Crypto tax cheats may need to be more vigilant this filing season, as the IRS and the Department of Justice have collaborated to issue the first isolated criminal charges for crypto tax fraud. The agency has accused Frank Richard Ahlgren III, of Austin, Texas, of failing to report or under-reporting the sale of $4 million worth of Bitcoin in 2017 and 2019, along with substantial capital gains from these sales. Remarkably, this marked the first instance that someone has been charged “solely for failing to report or underreporting cryptocurrency earnings and gains on their tax return,” according to an IRS email statement.
This enforcement action is being viewed as a stern warning to all those using cryptocurrency, indicating the seriousness with which the IRS intends to address tax crimes in this sector. The IRS has been progressively increasing its engagement with the crypto space over the past year, issuing directives on crypto staking and working towards finalizing proposed broker reporting rules that would mandate exchanges to disclose information about their users’ identities and transactions.
However, dealing with crypto tax fraud on its own can prove challenging and requires a considerable amount of technical resources and expertise, something that the IRS has been accumulating over the years. Some industry insiders perceive this action against Ahlgren as the fruit of these ongoing efforts, rather than a shift in focus from the agency.
The IRS recently hired two private industry crypto experts, Sulolit “Raj” Mukherjee and Seth Wilks, previously of Binance.US and TaxBit respectively. This move reflects the agency’s commitment to invest in expertise and understanding of the domain as it gears up for increased rulemaking and enforcement.
Whether the Ahlgren case goes to trial or not remains to be seen. What is certain is that tax professionals and legal experts are keenly observing IRS actions in anticipation of further cases of this nature as the agency intensifies its crackdown on perceived tax abuses within the cryptocurrency sphere.