The US Internal Revenue Service (IRS) is gearing up for a new campaign to tackle the digital assets industry and the tax implications that come with it.
In preparation for collecting crypto taxes, the IRS recently hired industry veterans Sulolit “Raj” Mukherjee and Seth Wilks to serve as executive advisors to the agency.
Mukherjee previously worked as global head of tax at blockchain software company ConsenSys and was an executive at the US arm of crypto exchange Binance, while Wilks was previously vice president of government relations at crypto tax software company TaxBit.
Doug O’Donnell, the IRS’s deputy commissioner for services and enforcement, said the two new recruits will help the agency understand the industry, which is now a “top IRS priority.”
“Seth and Raj expand our ability to understand this sector as they design systems for reporting cryptocurrency and digital assets and related transactions. Improving worker capacity and access to resources in this rapidly evolving global landscape is a top priority of the IRS.”
According to James Creech, attorney and senior manager at accounting firm Baker Tilly, “everyone has been waiting for the tidal wave of this enforcement activity” when it comes to crypto. He says tax reporting on cryptocurrencies has been “very mixed” so far.
The U.S. Government Accountability Office reports that IRS audit rates for all income levels fell dramatically between 2010 and 2019, from 0.9% to 0.25%, largely due to fewer staff due to reduced funding.
CNBC reports that the IRS has focused on reversing historically low audit rates of high earners, corporations and complex partnerships.
In its 2023 annual report, the IRS Criminal Investigation Unit says despite “chain-hopping and token swapping,” the agency is still following the trail of the public’s digital assets.
“We continue to lead our research efforts on digital assets, and we are reaping the benefits of early investments in our cyber capabilities and training. Our partnerships with the private sector have created opportunities for us to solve the world’s most complex crypto-related crimes. We remain focused on stopping those who seek to exploit new technology for nefarious purposes, limiting illicit financing and identifying national security risks.
We know that digital assets provide opportunities for responsible financial innovation, and most people who use cryptocurrency do so for legitimate purposes. But we also know that digital assets pose a risk for facilitating money laundering, cybercrime and ransomware, narcotics, human trafficking, terrorism, proliferation financing and tax crimes. Chain-hopping and token swapping have become common digital asset techniques used to follow the digital money trail more difficult, but not impossible.”
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