Contributed by Marini & Associates, P.A., United States
Cryptocurrency has become a primary focus for the Internal Revenue Service's Criminal Investigation division because the technology offers a convenient means to hide assets and income as well as facilitate other types of criminal activities, an agency official said.
The CI division is leading the way when it comes to tracing cryptocurrency and identifying criminal activity that's related to emerging cryptocurrency markets, said Ryan L. Korner, the special agent in charge of the CI division's Los Angeles field office. Korner spoke late Thursday during a virtual conference hosted by the University of California, Los Angeles Extension.
"It's One Of Our Top Priorities," He Said. "We're Really Looking At Cryptocurrency From Several Different Perspectives, Obviously No. 1 Being Tax Crimes."
The IRS has been cracking down on cryptocurrency traders to increase tax compliance, as demonstrated in 2019 by the agency sending 10,000 letters warning cryptocurrency users to properly report and pay taxes on these transactions. A notice from 2014 requires cryptocurrency to be reported the same way as any other gain or loss on the sale or exchange of property, and additional guidance issued in 2019 did not change that position. When examining cases involving virtual currency, Korner said the division is looking into a taxpayer's intent to hide assets or income using cryptocurrency or whether there is some sort of legitimate purpose for their cryptocurrency holdings, such as investment.
The CI Division Is Skilled At Evaluating The Difference Between A Misunderstanding Of The Law And A Willful Intent To Evade Taxes, He Said.
"CI doesn't have the resources to waste in investigating innocent taxpayers," Korner said. "So we're doing a lot of work to make sure on the front end [that] when we initiate an investigation, we're looking at someone who actually has criminal culpability." Him him him him him
* In fiscal year 2021 as of Aug. 31, CI had more than 150 "Cyber Cases" in inventory and about 90 of those were directly related to cryptocurrency, Korner said.
* Of the 230 cases in the pipeline in which prosecution recommendations have been made to the U.S. Department of Justice, approximately 80 cases were directly related to cryptocurrency, he said.
"We [also] had over $3.5 billion in seizures stemming from virtual currency investigations in FY 21, and that's about 90% of our total seizures for the year," he said. "So you can see we have got a lot of activity in this virtual currency space." CI has become good at tracing cryptocurrency through its use of data analytics, which continues to be one of the primary weapons to combat tax fraud, Korner said. The IRS has deployed a system by Palantir Technologies Inc. that enables personnel in every agency unit to cull vast quantities of data from both internal and external sources in a single, unified research platform. The agency announced a seven-year, $99 million deal with Palantir, which is based in Palo Alto, California, in September 2018. Palantir continues to be the IRS' No. 1 choice in the field and the government continues to add new cryptocurrency-related data sets to the Palantir database, Korner said. In addition, the IRS is using information from cryptocurrency exchanges to gather that data through cyber crime units, he said.
One way data analytics is being used is to identify non-filers who have significant virtual currency activity by comparing received data with tax filings, Korner said. CI also identifies people who have purchased significant assets such as gold and real estate that are beyond their afforded means using cryptocurrency, he said. But data analytics is not the only tool that's used and hasn't replaced boots-on-the-ground case development and investigative work, Korner said. CI continues to focus on developing informants in the virtual currency industry and continues to collaborate with federal, state and international law partners to identify other trends for tax noncompliance in the cryptocurrency space, he said.
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