IRS CI: 93 Percent of Assets Seized in 2021 Were Cryptocurrency

The Internal Revenue Service’s Criminal Investigation Division (IRS CI) recently released its FY 2021 Annual Report. While the Annual Report contains some notable statistics and other information about IRS CI’s enforcement efforts over the prior year, one figure stands out in particular. Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains:

IRS CI Seized $3.5 Billion in Cryptocurrency in 2021

According to the FY 2021 Annual Report, IRS CI seized $3.5 billion in cryptocurrency in 2021. While this figure is significant on its own, what is even more significant is that this represents 93 percent of the total assets IRS CI seized during the year. Clearly, IRS CI is prioritizing enforcement in the area of cryptocurrency tax compliance, and it has the resources it needs to effectively target U.S. taxpayers who underreport and underpay their federal tax liability.

Importantly, these seizures reflect not only amounts collected to satisfy U.S. taxpayers’ debts to the IRS, but to pay other liabilities as well. For example, the FY 2021 Annual Report indicates that IRS CI seized more than $1 billion worth of bitcoin from Silk Road creator Ross Ulbricht in “the largest seizure of cryptocurrency in U.S. history.”

Cryptocurrency Will Be a Top Enforcement Priority in 2022

In light of IRS CI’s success in 2021, we can expect cryptocurrency enforcement to remain a top priority for the division in 2022. The FY 2021 Annual Report indicates that IRS CI has been undertaking efforts to enhance its enforcement capabilities over the past few years, and the report states that IRS CI is planning to launch an Advanced Collaboration & Data Center (ACDC) in Northern Virginia next year. The ACDC will serve IRS CI’s goal of “ensur[ing its] capabilities continue to evolve with the online and digital payment landscape,” and will, “bring together data, technology, and specialized personnel from across Treasury and government to work on high impact solutions to protect the integrity of our tax and financial systems.”

New Tax Laws Will Further Enhance IRS CI’s Enforcement Capabilities in 2022

In addition to IRS CI’s unilateral efforts to enhance its enforcement capabilities, the division is also getting help from Congress. The highly-publicized 2021 infrastructure bill establishes new reporting requirements and grants the U.S. Treasury Department new authority to obtain information about cryptocurrency owners from exchanges and other “brokers.” Congress is also currently considering adopting a wash sale rule that would prevent cryptocurrency investors from reducing their tax liability by selling and then immediately repurchasing depreciated digital tokens.

With all of this in mind, cryptocurrency investors and businesses that utilize cryptocurrency must be prepared to prioritize cryptocurrency tax compliance heading into the new year. We encourage anyone who has questions to contact us for a confidential consultation.

Request a Confidential Consultation with a Virginia Tax Attorney

If you have questions or concerns about your (or your business’s) cryptocurrency-related tax liability, we can help. To request a confidential consultation with Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, call 703-752-3752, email ket@thornlawgroup.com or tell us how we can reach you online today.