IRS CI is Targeting Crypto Investors with Non-Tax-Related Charges

Targeting cryptocurrency-related tax fraud was a priority for the Internal Revenue Service’s Criminal Investigations Division (IRS CI) in 2021, and IRS CI has made clear that this will remain a priority in 2022 and beyond. Notably, however, IRS CI is not solely targeting cryptocurrency investors for tax-related offenses. In many cases, the division is targeting investors for violations of the Internal Revenue Code and other statutes; and, in some circumstances, IRS CI is targeting investors solely for non-tax-related crimes. Boston criminal tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains.

Fraud, Money Laundering and Other Criminal Charges Provide Opportunities to Prosecute Cryptocurrency Investors

Despite all of his alleged crimes, notorious mobster Al Capone was famously arrested for tax evasion. While federal agents and prosecutors were certain that he was guilty of a broad range of other offenses, they ultimately decided that pursuing tax evasion charges provided the surest route to a conviction.

Today, IRS CI is taking essentially the opposite approach to targeting cryptocurrency investors in criminal tax cases. Since proving crypto-related tax fraud can be challenging (though IRS CI now has plenty of tools at its disposal), the division is instead pursuing fraud, conspiracy and other non-tax-related charges against investors suspected of underreporting and underpaying their federal income tax liability.

In one recent example, IRS CI announced federal charges against an individual suspected of running a cryptocurrency investment scam. Notably, IRS CI’s press release makes no mention of alleged tax law violations. Instead, the individual is facing charges for wire fraud and money laundering based on allegations that he offered “high-yield investment programs” that required investors to use cryptocurrency, and that he shut down the programs after having collected more than $5 million in cryptocurrency from investors.

In another recent example, IRS CI successfully pursued money laundering charges against an individual accused of, “exchang[ing] at least $13 million in Bitcoin and cash, often for drug traffickers.” Again, the press release announcing the individual’s conviction makes no mention of any tax-related crimes.

Prosecutors Can Pursue a Broad Range of Charges in Criminal Tax Cases

The federal wire fraud and money laundering statutes (among others) allow IRS CI to pursue charges against cryptocurrency investors when agents cannot prove the commission of any tax-related crimes. Targeting these types of offenses allows IRS CI to expand its reach, and the division appears to be satisfied with securing any type of conviction even if tax-related charges are not on the table.  

To be clear, IRS CI is not ignoring cryptocurrency investors who are solely culpable for tax law violations. These individuals can expect to face criminal tax cases as well; and, as mentioned above, IRS CI has several tools it can use to identify investors who have failed to report their cryptocurrency transactions on their returns.

Request a Confidential Consultation with Boston Criminal Tax Lawyer Kevin E. Thorn

If you have concerns about facing a criminal tax audit or IRS CI investigation related to cryptocurrency, we encourage you to contact us promptly. Call 617-692-2989, email ket@thornlawgroup.com or contact us online to schedule a confidential consultation today.