IRS Initiates ‘Operation Hidden Treasure’ to detect Unreported Crypto Income

The U.S. Internal Revenue Service (IRS) is stepping up its capability to detect any unreported crypto-related income,according to Damon Rowe, the agency’s Director of the Office of Fraud Enforcement. It will launch a dedicated program for cryptocurrency tax compliance. “Operation Hidden Treasure” will be a joint effort between the IRS’s civil office of fraud enforcement and its criminal investigation unit. It will train agents to find any tax evasion by the citizens via cryptocurrencies.

IRS employees are also reportedly training with the European Union Agency for Law Enforcement Cooperation (Europol). Carolyn Schenck, national fraud counsel in the IRS Office of Chief Counsel, said that the agency is working with private contractors, vendors, and blockchain analytics firms to develop “signatures” or telltale signs of fraudulent activity. 

The agency will look out for funding like a series of $10,000 transactions. These low series of cashouts are often below reporting requirements used by shell corporations to hide funds as well as getting on and off the chain. The IRS has recently sent an updated FAQ page indicated that investors who simply bought “virtual currency with real currency” may not have to report that transaction in the tax returns this year.

However, cashing out crypto or making every-day purchases is typically seen as a taxable event. “Operation Hidden Treasure”has been designed to find, trace, and attribute such transactions to taxpayers, Schenck said. The tax defense bar has asked the IRS to announce some voluntary disclosure programs, similar to the foreign bank disclosure program. However, it seems unlikely that the IRS will roll out such a program in the near future.