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Texas Cryptocurrency Fraud Lawyer for High-Stakes IRS Audits and Federal Criminal Investigations

Combating cryptocurrency fraud is a top enforcement priority for the Internal Revenue Service (IRS) and IRS Criminal Investigation (IRS CI). High-net-worth individuals and businesses can face substantial exposure in cryptocurrency-related audits and investigations—including exposure to criminal prosecution in some cases. Along with tax law violations, IRS CI works alongside the Federal Bureau of Investigation (FBI) and U.S. Department of Justice (DOJ) to target taxpayers for other federal white-collar crimes as well; and, as a result, crypto-related investigations can present risks for multiple federal charges. With this in mind, experienced legal representation is critical, and targeted individuals and businesses need experienced Texas crypto attorneys on their side.

Our attorneys have significant experience representing high-net-worth individuals and businesses in federal cryptocurrency-related matters. While audits and investigations targeting cryptocurrency-related violations can present substantial risks, targets can have a variety of defenses available. When you choose to work with Brown PC, you will work closely with a highly experienced Texas cryptocurrency fraud lawyer throughout your representation, and your lawyer will work with the federal government on your behalf to target a swift, favorable and confidential resolution.

Common Crypto-Related Issues in IRS Audits and Federal Criminal Investigations

While federal inquiries into individuals’ and companies’ cryptocurrency transactions and cryptocurrency-related business often focus on tax law compliance, audits and investigations can involve a broad range of other allegations as well. When facing scrutiny from the IRS, FBI or DOJ, it is critical to ensure that you have a complete and accurate understanding of the specific allegations (or potential allegations) at issue. Depending on the circumstances, these may include (but may not be limited to):

  • Failure to Report Cryptocurrency Transactions
  • Failure to Pay Income Tax Due in Relation to Cryptocurrency Transactions
  • Failure to Disclose Offshore Cryptocurrency Holdings
  • Noncompliance with Federal Securities Laws
  • Execution, Facilitation and Promotion of Cryptocurrency Fraud Schemes

These are just examples of the types of cases our Texas crypto attorneys most frequently see. Once you engage our firm to represent you or your company, we will work quickly to assess the focus and scope of the federal government’s inquiry, and then we will use this insight to advise you accordingly.

IRS Cryptocurrency Fraud Audits: Process, Defenses & Penalties

If you are facing an IRS audit and have concerns related to your cryptocurrency transaction history or offshore holdings, you need experienced legal representation. The IRS has been prioritizing cryptocurrency enforcement in recent years, and allegations of underreporting or underpaying your (or your company’s) cryptocurrency-related tax liability can have significant financial ramifications.

Here’s what you need to know if you are facing a cryptocurrency-related audit by the IRS:  

What to Expect if the IRS is Auditing Your (or Your Business’s) Crypto Transaction History

Avoiding unnecessary consequences during an IRS audit requires an informed and strategic approach. When targeting high-net-worth individuals and businesses in cryptocurrency-related audits, the IRS takes an exhaustive approach, gathering information through various means and assessing all potential violations involving both underreporting and underpayment. The IRS’s cryptocurrency audit process broadly involves:

  • Requests for Documentation – During the audit process, the IRS may request various forms of documentation from taxpayers; and, generally speaking, taxpayers have a duty to comply. However, revenue agents can overreach in some cases, and working closely with an experienced Texas cryptocurrency fraud lawyer is essential for ensuring that you do not provide potentially damaging documentation to the IRS unnecessarily.
  • Inspection of Books and Records – In addition to requesting documentation, revenue agents may also visit your home or office to conduct an on-site inspection. Here, too, having experienced and active legal representation is essential. Our Texas crypto attorneys can be there during the IRS’s on-site inspection to ensure that revenue agents do not violate your (or your business’s) privileges, protections or rights.
  • Interviews – Revenue agents may also seek to interview you and various members of your staff. While sitting for an interview can be necessary (and can be beneficial in many cases), it is imperative that you and your staff members know what is safe to say—and what isn’t safe to say—to the IRS.
  • Assessment of Compliance – After gathering as much information as possible, revenue agents will assess your (or your business). When we represent clients during cryptocurrency-related audits, we play an active role in this part of the process as well. Questions regarding cryptocurrency-related tax compliance can be extraordinarily complex, and our involvement at this stage is often critical for preventing unjustified determinations of noncompliance.
  • Determination of Outstanding Tax Liability – If revenue agents determine that you have underreported or underpaid your (or your business’s) cryptocurrency-related tax liability, they will calculate how much you owe (or how much they believe you owe). Depending on the circumstances, at this stage we can either work with the IRS to work out a settlement, or we can begin preparing to file an appeal.

Defense Strategies During Cryptocurrency-Related IRS Audits

Understanding that each IRS audit presents unique risks and challenges, high-net-worth individuals and businesses targeted in cryptocurrency-related audits may be able to use various defense strategies to avoid or mitigate their liability. Of course, one strategy is to demonstrate full compliance with the Internal Revenue Code, Bank Secrecy Act, and all other applicable federal statutes and regulations. If, based on our independent assessment, our Texas crypto attorneys believe that your filings are compliant, demonstrating this to the IRS should bring the audit to a swift resolution.

If it is not possible to demonstrate full compliance, then the steps involved in mitigating your (or your business’s) liability will depend on the circumstances at hand. We have helped numerous clients sidesteps substantial liability risks during IRS audits, and we can use our experience to develop and execute a strategy focused on securing a positive outcome.

Civil Penalties for Cryptocurrency-Related Tax Law Violations

When an IRS audit results in a determination of underpayment of a taxpayer’s cryptocurrency-related tax liability, the consequences can be substantial. Interest on unpaid federal taxes begins to accrue immediately—and interest alone can add hundreds of thousands or millions of dollars to a taxpayer’s total liability. The IRS can impose civil monetary penalties following audits as well, and the IRS’s accuracy-related penalty for substantial understatements is 20 percent of the amount owed and civil fraud is 75%.

Federal Cryptocurrency Fraud Cases: Charges, Defenses & Penalties

IRS CI and other federal authorities often pursue criminal investigations when they suspect that taxpayers have substantially underreported or underpaid their cryptocurrency-related tax liability. Federal investigations can target various non-tax-related forms of cryptocurrency fraud as well. Our Texas crypto attorneys handle all types of cryptocurrency-related federal investigations; and, here too, we have a long record of successfully protecting our clients.

Potential Criminal Charges Stemming from Cryptocurrency Fraud Investigations

Examples of potential criminal charges stemming from cryptocurrency fraud investigations include:

Tax Evasion and Tax Fraud

Allegations of underreporting or underpaying cryptocurrency-related tax liability can lead to charges for tax evasion and tax fraud. Regardless of the volume of a taxpayer’s cryptocurrency transactions, the Internal Revenue Code requires accurate and timely reporting and payment.  

Offshore Disclosure Violations

Cryptocurrency assets held offshore are generally subject to the same disclosure rules that apply to other foreign financial assets. Failure to disclose offshore assets to the IRS or the Financial Crimes Enforcement Network (FinCEN) can create criminal exposure in some cases.

Securities Fraud Involving Cryptocurrency Offerings (Including ICOs)

Similar to tax fraud, securities fraud can be prosecuted as a federal crime in some cases. Noncompliant private placements, unregistered initial coin offerings (ICOs), and fraudulent investment advice are just a few examples of statutory violations that can lead to criminal charges.

Cryptocurrency Promotion Fraud

Celebrities, athletes and other influencers who get caught up in promoting cryptocurrency schemes can face serious federal criminal charges. Our Texas crypto attorneys regularly represent high-profile individuals in federal cases, and we are attuned to the unique sensitivities of facing federal allegations in the public eye.

Money Laundering, Wire Fraud and Other White-Collar Crimes

All types of federal cryptocurrency fraud investigations can also lead to charges for money laundering, wire fraud and a wide range of other white-collar crimes. Business partners, promoters and other alleged co-conspirators can all find themselves under the federal government’s microscope and facing the potential for serious federal charges.

Potential Defenses to Federal Cryptocurrency Fraud Allegations

Just like civil allegations during IRS audits, there are several potential defenses to criminal allegations during cryptocurrency-related investigations. Under many federal statutes, prosecutors must prove knowledge or intent in order to establish criminal culpability—and challenging the government’s evidence of state of mind can be an effective defense in these cases. Each of the offenses listed above has multiple additional elements as well; and, if the government’s evidence of even a single element is insufficient, then criminal liability is unwarranted.

Flaws during the government’s investigation can also give rise to defenses regardless of the underlying facts at hand. Each Texas cryptocurrency fraud lawyer at Brown PC is well-versed in the laws and constitutional principles that govern federal agents’ and prosecutors’ conduct during criminal investigations; and, if federal agents or prosecutors overstep their bounds, we can leverage this to its full potential.

Penalties for Cryptocurrency Fraud in Federal Cases

In criminal cryptocurrency fraud cases, potential penalties include fines and prison time. It is not unusual for defendants in these cases to face aggregate penalties well into the seven or eight figures. Potential prison terms for the federal crimes listed above range from one year to 20 years (and in some cases even more) behind bars.

FAQs: Defending Against Substantial Allegations of Cryptocurrency Fraud

When are cryptocurrency transactions reportable to the IRS?

As a general rule, U.S. taxpayers must report all taxable transactions to the IRS, regardless of whether any tax is owed. The IRS identifies reportable cryptocurrency transactions as including the following, among others:

  • Sale of cryptocurrency for fiat currency
  • Exchange of one cryptocurrency for another
  • Exchange of cryptocurrency for property or services
  • Receipt of cryptocurrency in a hard fork
  • Receipt of cryptocurrency through mining or staking activities

When are cryptocurrency transactions taxable in the U.S.?

Just like other transactions, whether a cryptocurrency transaction triggers federal tax liability depends on the circumstances involved. The nature of the transaction, the taxpayer’s basis in the asset being sold, and any applicable deductions or credits are just a few examples of numerous potentially relevant factors. At Brown PC, our Texas crypto attorneys are intimately familiar with the relevant provisions of the Internal Revenue Code, and we can help you make informed decisions about how to deal with the IRS.

Will my cryptocurrency exchange disclose my identity to the IRS, FBI or DOJ?

Federal authorities have begun using subpoenas and other investigative tools to obtain cryptocurrency holders’ identities from cryptocurrency exchanges and other third parties. As a result, it is possible that your cryptocurrency exchange may disclose your identity to the IRS, FBI or DOJ—and this could lead to scrutiny of your federal returns.

How can a Texas cryptocurrency fraud lawyer help if I have concerns about facing federal scrutiny?

If you have concerns related to your cryptocurrency tax liability and are not yet facing federal scrutiny, a Texas cryptocurrency lawyer may be able to help you resolve the issue proactively. If you are in this scenario, we encourage you to contact us promptly for more information.

What should I do if I am under federal investigation for cryptocurrency fraud?

If you are under federal investigation for cryptocurrency fraud, you should speak with a lawyer as soon as possible. Effectively executing an informed defense strategy will be critical for avoiding unnecessary consequences.

Contact the Texas Crypto Attorneys at Brown, PC

If you need to speak with a Texas cryptocurrency fraud lawyer, we invite you to get in touch. We represent high-net-worth individuals and businesses in significant federal tax controversies. To speak with a lawyer at Brown PC in confidence as soon as possible, please call 888-870-0025 or tell us how we can contact you online today.