Pennsylvania Man Admits to $13 Million NFT Tax Fraud, Faces Prison Time

A Pennsylvania man has pleaded guilty to federal charges of tax fraud after failing to report over $13 million in income from trading non-fungible tokens (NFTs). Waylon Wilcox, 45, from Dillsburg, sold 97 CryptoPunks NFTs between 2021 and 2022, evading approximately $3.3 million in taxes. His case marks a significant moment in the IRS's crackdown on tax evasion related to digital assets.

Key Takeaways

• Waylon Wilcox sold 97 CryptoPunks NFTs, earning over $13 million.

• He filed false tax returns for 2021 and 2022, omitting his NFT income.

• Wilcox faces up to six years in prison and significant fines.

The Rise of CryptoPunks

CryptoPunks, created in 2017, are among the first NFT collections and have gained immense popularity. Each Punk is a unique digital character, and their value has skyrocketed, with some selling for millions. At the height of the NFT craze, one Punk sold for $11.8 million at Sotheby’s.

Wilcox's Tax Evasion Scheme

Wilcox's fraudulent activities included:

• 2021 Sales: He sold 62 CryptoPunks for approximately $7.4 million.

• 2022 Sales: He sold 35 CryptoPunks for about $4.9 million.

• Tax Returns: On his tax returns for both years, he falsely indicated that he had no income from digital assets, checking "no" on the relevant questions.

This deliberate omission resulted in a significant underreporting of income:

• 2021: Underreported by $8.5 million, reducing his tax liability by nearly $2.2 million.

• 2022: Underreported by $4.6 million, reducing his tax liability by over $1 million.

Legal Consequences

Wilcox's guilty plea was entered just before the April 15 tax deadline, highlighting the IRS's ongoing efforts to enforce tax compliance in the digital asset space. He now faces a maximum sentence of six years in prison, along with potential fines and supervised release. The IRS has emphasized the importance of reporting all income, including gains from NFT sales, to ensure fairness in the tax system.

The Broader Impact on the NFT Market

Wilcox's case comes at a time when the NFT market is experiencing a downturn, with sales volumes declining significantly. The scrutiny of tax compliance in this sector may further impact trading activity as investors become more cautious.

As the IRS continues to investigate and prosecute tax evasion cases involving digital assets, individuals engaging in similar activities should be aware of the potential legal repercussions. The case serves as a reminder that the digital economy is not exempt from tax obligations, and compliance is crucial to avoid severe penalties.

Sources

• Pennsylvania man pleads guilty to flipping more than $13M of digital art from infamous NFT collection — andreporting zilch to IRS, New York Post.

• CryptoPunks trader pleads guilty to $13m NFT tax fraud, Crypto News.

• York County man pleads guilty to $13M tax fraud, fox43.com.

• Pennsylvania Man Admits Hiding Millions in CryptoPunks NFT Income, Faces Tax Fraud Charges, Crypto News Australia.

• Man Faces Six Years in Prison After Omitting $12,302,115 in CryptoPunk NFT Sales From Tax Filing, The Daily Hodl.