An NFT trader just found himself facing prison time after pleading guilty to evading almost $13 million in taxes. This tax evasion is based on profits realized from the trading of CryptoPunk NFTs. Waylon Wilcox, the trader incognito, purchased and sold 97 items from the CryptoPunk NFT collection. Now he’s dealing with the likely legal consequences for such a move.
The CryptoPunk collection is that overall industry’s largest NFT collection, with a market cap of $687 million. Wilcox successfully traded 62 CryptoPunk NFTs in 2021, earning a profit of over $7.4 million. He knowingly and willfully underreported these earned gains on his tax returns.
Wilcox purposefully checked “no” on his tax returns when they inquired whether he had conducted any transactions involving digital assets. A more in-depth investigation found that Wilcox had willfully filed a fraudulent individual income tax return for the 2021 tax year. As a result, this fake return underreported his income tax by about $8.5 million, lowering his tax owed by about $2.1 million.
The fraudulent activity did not stop there. Wilcox pleaded guilty to filing a fraudulent individual income tax return for the fiscal year 2022. The second wrong return grossly understated his income tax by over $4.6 million. Consequently, it reduced his tax liability by almost $1.1 million.
Wilcox has since confessed to preparing and filing the fraudulent income tax returns for the 2021 and 2022 tax years as well. The case against Wilcox was very thoroughly investigated by the Internal Revenue Service (IRS) and the Criminal Investigation Department.
IRS Criminal Investigation is committed to unraveling complex financial schemes involving virtual currencies and NFT transactions designed to conceal taxable income. - Yury Kruty, Philadelphia Field Office Special Agent in charge
The announcement highlights the IRS’s focus on rooting out people who try to avoid paying taxes using digital assets.
This case is thus a clear reminder that any profits made using digital assets, including but not limited to NFTs, are taxable. Taxpayers should not have to ferret out egregious errors and scams before they tax them, nor should they tolerate tax evasion. Failure to do so can lead to harsh penalties including up to 14 years’ imprisonment.
