IRS Leveraging Data Analytics to Catch Crypto Tax Evasion

While technologies like crypto and non-fungible tokens (NFTs) are designed to be invisible, the IRS is aware that money laundering is being carried out by some crypto users. It is leveraging data analytics technology and artificial intelligence to assist its overburdened staff. Jeff Tribiano, deputy commissioner for operations support at the IRS, believes that technology, data analytics, and artificial intelligence play a large part in the future of the work that the IRS is going to be doing. Although the crypto world has been changing rapidly, the IRS has been leveraging technology to keep up with it. The IRS is continuing to address how cryptocurrency relates to the dark web and is working with firms on the potential issue of tax evasion.

Global cooperation. IRS Criminal Investigation has been working with tax authorities in four other countries, Canada, the United Kingdom, Australia, and the Netherlands, through a group known as the J5 on tax cases involving cryptocurrency. Initially working with the Organization for Economic Cooperation and Development, the IRS was coming up with typologies and methodologies to help countries worldwide to address various emerging threats, and cryptocurrency was on that table. With the J5, they have taken it one step further as far as really addressing the non-compliance issues in cryptocurrency and professional enablers. Not only are they looking at cryptocurrency as an issue of digital currency, but they also have a platform where they’re looking at the technology so that countries can speak to each other.

Biden Administration proposals. In the Treasury Department’s Green Book, the Biden administration’s proposal for the IRS is to increase its tax enforcement budget to pull in more tax revenue, including requiring banks and other financial institutions to report more information about their customers’ accounts. The commissioner of the IRS’s Small Business/ Self-Employed Division, Eric Hylton, anticipates that more tax whistleblower claims will be filed relating to cryptocurrency, and the IRS will be able to trace these more with the help of tipsters. Hylton will be working with former IRS acting commissioner Steven Miller and former Senate Finance Committee senior counsel Dean Zerbe on research and development for tax credits, tax advisory services for digital currency, and whistleblower claims against taxpayers who aren’t reporting their cryptocurrency gains.

IRS Tech Hiring. Cryptocurrencies and NFTs are only one part of the IRS’s digital transformation challenge. The IRS is looking to hire more tech employees to help with that effort, thanks to the streamlined “critical pay authority” it was granted in the Taxpayer First Act of 2019 for technology upgrades. On top of that, the IRS is actively fighting against the increase in fraud and non-compliance brought about by COVID-19. The IRS is hoping to hire experts who can perform complex audits, investigations, and compliance checks on cryptocurrency using data analytics and other advanced technologies. IRS Criminal Investigation is increasing its use of artificial intelligence and data manipulation tools to find connections and patterns that wouldn’t necessarily be readily identified as a human being.

Like the IRS, business owners should be looking into leveraging data analytics and technology to help them make better data-driven decisions. The availability of useful information is constantly increasing, and many companies are changing how they look at their processes. By embracing real-time metrics and real-time forecasts, business owners will gain a greater understanding of how certain actions will affect their decisions.

From technology-based accounting solutions to management information, analysis, and reporting, Talley LLP is the premier business consulting firm for entrepreneurs and their closely-held businesses. For more information on how to leverage your business’s data technology, contact Talley today.