According to the
DoJ, a Pennsylvania man, Waylon Wilcox, has pleaded guilty to
filing false tax returns after underreporting $13.1 million in income from the
sale of 97 nonfungible tokens (NFTs), federal prosecutors announced Friday. The
case marks one of the first major U.S. tax evasion prosecutions involving NFTs,
signaling heightened scrutiny of digital asset transactions by the Internal
Revenue Service (IRS).
Wilcox, 45, earned most of his unreported income from
selling NFTs from the CryptoPunks collection, a popular series of 10,000 unique
digital art characters. According to court documents, he sold 62 CryptoPunks
for $7.4 million in 2021 and another 35 for $4.9 million in 2022. Despite these
substantial earnings, Wilcox falsely reported significantly lower income on his
tax returns for both years.
In 2021, Wilcox underreported his income by $8.5 million,
reducing his owed taxes by nearly $2.2 million. In 2022, he underreported his
income by $4.6 million, cutting his tax liability by approximately $1.1
million. On both tax filings, Wilcox falsely answered "no" to the
question asking whether he had engaged in virtual currency transactions,
despite earning millions from NFT sales.
Wilcox pleaded guilty to two counts of filing false
individual income tax returns and now faces up to six years in prison,
supervised release following imprisonment, and an undisclosed fine. His guilty
plea comes just ahead of the April 15 IRS tax deadline.
"IRS Criminal Investigation is committed to unraveling
complex financial schemes involving virtual currencies and nonfungible token
transactions designed to conceal taxable income," said Yury Kruty, Special
Agent in Charge of the Philadelphia Field Office. "In today's economic
environment, it's more important than ever that the American people feel
confident that everyone is playing by the rules and paying the taxes they
owe."
The IRS considers NFT transactions taxable events that must
be reported on individual tax returns. Taxpayers are required to disclose sales
proceeds and any gains or losses from NFT sales, which may be taxed as either
short-term (ordinary income rates up to 37%) or long-term capital gains (up to
20%), depending on how long the asset was held. NFTs classified as collectibles
may be subject to an even higher long-term capital gains rate of up to 28%.
Wilcox's case highlights the importance of compliance with
these reporting requirements as NFT markets continue to grow rapidly.
This prosecution underscores the IRS's increasing focus on
digital assets like NFTs and cryptocurrencies as part of its efforts to enforce
tax laws in emerging financial sectors. As virtual currencies and
blockchain-based assets gain mainstream adoption, authorities are ramping up
efforts to ensure taxpayers accurately report income derived from these
transactions.
For individuals involved in NFTs or other digital asset
markets, Wilcox's case serves as a cautionary tale about the risks of failing
to comply with federal tax laws.
Have an IRS Tax Problem?
Did You Omit Income From Digital Assets?
Contact the Tax Lawyers at
Marini & Associates, P.A.