Reporting Your Crypto to the IRS? Beware: Operation Hidden Treasure

Are You Reporting Your Crypto?

Crypto markets have become extremely popular worldwide. And with that popularity comes a need for regulation.

Why? The reasons for that are to prevent money-laundering and tax evasion. It also helps in stabilizing crypto assets, which have been volatile for the past few years.

That aside, not reporting your activities to the IRS could have dire penalties, which we’ll be discussing below.

But First – Why is the IRS Cracking Down on Crypto Investments?

As far back as 2014, the IRS had defined cryptocurrencies as property, not as currency. And for that, they’re be subject to federal taxation.

Enforcing that taxation was difficult for the IRS. After all, there weren’t many regulatory bodies available at the time to watch crypto markets.

Also, accurate reporting was difficult, since brokers and crypto platforms didn’t provide tax reports to individuals based on their trading activities.

This can even be seen in the severe under-reporting of crypto taxes in 2018. Less than 100 Americans reported cryptocurrency gains, compared to the total 250,000 who had filed federal tax gains that year.

That represents less than 0.04% of total federal tax filers.

Since then, the IRS has made it a priority to force residents into filing crypto taxes, and part of that effort includes…

Operation Hidden Treasure

This is an operation launched by the IRS Criminal Investigation Unit.

The operation was announced by the IRS’ Office of Fraud Enforcement early March this year. And it employs professionals highly skilled in tracking cryptocurrency income and tax returns.

The IRS is making it a priority to track signs of tax evasion, through removing the anonymity of blockchain and analyzing the transactions involved.

That tracking involves looking at transactions which attempt to operate under tax limitations (such as structuring transactions in certain increments). They also include tracking false enterprises, such as shell corporations designed to make crypto tracking difficult.

What Does the IRS Expect of Investors?

Cryptocurrency holders are required to accurately mention their holdings on their tax returns (starting with the year 2020). They are required to mention any income they may have gained from those assets.

That income includes:

  • Transacting. Earnings received for your business in cryptocurrencies
  • Investing. Capital gains on cryptocurrencies


Reporting it has also become a priority in the eyes of the IRS. In fact, it’s included as a yes/no question on tax return first pages.

Individuals are required to answer yes, even if they’ve held cryptocurrencies without using them for transactions. In that situation, individuals aren’t taxed on the currencies (but they still need to mention them).

Taxation only occurs if those currencies are convert to US dollars, either through sales or exchanges, which you’ll need to report in a Form 1099-K (made for online retailers to report their sales taxes).

Why is Reporting Required?

As mentioned previously, the IRS views crypto coins as property investment, not currencies. In that case, they’re subject to report appreciations on them.

Being an investment, individuals are taxed depending on how they profited from crypto (as either ordinary income tax or short-term gain).

Cryptocurrencies held for less than a year are taxed as income tax – ranging from 10% to 37% depending on the bracket. If held for more than a year, a long-term gain tax is applied, which ranges from 0% to 20% depending on the income gained.

What About Transacting?

If someone’s paid for their work in cryptocurrencies, then they must report them.

However, unlike the investment scenario, the currencies aren’t treated as property. They’re seen as wages, and are subject to regular income tax.

If the individual receives crypto-coins as part of the payment, they’re subject to a self-employment tax.

The self-employed business will need to receive a 1099-NEC form (for independent contractors) – and from the business that paid in crypto.

Another Issue – Difficulty in Reporting

There are two more categories of individuals that need to report their crypto tax returns:

  • Miners
  • Investors in currencies with unreported public values


Both categories might face difficulties calculating their final tax returns. This applies especially to miners who receive their coins on a non-scheduled basis.

However, miners are only subject to report if their activities are part of a business or trade. In that case, they’re subject to a self-employment tax. In those situations, miners and investors are required to report the receipt day fair market value in US dollars.

What are the Penalties for Not Reporting?

According to the I.R.C, tax evasion is only criminal if the individual willfully (i.e. intentionally) omits information. Otherwise, if a mistake occurred in tax reporting, it’s considered a civil penalty.

The civil penalties are still quite heavy. If the IRS decides not press charges, then the individual has to pay 75% of the understated tax value.

What About Criminal Penalties?

Individuals convicted risk a 5 year prison sentence, and fines reaching up to $250,000.

Other Penalties to Note:

There’s a penalty imposed on individuals failing to pay crypto taxes on time. It’s paid monthly as 0.5% to 25% of the total unpaid amount.

There’s also a penalty for late filing. Individuals pay 5% of their late taxes each month, beginning from the month where the unpaid taxes were due.

What Should You Do?

If you have compliance errors, and feel that you might be subject to a penalty, then contact us immediately.

We don’t recommend heading to an accountant. After all, you don’t want to share information that might be used against you.

Sharing non-compliance info with your accountant might end up horribly, where they may have to testify against you if your noncompliance develops into a charge.

The reason or that is, accountants can’t hide information from the IRS. They might be forced to disclose documents to prove your tax returns on cryptocurrencies.

For the legal help necessary, simply contact us. We’ll help you find the best ways to avoid a criminal charge for non-disclosure. We can also guide you through options with reduced penalties for non-reporting.

You Can Always Ask Us for Help

The best way to protect yourself is to have a lawyer backing you up.

Esfandi Law Group will provide you in-depth info on what can be done to restore your rights as an American.

Finally, keep in-mind that the previous information doesn’t count for legal consulting. It’s a guide to help you and your institution guard yourself from fraud!

Posted on June 5, 2021 in Criminal Defense, Federal Fraud

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