The criminal division of the U.S. Internal Revenue System (IRS) recently announced that it was able to identify dozens of people who were using cryptocurrencies to evade taxes or to commit crimes without getting caught. According to the IRS, the information was collected after officials from several other countries including the United Kingdom, Canada, Australia, and the Netherlands had a meeting.
Nearly three years ago the U.S. took a major step in the battle against cryptocurrency tax evasion by requesting user data from one of the largest digital asset exchanges.
Now other countries are following suit.
“What you’re seeing are some efforts from J5 partner countries and other countries to maybe follow similar techniques that have been used in the U.S.,” said Don Fort, chief of the Criminal Investigation Division at the Internal Revenue Service.
The J5, or Joint Chiefs of Global Tax Enforcement, is a collaboration among tax agencies in Australia, Canada, the Netherlands, the United Kingdom, and the U.S. to crack down on transnational tax crime by gathering and sharing intelligence, conducting joint operations, and cross-training enforcement officials.
Earlier this month, Her Majesty’s Revenue and Customs—the U.K.’s tax authority— started seeking user data from several cryptocurrency exchanges, including Coinbase Inc., for the period from April 2017 to April 2019. The time frame captures the Bitcoin boom at the end of 2017 when many customers would have seen enormous profits and should have paid corresponding tax bills.
The U.K. request is reminiscent of a summons a federal judge allowed the IRS to serve on Coinbase in 2017 to get information on the exchange’s U.S. customers. Since then the U.S. has continued to ramp up its enforcement efforts, most recently by sending letters to more than 10,000 cryptocurrency users warning of potential civil and criminal action if the users don’t report their digital assets to the IRS.
Canada and Australia have also taken significant action during the past year to gather more information about cryptocurrency users, either from the individuals themselves or from third parties.
The increased gathering and sharing of data across countries means it will get harder for individuals to keep their transactions secret from tax agencies.
“The days of trading in cryptocurrencies with minimal detection risk are passed,” said Alexander Demner, a partner at Thorsteinssons LLP in Vancouver.
The IRS Criminal Investigation Division has for years focused on the ways in which cryptocurrencies have been used to commit non-tax crimes, such as money laundering and narcotics trafficking, according to Fort. But for the last year or so the division has become especially focused on the threat cryptocurrency poses to tax administration.
“No longer do you have to get on a plane to go to a tax haven country to open up an account at a brick-and-mortar bank,” Fort said. “If you know what you’re doing and you have these apps and private and public keys, you can transfer money around the world.”
IRS CI agents have become experts in tracking and tracing cryptocurrencies because of past efforts to combat identity theft, Fort said.
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