In the last few years, the Department of Justice has made substantial efforts to prosecute taxpayers who omit crypto sales for evasion- and filing-related crimes. The failure to report the sale (or to understate the value of sale) of cryptocurrency or other digital assets is reviewed by the Internal Revenue Service and habitually referred to the DOJ if the IRS believes the taxpayer had the requisite intent.
These prosecutions are often extremely successful and ultimately end up being well-distributed news pieces. The DOJ is trying to make a point – the sale of digital assets (a piece of property, to be clear) is income. And all income must be reported on a tax return.
A recent court decision gave the IRS a wider net to also cast over taxpayers who may be tempted to conceal ownership of digital assets. The 5th Circuit in the 2023 U.S. vs. Crandell case ruled that the taxpayer has a duty to provide accurate financial information to the IRS, even if that information is solely used to set up a payment plan, given that “evasion” under 26 U.S. Code § 7201 includes not only the evasion of tax already due, but the payment of that tax as well. In the context of digital asset ownership, it’s a piece of property the IRS will certainly want to know about in determining the taxpayer’s ability to pay a tax. Failure to do so can certainly land the taxpayer in a world of criminal and civil trouble…at least up until April 7, 2025.
On April 7, 2025, the Department of Justice announced via memorandum that it would no longer seek to regulate the cryptocurrency industry via prosecution in an effort to “end the regulatory weaponization against digital assets.” Specifically, the DOJ effectively disbanded the National Cryptocurrency Enforcement Team and directed prosecutors away from efforts to prosecute crypto-related white-collar and financial crimes, and instead directed prosecution of those who use digital assets to commit criminal offenses involving scams, narcotics, and cartel financing.
Now what?
Does cryptocurrency finally live up to the wild, wild west mantra that allowed it to rise to popularity? Are taxpayers free to make millions selling off digital assets, then lay on a tropical beach without fear that their livelihoods could be in jeopardy?
Unlikely.
The DOJ makes clear in its memorandum that it doesn’t want to serve as the police force on the crypto market; it’s no longer looking to crack down on individual transactions and mixing and tumbling actions. What stands out, however, is its commitment to prosecuting those who use digital assets “in furtherance of criminal offenses.” While the memo lists a few examples, it’s clearly intended to be non-exhaustive. Accordingly, concealing the ownership or the sale of digital assets to evade the assessment or payment of tax under 26 U.S. Code § 7201 is almost certainly going to remain an area of priority for the DOJ. Moreover, the referrals from the IRS likely won’t slow down because these actions directly and negatively impact the government’s ability to collect revenue.
Taxpayer compliance is important, and taxpayers who may find themselves in this situation should seek assistance from a qualified tax professional.
As a Matter of Tax 
One response to “Crypto Tax Reporting in the Time of Deregulation”
[…] you don’t need to win big to land in evasion territory. As referenced in my piece about the reporting of digital asset sales and ownership, the mere omission of the sale or ownership of an asset in an attempt to evade or defeat the […]
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