- Bitcoin Ordinals are linked to a crypto tax evasion case involving the concealment of capital gains.
- According to Chainalysis, NFTs and BRC-20 tokens are being used by cryptocurrency users to evade tax obligations.
- US representatives have introduced the PARITY Act, which will discuss tax relief for moderate crypto transactions.
The strategies used to evade taxes on cryptocurrencies are evolving, with the authorities and blockchain investigators noting increased adoption of Bitcoin Ordinals, BRC-20 tokens, and other methods to hide taxable gains.
A new report from blockchain analytics firm Chainalysis stated that tax evasion schemes increasingly involve emerging blockchain technologies that some individuals believe can help obscure ownership records and transaction histories.
Source: Chainalysis
The findings come as lawmakers in the United States are simultaneously advancing discussions on potential tax relief for small cryptocurrency transactions.
According to the report, tax agencies across several jurisdictions continue attempting to adapt to rapid developments in the digital asset industry. Chainalysis stated that while tax evasion and unreported income remain longstanding financial crimes, the techniques used to hide assets are becoming more complex as cryptocurrencies gain broader adoption.
The company said some bad actors are experimenting with decentralized finance protocols, NFTs, Bitcoin Ordinals, and newer token standards to reduce visibility for regulators and law enforcement agencies.
Crypto Tax Evasion Linked to Bitcoin Ordinals Activity
The report highlighted a case involving Italy’s Economic and Financial Police Unit in Foggia, which reportedly identified a tax evasion scheme tied to Bitcoin Ordinals and the BRC-20 token standard. Authorities alleged that an individual concealed roughly 1 million euros, equivalent to about $1.1 million, in undeclared capital gains connected to digital asset transactions.
The BRC-20 token standard later emerged on top of the Ordinals framework, allowing blockchain users to deploy, mint, and transfer tokens through text inscriptions recorded directly on the Bitcoin network. According to Chainalysis, investigators found that the suspect allegedly created tokens using the Ordinals protocol, then listed them on marketplaces before selling them at higher prices.
However, authorities stated that the proceeds from the sales were transferred back to the individual’s primary Bitcoin wallet. The report added that the earnings were repeatedly reinvested into additional inscriptions and token-related activity.
Gaps in Cryptocurrency Tax Reporting for Authorities
According to Chainalysis, several reports indicate gaps in cryptocurrency tax reporting practices among investors.In one report released in March, it was projected that between 32% and 56% of US investors who own cryptocurrencies actually declare their profits to tax authorities.
Moreover, crypto tax fraud has gained more recognition as governments have started to look into ways to solve the tax evasion problem arising from crypto assets.The U.S. Internal Revenue Service estimated that the country’s gross tax gap, representing legally owed taxes that remain unpaid, stands at approximately $606 billion.
Traditional forms of tax evasion have historically included underreporting income and conducting transactions in cash, but blockchain-related activity is now becoming part of the enforcement focus.
The report arrives during a period of broader legislative debate over how cryptocurrencies should be treated under the U.S.tax framework. Industry participants and some lawmakers have argued that existing reporting obligations create complications for small-value digital asset transactions.
Lawmakers Advance PARITY Act Discussions
Separately, a bipartisan group of U.S. lawmakers introduced legislation directing federal authorities to study whether small cryptocurrency transactions should qualify for a de minimis tax exemption. The proposal, known as the Digital Asset Protection, Accountability, Regulation, Innovation, Taxation and Yields Act, or PARITY Act, was introduced in the House after an earlier discussion draft circulated in March.
Source: Congressman Steven Horsford
Max Miller, a Republican member of Congress who was behind the bill, noted that the tax laws in the United States had failed to keep up with innovations in digital assets. Instead, it directs the Treasury Department to study the issue and provide interim guidance within 180 days regarding possible relief under existing authority.
The proposal emerged as Congress continues reviewing broader cryptocurrency legislation, including pending measures related to market structure oversight and regulatory jurisdiction. Industry firms have also continued pushing for simplified treatment of low-value crypto activity.
Crypto exchange Kraken stated last month that it submitted 56 million tax forms to the IRS. According to the company, nearly one-third of those forms involved transactions worth less than $1, while more than 75% related to transactions valued below $50.
