Statistics show that IRS Criminal Enforcement is down. But it is certainly not out. Seemingly adopting the mantra “quality not quantity,” earlier this year the IRS Criminal Investigations division announced the creation of two new nationally-coordinated investigation units that, according to statements made this week, the IRS expects will be fully operational in January 2018. One unit will focus on perceived havens for tax abuse – including the areas of employment tax and international tax enforcement – while the second unit will be dedicated solely to making use of the IRS’ exhaustive data collection efforts pursuant to the Offshore Voluntary Disclosure Programs, the Swiss Bank Programs, and other international tax initiatives.
Chief Don Fort announced the arrival of these two new programs earlier this week during a tax conference held at UCLA. The new programs will be spearheaded out of Washington D.C. by a special agent in charge, with supporting agents strategically located across the United States. Chief Fort elaborated that IRS CI is specifically concerned about taxpayer use of digital currency to evade taxes, noting that agents will soon undergo training on the basics of digital currency transactions. Institutionally, the IRS has been slow to offer guidance on the tax treatment of virtual currency. To date the IRS’ only official publication is Notice 2014-21, which declared that convertible currency, i.e., virtual currency that has an equivalent value in real currency or that acts as a substitute for real currency, is treated as property for federal income tax purposes, and that general tax principles applicable to property transactions apply to transactions using virtual currency. In that notice, the IRS and the Treasury Department specifically acknowledged that “there may be other questions regarding the tax consequences of virtual currency not addressed in this notice that warrant consideration.” While the IRS requested public comments regarding other types or aspects of virtual currency transactions that should be addressed in future guidance, the IRS has yet to issue any such future guidance.