According to the DoJ, a Pennsylvania man, Waylon Wilcox, has pleaded guilty to filing false tax returns after underreporting $13.1 million in income from the sale of 97 nonfungible tokens (NFTs), federal prosecutors announced Friday. The case marks one of the first major U.S. tax evasion prosecutions involving NFTs, signaling heightened scrutiny of digital asset transactions by the Internal Revenue Service (IRS).
Wilcox, 45, earned most of his unreported income from selling NFTs from the CryptoPunks collection, a popular series of 10,000 unique digital art characters. According to court documents, he sold 62 CryptoPunks for $7.4 million in 2021 and another 35 for $4.9 million in 2022. Despite these substantial earnings, Wilcox falsely reported significantly lower income on his tax returns for both years.
In 2021, Wilcox underreported his income by $8.5 million, reducing his owed taxes by nearly $2.2 million. In 2022, he underreported his income by $4.6 million, cutting his tax liability by approximately $1.1 million. On both tax filings, Wilcox falsely answered "no" to the question asking whether he had engaged in virtual currency transactions, despite earning millions from NFT sales.
Wilcox pleaded guilty to two counts of filing false individual income tax returns and now faces up to six years in prison, supervised release following imprisonment, and an undisclosed fine. His guilty plea comes just ahead of the April 15 IRS tax deadline.
"IRS Criminal Investigation is committed to unraveling complex financial schemes involving virtual currencies and nonfungible token transactions designed to conceal taxable income," said Yury Kruty, Special Agent in Charge of the Philadelphia Field Office. "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."
The IRS considers NFT transactions taxable events that must be reported on individual tax returns. Taxpayers are required to disclose sales proceeds and any gains or losses from NFT sales, which may be taxed as either short-term (ordinary income rates up to 37%) or long-term capital gains (up to 20%), depending on how long the asset was held. NFTs classified as collectibles may be subject to an even higher long-term capital gains rate of up to 28%.
Wilcox's case highlights the importance of compliance with these reporting requirements as NFT markets continue to grow rapidly.
This prosecution underscores the IRS's increasing focus on digital assets like NFTs and cryptocurrencies as part of its efforts to enforce tax laws in emerging financial sectors. As virtual currencies and blockchain-based assets gain mainstream adoption, authorities are ramping up efforts to ensure taxpayers accurately report income derived from these transactions.
For individuals involved in NFTs or other digital asset markets, Wilcox's case serves as a cautionary tale about the risks of failing to comply with federal tax laws.
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