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Dealing with a Federal Subpoena for Cryptocurrency Tax Fraud
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- 1 Dealing with a Federal Subpoena for Cryptocurrency Tax Fraud
Dealing with a Federal Subpoena for Cryptocurrency Tax Fraud
Getting a federal subpoena related to cryptocurrency tax issues can be scary. I totally get it — the idea of the IRS digging into your financial life is enough to make anyone feel anxious. But try to take a deep breath. With the right help, you can get through this. I’ve worked with lots of folks in your shoes, and I’m here to walk you through it, step-by-step. You got this!
What is a federal subpoena?
A federal subpoena is a request for information from a federal agency like the IRS or FBI. It legally requires you to provide documents, give testimony, or both. Subpoenas related to cryptocurrency usually come from the IRS Criminal Investigation Division. They want info to build a tax evasion or fraud case against you. Not great, I know.
Why did I get a subpoena?
The IRS has been ramping up enforcement against cryptocurrency tax evasion. They view crypto as a hotspot for people hiding income and avoiding taxes. Some reasons you may have gotten a subpoena:
- You didn’t report crypto income on your tax return
- You didn’t pay taxes on crypto profits
- You moved crypto between wallets to hide transactions
- You used crypto to make purchases or pay bills without reporting it
The IRS can track a lot of this activity through subpoenas to crypto exchanges like Coinbase. If they see clues of tax evasion, you may get a subpoena requesting more info.
What does the subpoena require me to do?
Subpoenas can ask for different types of documents and information. Some common requests related to crypto:
- Transaction histories for all your crypto wallets and accounts
- Bank statements showing crypto purchases or sales
- Communications related to crypto transactions
- Testimony answering questions about your crypto activities
The subpoena will list out exactly what info the IRS wants from you. It will also give you a deadline, usually around 2-3 weeks, to provide everything.
Yikes, what should I do now?
I won’t sugarcoat it — dealing with a crypto tax subpoena is serious business. Here are some steps to take right away:
- Don’t panic – Easier said than done, I know! But panicking leads to poor decisions. Take some deep breaths and focus on the next right step.
- Hire a lawyer – You do NOT want to handle this alone. A skilled attorney can help respond to the subpoena in the best way possible.
- Notify your tax preparer – If you use an accountant or tax preparer, let them know about the subpoena right away.
- Gather documents – Locate any documents the subpoena requests. Having them ready will help your lawyer craft a response.
- Consider coming clean – If errors were made in reporting crypto activity, your lawyer may advise amending past returns or applying for IRS voluntary disclosure.
What are my options for responding?
Your lawyer will help assess the best response strategy based on your specific situation. Here are some of the most common options:
Comply fully
This means providing all the requested documents and information within the deadline. It demonstrates cooperation with the investigation. But it also gives the IRS full access to build their case against you. Not ideal.
File a petition to quash
Your lawyer can file a legal petition asking the court to quash (block) the subpoena. This is usually based on technical errors or overreach in the subpoena. For example, requesting documents outside the timeline of the investigation. If successful, the court can throw out the subpoena completely or order modifications. But fighting the subpoena can also raise suspicion.
Negotiate with the IRS
Your attorney can contact the IRS agent and negotiate changes to the subpoena. This could include a narrowed scope, extended deadline, or limiting testimony. The IRS may agree to compromises if they feel it will still give them what’s needed for the investigation. Flexibility shows good faith.
Assert the Fifth Amendment
The Fifth Amendment allows you to refuse to provide self-incriminating testimony. Your lawyer can assist you in asserting this right if the subpoena includes requests for potentially incriminating information. However, it doesn’t apply to existing documents – you still have to turn those over.
What happens after I respond?
Once you respond to the subpoena, the IRS will review the information and decide next steps. Some possibilities:
- They close the investigation if no wrongdoing is found.
- They continue the audit process and request additional info.
- They refer the case to the Department of Justice for criminal prosecution.
Your lawyer will advise if the investigation seems to be escalating to the criminal stage. Smart navigation early on can sometimes prevent things from getting to this point. Don’t lose hope!
Can I get in trouble for ignoring the subpoena?
Yes, you can face serious consequences if you ignore or defy the subpoena. These include:
- Contempt of court charges
- Obstruction of justice charges
- Fines up to $100,000
- Up to 1 year in prison
Not fun. Work closely with your lawyer to ensure you respond properly within the deadline.
Key Takeaways
Dealing with a federal subpoena related to cryptocurrency can be intimidating but having the right legal help makes a huge difference. Remember to:
- Stay calm and don’t panic
- Hire an experienced lawyer right away
- Gather any requested documents you have
- Explore options like negotiating or quashing
- Respond properly by the deadline
With smart guidance, you can get through this difficult process one step at a time. Sending positive vibes your way!