.S. taxpayers, from domestic and foreign partnerships to individual cryptocurrency investors and substantial offshore entities to individual U.S. taxpayers with foreign assets and income, have recently experienced multiple warning shots across the bow. The IRS recently released its regular quarterly update on December 12, noting the recovery of $4.7 billion from new initiatives, including “$1.3 billion from high-income, high-wealth individuals alone.
IRS Commissioner Danny Werfel noted: “The IRS continues to show dramatic progress on a wide array of the agency’s transformation efforts, (and) important steps in the law-enforcement and compliance arena to protect billions from ongoing schemes, ensure high-income individuals file returns and pay their taxes and penalties, and battle everything from terrorist financing to drug traffickers.”
Cryptocurrency investors have just over two weeks (until the end of 2024) to complete the task of establishing "a reasonable basis" for each crypto wallet or cryptocurrency account. The failure to accurately and adequately establish the tax basis of your cryptocurrency investments will result in substantial tax consequences when you move, trade, or sell a cryptocurrency asset in 2025 and beyond.
The IRS will presume the tax basis of any cryptocurrency transaction will be zero ($0.00) unless the taxpayer has complied with the requirement to establish a reasonable basis for these holdings. A zero basis results in capital gains taxation on 100% of any cryptocurrency transfer, trade or transaction.
Beginning January 1, 2025, U.S. taxpayers with cryptocurrency or other digital assets are required by U.S. tax law (and the IRS) to keep detailed financial records on crypto activities that include the date of any acquisition, the purchase price or exchange value, as well as the number of units that remain in each wallet or account after each activity.
