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Crypto tax evasion

But just how does cryptocurrency lead to tax evasion?

It largely comes down to lax reporting requirements, according to tax experts.

The IRS may not be able to trace crypto income or transactions if they go unreported by exchanges, businesses and other third parties. And that means the income may not be taxed.

“No one has put out clear rules on it, so there’s a lot of non-reporting going on,” according to Jon Feldhammer, a partner at law firm Baker Botts and a former IRS senior litigator.

“Any time you create a path of non-reporting, you create a way to benefit from tax fraud in an untraceable or a much-harder-to-trace way,” he said.

Crypto is fast becoming an alternative to cash as more merchants accept bitcoin and other virtual currencies as payment. But cash is more heavily regulated.

For example, a business that receives more than $10,000 in cash from a customer must file a currency transaction report. This may happen if a consumer buys a car for more than $10,000 in cash, if someone wins big at the casino or if a bank receives a hefty cash deposit.

These reports tell the government that a buyer has lots of money that may or may not be reported on a tax return.

But the same rules don’t apply to crypto. A used-car business that receives $20,000 of bitcoin from a customer doesn’t have to