Cryptocurrency – Criminal Investigations have Commenced!

First, a special thank you to Steve Phillips, a tax & business lawyer in Texas, who alerted me to this recent development.

According to an Internal Revenue Service (IRS) special agent, Mr. Chris Hueston, the IRS has now officially begun investigations into tax evasion and other crimes tied to cryptocurrency. The announcement made on November 8th followed a weeklong event involving intensive data sharing among the so-called “J5” comprised of the United States, United Kingdom, Canada, Australia and the Netherlands. Make no mistake, the IRS has been hard at work for some time in scrutinizing crypto and for the past two years, it has been in  the process of developing and executing investigation techniques to enforce cryptocurrency compliance.

The J5 was formed in July 2018 and is short for the “Joint Chiefs of Global Tax Enforcement”. It is an international coalition committed to combating transnational tax crime through increased collaboration. The key for J5 is to work together to gather information, share intelligence, to conduct operations and to build the capacity of tax crime enforcement officials.  The unique thing about the J5 is the operational collaboration among five countries.  It will also work with the OECD, other countries and organizations whenever it is needed or appropriate.  More detail about this coalition can be found at my tax blog post here.

According to Mr. Hueston, the IRS has generated dozens of leads through the J5, and as a result of the week-long event, “initiated investigations through the collaboration of international partnerships that we haven’t seen before. ” In a statement released by the J5, the collaborative weeklong event involved “optimizing data” about potential tax and other crimes involving cryptocurrency from a variety of sources that were available to each individual country, including offshore account information. The individual data sets were then used “to make connections where current individual efforts would take years to make those same connections.”

Now is the Time to Take Action

With the closure of the IRS Offshore Voluntary Disclosure Program (OVDP) and its replacement with a very tough voluntary disclosure program, as well as the courts making it easier and easier for the IRS to succeed on a “willful” argument, taxpayers with tax noncompliance skeletons in their closet, need to take action.  What such action may be for different taxpayers will depend entirely on his or her specific facts.

Doing Nothing Leads to Trouble

Doing absolutely nothing is a dangerous game, especially now that losing one’s US passport due to “seriously delinquent” tax debt is a real possibility. More information on passport revocation here. Notably, just last month, IRS reversed its position and announced that a blanket exception from the revocation rules for anyone with an open Taxpayer Advocate Service (TAS) case is overly broad and could undermine the effectiveness of the statute enacted by Congress to collect a seriously delinquent tax debt. This dour IRS announcement can be found here.

Taxpayers who have the opportunity to use the IRS Streamlined Offshore Procedure (in which for certain taxpayers, all penalties might be abated), should be taking action now before that program is also shut down by the IRS, or they are detected as noncompliant by the “J5” or one of the IRS numerous “campaigns” targeting everything “offshore”.  The IRS has compiled a list of the currently active “campaigns being conducted by its Large Business & International division and its breadth is quite extensive. If the IRS picks up on the noncompliance through one of its campaigns, it is then no longer possible to use the Streamlined or Voluntary Disclosure procedures.

The waiting game is over.  Matters will only escalate as time goes by.  Getting good tax advice from an experienced international US tax advisor is the best place to start.  I am here to help.


Posted November 21, 2019

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