NFT Trader Faces Prison for $13 Million CryptoPunk Tax Fraud

A prominent NFT trader, Waylon Wilcox, faces a potential six-year prison sentence after pleading guilty to tax fraud. He admitted to underreporting nearly $13 million in profits from CryptoPunk NFT trades, significantly reducing his tax liability for the 2021 and 2022 tax years.

CryptoPunk Trader Pleads Guilty to Multi-Million Dollar Tax Fraud

Waylon Wilcox, 45, has pleaded guilty to two counts of filing false individual income tax returns. The charges stem from his failure to accurately report substantial profits gained from trading CryptoPunks, a highly valuable NFT collection. Federal prosecutors announced his guilty plea on April 9, highlighting the severity of the financial deception.

The Scope of the Fraud

Wilcox's fraudulent activities spanned two tax years, resulting in a significant underpayment of taxes:

• 2021 Tax Year: In April 2022, Wilcox filed a false return, underreporting his income by approximately $8.5 million. This reduced his tax due by roughly $2.1 million.

• 2022 Tax Year: In October 2023, he filed another false return, underreporting his income by an estimated $4.6 million. This led to a reduction in his tax due by nearly $1.1 million.

In total, Wilcox underreported close to $13 million in profits from his CryptoPunk transactions. He intentionally marked "no" when asked about digital asset transactions on both filings, despite actively trading 97 CryptoPunks.

Legal Ramifications and IRS Stance

Wilcox faces a maximum penalty of up to six years in prison, a term of supervised release, and a fine. The exact sentencing details are yet to be determined. This case underscores the Internal Revenue Service's (IRS) commitment to investigating and prosecuting financial schemes involving virtual currencies and NFTs.

• IRS Criminal Investigation emphasized its dedication to uncovering complex financial schemes designed to conceal taxable income.

• The IRS aims to ensure public confidence that all taxpayers adhere to financial regulations.

Evolving Crypto Tax Landscape

This case comes amidst increasing scrutiny and evolving regulations surrounding cryptocurrency and NFT taxation. Recent developments include:

• Third-Party Reporting: Since January, centralized crypto exchanges and other brokers are required to report sales and exchanges of digital assets.

• DeFi Reporting Overturned: A congressional resolution, signed by President Donald Trump, overturned a Biden administration-era legislation that would have mandated decentralized finance (DeFi) protocols to report transactions to the IRS, a rule set to take effect in 2027.

While tax regulations are gaining traction, some experts suggest that prioritizing stablecoin and crypto banking legislation might offer more immediate benefits to the industry.

Sources

• NFT trader faces prison for $13M tax fraud on CryptoPunk profits, Cointelegraph.