A Pennsylvania man is on his way to prison after pleading guilty to hiding over $13 million in income. He accumulated this fortune by flipping CryptoPunks non-fungible tokens (NFTs). For example, Waylon Wilcox, who sold 97 CryptoPunks in 2021 and 2022 and failed to report that income to the IRS. The case serves as an important reminder of how tax authorities are cracking down on cryptocurrency and NFT transactions.
Wilcox personally sold 62 CryptoPunks in 2021, netting $7.4 million and another 35 in 2022 for about $4.9 million. He’s now liable for tax evasion penalties for failing to report these earnings. It is a timely reminder to follow the tax rules with respect to digital assets.
The CryptoPunk Phenomenon
CryptoPunks is an NFT collection of 10,000 uniquely generated pixelated characters. The most well-known of these visits was in 2017 when artists Matt Hall and John Watkinson created the collection. Each character has their own unique traits, like hats, facial hair and wardrobe, which make them that much more collectible.
These digital collectibles are hosted on the Ethereum blockchain. Like any other NFT, each CryptoPunk’s ownership and transaction history is immutably recorded directly on the Ethereum blockchain. Known as distributed ledger technology, this innovation allows for transparent, traceable, and verifiable ownership of digital assets.
As the NFT market exploded in 2021 and 2022, CryptoPunks rose to become one of the most popular collections on the market. NFT trading volumes exploded, peaking at $2.4 billion per day. CryptoPunks had been at the head of the market in price and prestige.
Market Fluctuations and High-Profile Sales
For reference, the floor price of CryptoPunks is now 42.49 ETH, or about $69,000. It has fallen sharply since peaking in August 2021. At its peak floor price at the time, that made their floor price spike up to 125 ETH, equivalent to $479,000. That’s more than a 99.9% drop in value, a numbing number that encapsulates the NFT market’s overall deflation.
Even in the current crypto bear market, many of these CryptoPunks have sold for crazy amounts. One of the super-rare alien Punks sold at auction for $6 million! For the seller, it was a huge loss – the seller lost $10 million on the transaction. This sale is a key example of the volatility and speculative nature of the NFT market.
The cumulative sales volume for CryptoPunks over the last day amounts to $4.9 million dollars. Against its all time high, the collection is down 85.7% USD value and 66% ETH value. These numbers really illustrate just how great of a correction the NFT market has seen since its peak.
IRS Focus on Crypto and NFTs
IRS Criminal Investigation is committed to unraveling complex financial schemes involving virtual currencies and non-fungible token transactions designed to conceal taxable income. - Yury Kruty, Philadelphia Field Office Special Agent in Charge
As the unfortunate case of Waylon Wilcox demonstrates, NFT traders and investors should take all necessary precautions to protect their assets. We at the IRS are continuing to watch transactions with virtual currencies and NFTs. People who don’t pay taxes on this income could be subject to harsh consequences like jail time.
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. - Yury Kruty, Philadelphia Field Office Special Agent in Charge
The IRS isn’t just focused on wrongdoings in the corporate sector. They’re dedicated to enforcing fair tax practices in the emerging digital asset market. This commitment would be a welcome advance in the government’s overall drive to financial integrity and accountability.
