Better regulation needed to stop crypto tax evaders from running wild

Antivirus software pioneer John McAfee, the founder of McAfee Associates - the company that released the first commercial antivirus software, McAfee VirusScan, in the late 1980s, contributing to the birth of multibillion-dollar industry - was indicted on five counts of tax evasion and five counts of willful failure to file a tax return, which could result in a maximum sentence of 30 years if convicted.

McAfee has been a controversial figure in several countries, not only in the U.S. He went into "Exile" after claiming he had been charged with using cryptocurrencies against the U.S. government, foolishly tweeting last year from a boat, boasting about the fact that he hadn't filed any U.S. tax returns.

According to the DOJ's indictment - which was unsealed following his arrest in Spain, where he is pending extradition to the U.S. - McAfee failed to file tax returns for four years, from 2014 to 2018, despite earning millions from consulting work, speaking engagements, cryptocurrencies and selling the rights to his life story to be used in a documentary.

The sale or exchange of cryptocurrencies, the use of cryptocurrencies to pay for goods or services, and holding cryptocurrencies as an investment generally have tax consequences that could result in tax liability.

Taxpayers who do not properly report the income tax consequences of cryptocurrency transactions may be liable for taxes, penalties and interest.

Despite the DOJ's and IRS's recent success in unveiling McAfee's concealed cryptocurrency-related tax evasion, two reports - one released in late September by the Treasury Inspector General for Tax Administration, or TIGTA, and the other released earlier this year by the Government Accountability Office, or GAO - sound the alarm on how the IRS' efforts to ensure compliance with tax obligations for cryptocurrencies have been inadequate.

Both the TIGTA and GAO audit reports find that the IRS has limited data on tax compliance for cryptocurrencies because of limited information reporting by third parties, such as financial institutions and crypto exchanges, due in part to unclear requirements and to thresholds that limit the number of cryptocurrency users who are subject to third-party reporting.

While these exchanges are in a position to provide important information for use by the IRS in tax administration, information reporting on cryptocurrency transactions from the exchanges is lacking.

The NTU's new report states that the plan put forward by OECD is aimed at U.S. consumers and businesses that operate internationally, attempting to levy a minimum tax on a poorly defined tax base.

Selva Ozelli, Esq., CPA, is an international tax attorney and certified public accountant who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD..