Cryptocurrency Tax Fraud: False Cost Basis and Omitted Sales

A cryptocurrency tax fraud whistleblower can expose a false purchase price behind a reported sale, or sales left off the return altogether. In the Justice Department’s account of an Austin bitcoin investor’s guilty plea, the investor inflated the cost of bitcoins he sold, shrinking the gain on his tax return. In later years, he omitted sales entirely. If you saw the acquisition records, the sales or the figures sent to the accountant, you may know exactly where the return departed from the transactions.

This page follows those two mechanisms through the investor’s records and the accountant’s summary. Our broader tax fraud evidence page covers how business records and tax returns can tell different stories across other kinds of income.

What Did the False Bitcoin Cost Basis Summary Change?

The false cost basis summary changed the purchase price used to calculate the investor’s bitcoin gain. According to the Justice Department’s account of his guilty plea, the Austin investor reported a sale but substantially inflated what the bitcoins had cost him. The higher claimed cost reduced the capital gain he reported to the IRS.

In October 2017, the investor sold approximately 640 bitcoins for a total of $3.7 million and used the proceeds to buy a house in Park City, Utah. Most of those bitcoins had been purchased in 2015, when the plea announcement says bitcoin was valued at no more than $500 each.

The Justice Department’s later account of the criminal case explains what reached the accountant. The investor supplied a false summary of his gains and losses, claiming purchase prices far above what he actually paid. The department said those claimed prices even exceeded the highest bitcoin market price before the house purchase. We call that a very accommodating summary.

When bitcoin sales are reported with an inflated purchase price, the summary sent to the accountant connects the client’s figures to the return. The department identified the investor as the person who lied to the accountant. The summary contained the invented acquisition cost. The filed return used the inflated basis. An insider who knows what the accountant received can connect the false number to the person who supplied it.

What Is the Difference Between Omitted Cryptocurrency Sales and Inflated Basis?

Omitted cryptocurrency sales disappear from the return, while inflated basis reduces the gain on a sale that appears there. In the same criminal case, the Justice Department reported that the investor sold more than $650,000 in bitcoins during 2018 and 2019 and reported none of those sales on the returns for those years. The Justice Department reported tax loss above $550,000 in its plea announcement and above $1 million in its December 12, 2024 account of the criminal case.

The department’s account also described attempts to conceal the transactions on the bitcoin blockchain. The investor moved bitcoins through multiple wallets, met someone in person to exchange bitcoins for cash, and used mixers designed to obscure who made a transaction.

The same account says the investor had written about mixers as a way to add anonymity to bitcoin transactions before the years at issue. His explanation of the technology and his later use of it gave the conduct a history beyond the wallet transfers themselves. For an insider, communications explaining why transactions were moved can add meaning to records that otherwise show only the movement.

The evidence comparison changes with the mechanism. For an inflated basis, acquisition records test the cost supplied for return preparation. For omitted sales, sales records establish the transactions, and bank and wallet transfers help trace who received the proceeds. We work through those connections with you.

The false summary explained the gain reported for the house purchase. The later sales required their own comparison with the later returns. A whistleblower’s knowledge can connect each transaction to the return that should have reflected it, instead of leaving the case at a general suspicion about cryptocurrency holdings.

What Evidence Do I Need for an IRS Whistleblower?

For a cryptocurrency tax fraud concern, useful evidence connects the taxpayer, the purchases, the sales, the relevant years and the figures used on the returns. The IRS’s information requirements also make the whistleblower’s own knowledge important: what you know, how you learned it and where supporting records are held. We assess those connections with you.

A person who handled the records may be able to explain which account belongs to whom, which transfer connects to a sale and which summary reached the accountant. That explanation connects the transaction history to the return.

The paper Rewarding Tipsters Through Whistleblower Programs and False Claims Acts Increases the Likelihood of Cryptocurrency Tax Enforcement, in the Journal of Taxation of Investments, identifies the transaction details behind cryptocurrency reporting: the asset, purchase date, quantity and price, disposition date, sale price and market value. Those details explain why a single sales total leaves the acquisition side unanswered. In the Austin case, the false summary supplied exactly the part of the calculation that the original purchase records could test.

What Does Form 1099-DA Show About Bitcoin Proceeds and Basis?

Form 1099-DA supplies broker information about covered digital-asset transactions, but proceeds and acquisition cost still need separate attention. Under the IRS broker-reporting guidance, custodial digital-asset brokers began reporting gross proceeds from covered transactions beginning in 2025. That reporting supplies another comparison with the taxpayer’s account of a sale.

Assets transferred into an account can require acquisition records from elsewhere. We examine proceeds, acquisition cost and transfers separately, so the amount received on sale stays connected to what the taxpayer paid for the asset.

The reporting obligation predates the new broker forms and reaches beyond a sale for dollars. In its notice on virtual investments, the New York attorney general explained that convertible virtual currency is treated as property for federal tax purposes. Cryptocurrency received for goods or services has a value that belongs in income, and exchanging it for other property can produce a reportable gain or loss. A business insider may therefore know about a payment or purchase that belongs in the tax picture even when the story begins outside an exchange sale.

The journal paper also includes cryptocurrency earned through staking or mining among the reporting events it discusses. That broadens the records question for someone who knows how the cryptocurrency was acquired. A purchase history explains an investor’s acquisition cost, while records of cryptocurrency earned for work or received through mining explain a receipt of income. We connect that history to the figures used on the return.

What Can Bitcoin Exchange and Blockchain Records Add?

Exchange records and public blockchain transactions can help test an insider’s account of who traded and where the assets moved. The Journal of Taxation of Investments paper argues that public blockchain records allow the government to check a whistleblower’s claims independently. It places that public transaction history alongside information obtained from exchanges, showing why private knowledge and records held elsewhere can work together.

The Justice Department’s criminal-case account said the Austin investor bought the bitcoins used for most of the house purchase through Coinbase. That gives the acquisition side a concrete record holder. The false summary went to the accountant, while the purchases had passed through an exchange account. The claimed cost and the original transactions could be examined at different points in the same chain.

Other proceedings show how the IRS seeks customer information held by cryptocurrency businesses. In 2021, a court authorized a summons for records of taxpayers using Circle and Poloniex. For a whistleblower who knows which customer, account and sale matter, that kind of record can give an independent comparison with the taxpayer’s explanation.

The records can also sit at a bank. In 2022, a court authorized a bank-records summons concerning SFOX customers. The order sought to identify customers through records held by M.Y. Safra Bank and connected to cryptocurrency activity. The account relationship can matter as much as the transaction visible on a blockchain.

Can Cryptocurrency Tax Fraud Information Support an IRS Whistleblower Claim?

Specific information about cryptocurrency tax underpayments can support an IRS whistleblower claim. The taxpayer, transactions, years and your source of knowledge give us the starting point for assessing it. We address the difference between reporting tax fraud and pursuing an award with you, keeping the focus on what your information can establish.

Federal tax claims are excluded from the federal False Claims Act. Some state tax claims can support a False Claims Act case, including qualifying cryptocurrency tax claims in New York. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. The separate IRS program uses the same range for a qualifying award from what the government collects because of your information.

When You Know Where the Bitcoin Figures Changed

If you know the purchase history, the wallet movements or the summary sent to the accountant, speak with our whistleblower experts about the cryptocurrency transactions behind the return. We build the case with you around the false cost or missing sales and bring in tax fraud whistleblower lawyers who understand digital-asset evidence. We stay beside you as your knowledge becomes a case the government can investigate.