#crypto

Cryptocurrency fraud has become increasingly prevalent in recent years. The lack of a centralized authority governing crypto along with the relative anonymity of transactions has contributed to this rise in digital financial crime. Specifically, cryptocurrency money laundering has grown significantly in recent years with billions of dollars stolen through hacks, Ponzi schemes, mixers. A recent report from Chainalysis estimates illicit cryptocurrency addresses received more than 50 billion dollars in 2024.

Crypto money laundering follows the same pattern used for fiat (government-issued) currencies by “cleaning” funds gained through illicit means, before exchanging or withdrawing them for cash. Traditionally, money laundering involves disguising financial assets so they can be used without detection of the illegal activity that produced them. In the context of crypto, tokens are moved through various digital addresses to obscure their illegal origin and make them more difficult to trace.

The privacy-preserving nature of crypto has opened the door for criminals to conceal the origin of illicitly gained funds through a variety of methods. Cybercriminals ultimately funnel assets through several businesses and online addresses to hide the money trail before transferring the funds to a seemingly legitimate source.

The IRS has just announced that Operation Hidden Treasure will seek to find taxpayers with unreported income from currency transactions. Did you notice the new question on page 1 of the Tax Form 1040? It states, “At any time during 2020 did you receive any financial interest in virtual currency?” Last year this question was only on Schedule 1.

The IRS Criminal Investigation Division (“CID”) will look for typical “flags” in money transactions. That may include “structuring” (transactions in increments of less than $10,000 to avoid reporting requirements), “the use of nominees, shell corps” (entities used solely for moving money around) or “getting on and off the chain.” (On chain transactions – blockchain is modified to reflect the transaction on a public ledger. Off chain transactions are those that that go off the blockchain. They work by swapping private keys to an existing wallet instead of transferring funds.)

The IRS identifies and investigates these tax evasion flags. Operation Hidden Treasure is “all about finding, tracing, and attributing crypto to U.S. Taxpayers.” Do not be fooled into thinking that since it’s cryptocurrency the government does not have the know how to investigate. Charges for tax evasion, false information on a tax return or even money laundering or structuring can be forthcoming. Call Conaway & Strickler, PC if you have had a friendly visit from an IRS CID Agent or if you think you might be facing some issues with the IRS. Carolyn Schenck, national fraud counsel in the IRS Office of Chief Counsel states, “Operation Hidden Treasure is designed to find, trace and attribute such transactions to taxpayers. These transactions are not anonymous. We see you.”

Articles Tagged with #crypto

Cryptocurrency Money Laundering

IRS Increased Focus on Cryptocurrency in Operation Hidden Treasure