IRS Takes Action Against Crypto Trader for Failing to Report Gains in Enforcement Efforts
The Internal Revenue Service (IRS) has made a significant move in its efforts to crack down on cryptocurrency tax evasion. In a landmark case, the agency has charged an individual with underreporting and failing to report his cryptocurrency transactions. This marks the first time that the IRS has taken legal action specifically related to cryptocurrency earnings and gains on tax returns.
The individual in question is Frank Richard Ahlgren III from Austin, Texas. According to the indictment, Ahlgren sold $3.7 million worth of Bitcoin in 2017 to purchase a residence. However, he allegedly inflated the price he paid for Bitcoin in his tax return, thus underreporting his gain from the sale. Additionally, he reportedly failed to report over $650,000 worth of Bitcoin transactions in his 2018 and 2019 tax returns. Each count carries a potential prison term of up to five years.
This case serves as a warning to other crypto users who may be tempted to evade taxes on their digital asset transactions. The IRS has repeatedly emphasized that all taxpayers are obligated to report any sale proceeds, gains, or losses from the sale of cryptocurrencies on their tax returns.
One common misconception among individuals is that crypto transactions are anonymous and therefore not traceable by the government. However, the IRS has the ability to track crypto transactions through third-party reporting from crypto exchanges and by analyzing the blockchain, which is a public ledger that records all transactions.
In January, the IRS reminded taxpayers that they must report all digital asset incomes they made in the previous year when filing tax returns. This requirement applies to all taxpayers filing various forms, regardless of whether or not they conducted digital asset transactions.
Don Fort, the former chief of the IRS’s Criminal Investigation division, commented on Ahlgren’s case, noting that most crypto cases in recent years have focused on money laundering or illegal source tax cases. However, this indictment represents a significant development as it deals with legal source tax cases. Fort emphasized the importance of reporting capital gains and suggested that similar cases may follow.
The IRS has been ramping up its efforts to crack down on crypto tax evasion. Last month, the agency announced the addition of two private-sector experts to their team to aid in their cryptocurrency and digital assets enforcement programs. The experts will help the IRS design systems for reporting and compliance related to digital assets.
With the IRS increasing its focus on crypto, tax professionals are anticipating more stringent enforcement actions from the agency. Taxpayers who have been dishonest about their digital asset transactions may face severe consequences if their deceit is deemed willful.
In August, the IRS proposed regulations that would require brokers of digital assets to report certain sales and exchanges. The goal is to address tax evasion risks posed by digital assets and ensure that everyone follows the same set of rules. However, critics argue that the sheer magnitude of data required for reporting is impractical and raises concerns about taxpayer privacy.
As the IRS continues its efforts to close the tax gap and ensure compliance in the crypto industry, it is clear that taxpayers must fulfill their obligations and accurately report their cryptocurrency earnings and gains. Failure to do so could result in legal action and significant penalties.
