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Cryptocurrency Tax Fraud and Tax Evasion

Cryptocurrency Tax Evasion and Tax Fraud

Virtual currencies are assets used as mediums of exchange, stored in digital wallets. Given their nature, they are often used as investment opportunities by crypto enthusiasts and casual day-traders alike. In 2020, Bitcoin went from trading at about $7,000 in January, to over $30,000 in December. With price increases like that, many investors saw astronomical returns on their investments.

With such returns, many investors were left wondering: how do I pay taxes on my cryptocurrencies? Many investors were either uncertain of how to pay taxes on their crypto earnings, or willfully unaware that they were required to do so entirely. The IRS has stepped up enforcement actions against individuals who fail to pay taxes on their cryptocurrency earnings. If you have been charged with tax evasion or tax fraud resulting from Bitcoin or cryptocurrency related earnings, contact a Miami cryptocurrency attorney to fight back against the IRS and federal prosecutors.

What is Cryptocurrency Tax Fraud?

Tax fraud charges resulting from failure to pay taxes on cryptocurrency earnings are charged under federal tax evasion law. The offense occurs when an income earner makes a willful attempt to not pay taxes. Usually, this looks like an individual failing to prepare a tax return for cryptocurrency entirely.

For prosecutors, the difficulty is proving that the evader's actions were deliberate or intentional. Cryptocurrency users who are unaware that any debt obligations were triggered by their crypto earnings may avoid prosecution entirely by asserting that misconception. However, courts will consider all relevant information in determining whether the defendant was aware of their tax obligations. For example, a defendant who has paid capital gains tax on investment earnings in the past in likely to be aware that they owed taxes on their cryptocurrency, and a court will probably find your failure to pay intentional.

Another possible defense is that the cryptocurrency user simply lost their cryptocurrency. This could occur because they lost their password, are otherwise unable to access their account, or their earnings were stolen from them before they could cash out. If this is the case, any earnings are not taxable income, but it may draw attention from the IRS regardless.

Civil and Criminal Penalties

Under I.R.C §7206, a person who fails to file taxable income is liable for fines up to $100,000 and up to three years in prison. A person who attempts to evade taxes is liable for up to five-years imprisonment and a $250,000 fine.

Cryptocurrency-Related Tax Charges

If you are concerned you might be facing criminal tax charges, you should seek expert help immediately. If the IRS has contacted you regarding an investigation into your tax account, a criminal defense attorney can help ensure you are given the fairest possible outcome in your case. Whether or not you are charged is largely dependent on the government's ability to compile evidence against you. An experienced Miami criminal defense attorney can advise you of the best ways to defend yourself from investigators, as well as file motions protecting your constitutional rights.

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