Department of the Treasury Archives

Key Takeaways | Cryptocurrency Global Tax Enforcement: What Investors and Companies in the Industry Need to Know NOW

by Simon Airey, Kevin Spencer and Katharine Suominen | Jul 27, 2021 | IRS Guidance, Tax Reform

During a recent program discussing the latest government enforcement efforts related to cryptocurrency, we spoke with Gary Alford, one of the leading Internal Revenue Service (IRS) agents in their crypto enforcement efforts, Perry Carbone, Chief of the White Plains Office (US Attorney’s Office – SDNY) and Andy Cole, former Director of Specialist Investigations at HM Revenue & Customs in the United Kingdom, about how investors and companies in the virtual currency industry should address enforcement actions. Below are key takeaways from the conversation.

ENHANCED ENFORCEMENT – UNITED STATES

The time to act is now. The IRS and the US Department of Justice (DOJ) are collecting virtual currency data at a rapid pace while simultaneously moving forward with tax enforcement cases. The IRS Criminal Investigation (IRS-CI) revamped its operations to “do more with less” using new technology that will move investigations at a faster pace.
The IRS joined its civil and criminal units through Operation Hidden Treasure and is also working with outside experts in the field—along with specially-trained IRS agents—to pursue tax enforcement and asset seizure. This is a key agenda item for the US Department of the Treasury and is not going away any time soon.
The IRS and the DOJ expect taxpayers to comply voluntarily with all tax obligations. Despite these recent developments, US taxpayers have limited guidance from the IRS. Engaging with professionals in the space to evaluate the options available to taxpayers is crucial to assessing and ensuring compliance with cryptocurrency taxation.

INTERNATIONAL EFFORTS

Global collaboration is nothing new, but it is now on the rise. Agencies around the world are enhancing their cross-border information and resource sharing to investigate tax crimes efficiently and effectively. The J5, an important component of this global collaboration, is prepared to pool some of the world’s most sophisticated data analytical tools so that intelligence can be screened, searched and/or identified.
The Organisation for Economic Co-operation and Development (OECD) and its governing body will likely start requiring cryptocurrency exchanges to collect customer due diligence information. The window of anonymity around cryptocurrency transactions has closed rapidly in recent years.
The global Common Reporting Standard (CRS) has been in force since 2017. Under the CRS, tax authorities of over 100 countries (including most of the traditional “tax havens”) automatically exchange tax, account and payment information with each other in order to assist in tax collection and enforcement action.

FOR INDIVIDUALS

Moving forward, the “knowledge and willfulness” element needed for criminal cases will be much easier for the DOJ to prove because the “virtual currency question” is now at the top of Form 1040. The prominent location of this question is “a game changer” for criminal tax prosecutions.
Cryptocurrency tax crimes are no longer “add on” charges to other criminal prosecutions, such as narcotics or fraud crimes. The DOJ expects to bring independent cryptocurrency criminal tax cases and take these prosecutions to “the next level,” including prosecutions of more routine tax matters.
Individuals serving as board members on behalf [...]

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Biden Administration Proposals Will Greatly Enhance IRS’ Ability to Identify Cryptocurrency Transactions

by Julian André, Kevin Spencer and Katharine Suominen | May 26, 2021 | IRS Guidance, Tax Reform

The Biden Administration and the Internal Revenue Service (IRS) continue to focus heavily on cryptocurrency tax enforcement issues. On May 20, 2021, the US Department of the Treasury (Treasury) released the American Families Plan Tax Compliance Agenda, a 22-page report detailing tax compliance measures that are to be included as part of US President Joe Biden’s American Families Plan. The report sets forth a number of initiatives designed to “close the tax gap,” identify the underreporting of tax liabilities and detect tax evasion. These measures, which are part of an $80 billion proposal for the IRS, would significantly enhance the agencies’ ability to address the challenges involved with finding taxes that result from virtual currency transactions.

The Treasury’s report notes that “[c]ryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion.” To address this issue, the Biden Administration is proposing “additional resources for the IRS to address the growth of cryptoassets.”

Most notably, the Biden Administration is proposing enhanced reporting requirements for domestic and foreign financial accounts that specifically address cryptocurrency. Financial institutions, including “cryptoasset exchange accounts and payment service accounts that accept cryptocurrencies” would be required to submit third-party annual reports of all “gross inflows and outflows” from business and personal accounts to the IRS using a form similar to the IRS 1099-INT. Additionally, “businesses that receive cryptoassets with a fair market value of more than $10,000 would be reported on” in a manner similar to how cash transactions are reported on Currency Transaction Reports. These new reporting requirements would dramatically increase the IRS’ ability to identify and detect unreported cryptocurrency transactions.

The report also reemphasizes the need to devote additional funding to the IRS. The Biden Administration is seeking $80 billion in additional funding so that the Treasury and IRS can, among other things, hire “new specialized enforcement staff” and “revitalize[e] the IRS’s examination of large corporations, partnerships, and global high-wealth and high-income individuals.”

Additionally, the Biden Administration plans to overhaul the IRS’ IT systems and capabilities. These IT enhancements are designed to “help support a staff capable of deploying new analytical techniques” and “developing machine learning capabilities [that] will enable the IRS to leverage the information it collects to better identify tax returns for compliance review.” Given the inherent difficulties in identifying cryptocurrency users who have failed to comply with the internal revenue laws, increased data collection and analytics capabilities would be invaluable for the IRS.

The IRS has already been ramping up its cryptocurrency tax enforcement efforts by issuing John Doe summons to various cryptocurrency exchanges, working with industry experts and foreign law enforcement. If implemented, the American Families Plan Tax Compliance Agenda would provide the IRS with extensive new tools and resources for these ongoing enforcement activities.

Practice Point: If you have engaged in cryptocurrency transactions, now is the time to analyze whether you have any civil or criminal exposure and prepare for a government inquiry by gathering all of your transaction records. For [...]

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Law360: Deference Principles: Tax Litigation’s Next Battleground

by Editorial Team | Jan 11, 2019 | Appellate Courts, Tax Reform, Trial Courts, Uncategorized

Following our post, The (Potential) Demise of Auer Deference?, we wrote an expanded article on tax reform and deference for Law360. The Law360 article, “Deference Principles: Tax Litigation’s Next Battleground,” can be accessed here.

Treasury and IRS Throw Out 298 Regulations and Amend 79 Others

by McDermott Will & Emery | Feb 13, 2018 | IRS Guidance, Uncategorized

Following up on our prior posts here and here, the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) have proposed to remove 298 regulations and amend 79 regulations. The Treasury’s and the IRS’s action is in response to Executive Order 13789 (April 21, 2017), which called on the Treasury and the IRS to identify and reduce tax regulatory burdens that impose undue financial burdens on US taxpayers or otherwise add undue complexity to federal tax laws.

The 298 regulations are proposed to be removed because they have no current or future applicability and, therefore, no longer provide useful guidance. However, the proposed removal is not intended to alter any non-regulatory guidance that cites or relies on these regulations. The regulations proposed to be removed fall into one of three categories:

Regulations interpreting provisions of the Internal Revenue Code (Code) that have been repealed;
Regulations interpreting Code provision that, while not repealed, have been significantly revised, and the existing regulations do not account for these statutory changes (note that to fall within this category, the statutory changes must have rendered the entire regulation inapplicable); and
Regulations that, by the terms of the relevant Code provisions or the regulations themselves, are no longer applicable (g., expired temporary regulations, certain transition rules)

The 79 regulations proposed to be amended are regulations that make reference to the 298 regulations proposed to be removed.

Before the proposed regulations removing and withdrawing regulations are adopted as final regulations, the Treasury and the IRS will give consideration to any written comments provided by the public. Comments must be received by May 14, 2018. A public hearing may be scheduled if requested in writing by any person that timely submits written comments.

Practice Point: Taxpayers and practitioners may want to review the list of regulations proposed to be removed to determine whether the regulations continue to serve a useful purpose and should be retained.

IRS Releases Second Quarter Update to 2017-2018 Priority Guidance Plan

by Kevin Spencer and McDermott Will & Emery | Feb 9, 2018 | IRS Guidance, Uncategorized

On February 7, 2018, the Department of the Treasury (Treasury) released its second quarter update to the 2017-2018 Priority Guidance Plan to identify tax issues it believes should be addressed through regulations, revenue rulings, revenue procedures, notices and other published administrative guidance. The Priority Guidance Plan contains projects the Treasury hopes to complete during the 12-month period from July 2, 2017 through June 30, 2018. We previously posted on the first quarter 2017-2018 Priority Guidance plan here.

Most of the projects do not involve the issuance of new regulations, instead focus on guidance to taxpayers on a variety of tax issues important to individuals and businesses in the form of: (1) revocations of final, temporary, or proposed regulations (for our prior coverage, see here); (2) notices, revenue rulings and revenue procedures; (3) simplifying and burden reducing amendments to existing regulations; (4) proposed regulations; or (5) final regulations adopting proposed regulations. The initial 2017-2108 Priority Guidance Plan consisted of 198 guidance projects, 30 of which have already been completed. The second quarter update reflects 29 additional projects, including priority items as a result of the Tax Cuts and Jobs Act (TCJA) legislation enacted on December 22, 2017, and guidance published or released from October 13, 2017 through December 31, 2017.

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