Crypto: Decoding what IRS’ ‘Operation Hidden Treasure’ is all about

Lavina Daryanani
Source: CEPS

With adoption on the rise on the macro frame, more and more investors have been stepping into the crypto arena. It’s a known fact that fetching returns and maximizing gains via investing remains to be the disguised motive of most participants. The tax factor, however, acts as an obstacle.

Regulators all over the world continue to remain skeptical about crypto and its underlying blockchain technology. To protect investors from the volatile side, and restrict the malpractices executed, governments have started imposing taxes on returns fetched. Investors, on their part, have been on the lookout for loopholes.

US’ taxing body Internal Revenue Service [IRS] is one such agency that has been monitoring and assessing crypto. Earlier this year, the individual tax return form explicitly had a question about “virtual currency.” Filers were questioned if at any time during the year they “received, sold, exchanged, or otherwise disposed of any financial interest in any virtual currency.”

The authorities intend to bring down crypto non-taxpayers. Per a recent press release, the IRS has launched ‘Operation Hidden Treasure’ to crack down on the lawbreakers.

What the crypto-centric operation is all about?

Operation Hidden Treasure was, as such, announced by Damon Rowe, the Director of the Office of Fraud at the IRS, at a Federal Bar Association meeting last year. As indicated by the name, Operation Hidden Treasure targets taxpayers who attempt to hide their crypto income from the IRS.

Per the press release,

The IRS put together a task force that is trained in the tracking of various types of crypto income and has also tied together the civil and criminal branches of the IRS for Crypto Tax Fraud Enforcement.

One of the methods of tax evasion that the task force intends to address is “structuring.” Outlining what exactly falls under the ambit of the same, the statement issued noted,

Structuring is when a person will perform frequent financial transactions at less than $10,000 to evade certain cash tax reporting requirements. For example, making multiple transactions of $9,999 or splitting the payments evenly across dozens of transactions may evade cash reporting rules.

Next, Shell Corporations that enable users to hide crypto gains is another tangent of Operation Hidden Treasure. Alongside, the use of Crypto Blockchain Cloaking Technology is also being investigated by the IRS. Some crypto exchanges enable a taxpayer to trade for items or other crypto coins anonymously, and the IRS wants to track them down. The release outlined,

The IRS expects its investigation will yield additional options on how to track down taxpayers utilizing anonymous transactions to evade reporting cryptocurrency taxable income.

With the launch of the operation, looks like investors would now have to think twice before trying to unlawfully evade taxes on crypto income.