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Operation Hidden Treasure and virtual currency transactions

On Behalf of | Jul 10, 2022 | Criminal/Civil Tax Litigation |

The IRS employs professional agents experienced in civil and criminal matters to track crypto or virtual currency transactions. Referred to as “Operation Hidden Treasure,” specialized agents review income tax returns to determine whether digital currency traders neglected to report their exchanges.

According to, virtual currencies represent a store of monetary value because of their ability to convert into physical currencies. When exchanging virtual currencies for goods, services or physical money, the IRS may consider it a taxable event. Like stocks or bonds, profitable crypto trades may incur liability for capital gains taxes.

IRS agents look for certain signs that may indicate crypto trades

As noted by Forbes magazine, trained IRS agents search for signs of unreported crypto holdings based on transaction structuring. Virtual currencies, for example, may trade in lots that do not exceed $10,000. With smaller trades, taxpayers might forgo traditional reporting requirements when exchanging crypto for physical dollars. Some crypto traders may also use shell corporations when exchanging virtual currencies.

Companies facilitating crypto transactions may receive a “John Doe” summons from the IRS. The summons requests information about certain customers that meet the criteria related to an investigation. As explained on the U.S. Department of Justice website, the IRS must first obtain a federal court order to serve a John Doe Summons.

The IRS may send taxpayers notices regarding virtual currencies describes how the IRS officially defined digital currency as a taxable property in 2014. Because of the air of mystery that might surround certain blockchain transactions, taxpayers may receive audit notices.

Based on its functioning as an unregulated industry, virtual currency transactions could raise red flags. The IRS may serve a John Doe summons if only one crypto customer’s tax filing showed discrepancies. The summons could also lead to all of a company’s crypto traders receiving IRS notices.