Already in the midst of cracking down on offshore tax and banking violations as part of its war on global tax evasion, the Internal Revenue Service (IRS) has recently revealed that it sees the rise of virtual currencies as an avenue for tax evasion and money laundering schemes. "Clearly the increasing use and misuse of cyber-based currency and payment systems to transfer illicit funds as well as hide unreported income from the IRS is a threat that we are vigorously responding to, " IRS official Victor Lessoff told the Financial Times in an interview. Lessoff also said that, "it doesn't take much of a leap to assume that these currencies may be used to avoid paying taxes."
In the past, web-based transactions made it difficult for law enforcement agencies and tax-collecting bodies alike to accurately monitor the transfer of funds for legitimate and illicit reasons. However, technological advances as well as reporting and data mining programs, such as OVDP, FACTA, and Grand Jury investigations are facilitating the identification of individuals and potential investigation targets, faster and with more accuracy.
The Wall Street Journal reported on May 31, 2013:
The federal crackdown intensified Tuesday when prosecutors accused Costa Rica-based Liberty Reserve of operating a $6 billion money-laundering ring that was tied to an Internet-based currency. It marked the first time authorities have invoked the 2001 Patriot Act against a virtual currency.
Liberty Reserve couldn't be reached late Friday for comment. Its website, libertyreserve.com, says the site has been seized by the "United States Global Illicit Financial Team."
The criminal indictment was filed in U.S. District Court in the Southern District of New York. The company and seven of its principals and employees were charged with money-laundering and operating an unlicensed money-transmitting business.
The Liberty Reserve charges came two weeks after authorities froze an account tied to the largest bitcoin exchange.
We expect that the Internal Revenue Services' investigative authority and resources will be of great value to government in seeking out individuals who may be involved with virtual currencies.
Convicted tax offender and actor Wesley Snipes was released from federal prison in a blaze of press just before the tax return filing deadline this year. As you may remember, the "Blade"trilogy actor was charged with tax evasion in 2008. According to reports, Snipes had failed to pay income taxes between 1999 and 2006, during which period he earned an estimated $38 million.
Snipes was convicted of deliberately failing to file federal tax returns and sentenced to three years in prison even though these were misdemeanor charges. His legal team appealed his sentence to the Supreme Court on grounds that his sentence was 'too harsh' a penalty for the crime. However, the Court refused to hear the matter and the sentence stood. Now that Snipes has been released from prison, he will serve the rest of his four months under house arrest.
The Snipes case serves to remind us that 1) people, even the wealthy and celebrities, go to prison for tax crimes, and 2) getting caught up with the wrong crowd is no defense - as here, Snipes' original defense was that he was relying on his accountant's advice.
If you stand accused of any tax problems domestically or internationally, an experienced tax attorney may be your most valuable asset. These professionals have an extensive knowledge of federal and state tax law, and can fight to ensure that your rights are not infringed upon by a government body. Further, the tax fines, penalties and interest that tax problems can create can seem overwhelming. A tax attorney and tax professionals can advise you on the best strategy for you. Visit the Moskowitz LLP website for more information on how a tax attorney can help.
Disclaimer: Because of the generality of this blog post, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar outcome. Furthermore, in accordance with Treasury Regulation Circular 230, we inform you that any tax advice contained in this communication was not intended or written to be used, and cannot be used, for the purposes of (i) avoiding tax related penalties under the Internal Revenue Code, or (ii.) promoting, marketing, or recommending to another party any tax related matter addressed herein.