Reported by: AYSHA BAGCHI

The Internal Revenue Service has signaled that a wave of tax prosecutions involving cryptocurrency is coming. Its Criminal Investigations division is building hundreds of cryptocurrency cases, with about half of those investigations focused specifically on tax crimes, according to division Chief Jim Lee. Others target money laundering, he said.

Lee made the comments in the wake of several federal courts authorizing the IRS to serve “John Doe” summonses on third parties for information on entire classes of unidentified cryptocurrency users. 

The summonses are part of the agency’s data collection efforts as it cracks down on crypto tax noncompliance, an issue that has gained in importance with the expansion of the market. Former IRS Commissioner Charles Rettig estimated last year that the overall shortfall might be as high as $1 trillion.

The IRS used the same type of summons in the late 2000s and early 2010s to fight offshore tax evasion enabled by financial institutions in Switzerland, ultimately imposing more than $1.36 billion in penalties against 80 Swiss banks.

“What’s really clear is that the government doesn’t like to reinvent the wheel too much,” said Mayling Blanco, a partner at Norton Rose Fulbright US LLP who specializes in white collar defense and criminal tax exposure. 

Having successfully used John Doe summonses in the Swiss bank prosecutions, the government “realized that this tool works really well,” Blanco said.

Read full report: https://news.bloombergtax.com/daily-tax-report/irs-crypto-tax-criminal-cases-bolstered-by-john-doe-summonses