Trader Sentenced for Tax Fraud Related to NFTs
A trader of non-fungible tokens (NFTs) may be sentenced to six years in prison after admitting to tax fraud involving nearly $13 million in gains from trading CryptoPunks, as reported by the US Attorney’s Office for the Middle District of Pennsylvania. Waylon Wilcox, who is 45 years old, entered a guilty plea on April 9 to two counts of submitting false income tax returns for the fiscal years 2021 and 2022.
Details of the Fraudulent Activity
According to the information released by federal prosecutors on April 11, Wilcox’s tax filings were significantly misleading. In April 2022, he filed a return that underreported his income by approximately $8.5 million for 2021, resulting in a tax reduction of about $2.1 million. He continued this trend in October 2023 when he submitted another false return, this time for 2022, reporting an income underreporting of roughly $4.6 million and cutting his taxes owed by nearly $1.1 million.
Federal law stipulates that those found guilty of these crimes could face up to six years in prison, alongside possible fines and a supervised release period, although the specific details of Wilcox’s sentencing are yet to be clarified.
Trading Activities and Misreporting
Wilcox has actively traded 97 CryptoPunk NFTs, which notably represent one of the largest NFT collections in the sector with a market capitalization of $687 million. His activities in 2021 included selling 62 CryptoPunks, which netted him around $7.4 million, though he reported a significantly lower income. The following year, he sold another 35 NFTs, making $4.9 million. Notably, in both tax filings, Wilcox responded “no” to inquiries regarding whether he participated in transactions involving digital assets.
IRS Commitment to Combat Fraud
Yury Kruty, the special agent in charge of the Philadelphia Field Office of IRS Criminal Investigation, highlighted the agency’s commitment to exposing complex financial frauds related to virtual currencies and NFT transactions that seek to evade taxes.
He emphasized the importance of ensuring that taxpayers adhere to their obligations in the current economic climate.
Evolution of Crypto Taxation
The ongoing evolution of crypto taxation has gained global prominence, particularly after the IRS announced new regulations in June 2024, requiring US crypto transactions to adhere to third-party tax reporting requirements for the first time. Centralized exchanges and brokers have since been mandated to report transactions involving digital assets.
A recent action by US President Donald Trump to nullify a prior regulation, which would have mandated decentralized finance (DeFi) platforms to also report transactions, could signal further changes in crypto tax legislation as the landscape continues to evolve. Regulatory experts advocate prioritizing stablecoin and crypto banking laws, suggesting a more focused regulatory framework for these areas could benefit the industry more than new tax statutes.
