IRS prepares for an increase in crypto cases in the upcoming tax season

The United States Internal Revenue Service (IRS) criminal investigation division is ramping up for tax season with its sights set on the crypto community.

According to a report from Bloomberg Law, the division chief Jim Lee said they are preparing “hundreds” of crypto-involved cases, many of which will soon be available to the public.

Lee said in the last three years, there has been a major shift in digital asset investigations conducted by the IRS. Previously these investigations were mostly money-laundering related, whereas now tax-related cases make up nearly half.

This includes what is often called “off-ramping” transactions where digital assets are exchanged for a fiat currency, along with not reporting crypto payments.

In a different report released by the agency on Nov. 3, the IRS reported that in 2022 the 2,077 special agents of the division spent nearly 70% of their time investigating tax-related crimes like tax evasion and tax fraud. While the other 30% was spent on money laundering and drug trafficking cases.

The division chief said following the money is nothing new and they’re ready to pivot into new realms, including Web3.

“We've been doing it for more than 100 years, and we've followed criminals into the dark web and now into the metaverse."

The report cited a crypto-related case as an example, which involved tracing billions of dollars in Bitcoin stolen from Bitfinex after its 2016 hack and led to the arrest of two individuals.

Related: 74% of public agencies feel under-equipped for crypto investigations: Report

This comes after the IRS introduced a broader ‘Digital Assets’ category ahead of upcoming tax season. It grouped cryptocurrencies, stablecoins and nonfungible tokens (NFTs) all together under a new “Digital Asset '' category.

As decentralized financial technologies and assets become more mainstream, regulators are reacting, therefore enforcing more reporting requirements.

Binance has been actively holding workshops for global regulators to better understand digital assets and their implications. These activities increased after the exchange hired a prominent IRS cybercrime investigator to lead its anti-crime unit.