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IRS to Hammer Down on Bitcoins, a Virtual Currency
Author: Scarinci Hollenbeck, LLC
Date: June 21, 2013
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The Internal Revenue Service is increasing its focus on tax law compliance, as evidenced by the recent crackdown on offshore tax evasion and international financial-account sharing agreements with popular tax havens. However, the IRS is zeroing in on a new potential gateway for tax evasion that may affect taxpayers of all income levels: virtual currency.
The Internal Revenue Service is increasing its focus on tax law compliance, as evidenced by the recent crackdown on offshore tax evasion and international financial-account sharing agreements with popular tax havens. However, the IRS is zeroing in on a new potential gateway for tax evasion that may affect taxpayers of all income levels: virtual currency.
Bitcoins recently exploded onto the scene, and the virtual currency has drawn attention from nearly every federal agency that investigates crime. The currency, once tied to drug trafficking and other crimes, is now thought to be another channel Americans can use to commit tax fraud, according to the Financial Times.
Scrutiny of virtual currency increased following the May arrest of five individuals associated with Costa Rican-based digital currency business Liberty Reserve. The workers are accused of running a $6 billion money-laundering scheme facilitated by virtual monies, and its clients were said to include identity thieves, drug lords, and computer hackers, the Times reports.
“Clearly, the increasing use and misuse of cyber-based currency and payment systems to anonymously transfer illicit funds as well as hide unreported income from the IRS is a threat that we are vigorously responding to,” Victor Lessoff, IRS director of the cyber crimes unit, told the Financial Times. “The globalization and digitalization of our currencies is a significant emerging threat […] It doesn’t take much of a leap [to think] that these currencies would be used for tax evasion.”
While the agency is still exploring its strategy options to detect, prevent and mitigate tax fraud committed through digital currency channels, one suggestion that may be implemented in the near future is requiring taxpayers to disclose whether they conduct any type of business through non-traditional financing means, such as the use of online financial accounts, including PayPal, according to the Telegraph.
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