NFT trader faces up to 6 years in prison for underreporting nearly $13 million in profits

Waylon Wilcox, 45, admitted to filing false income tax returns for the 2021 and 2022 tax years.

A non-fungible token (NFT) trader could face up to six years in prison after pleading guilty to offenses related to nearly $13 million in profits from trading CryptoPunks, the US Attorney’s Office for the Middle District of Pennsylvania said.

Waylon Wilcox, 45, admitted to filing false income tax returns for the 2021 and 2022 tax years, according to an April 9 plea agreement. The former CryptoPunk investor pleaded guilty to two counts of filing false individual income tax returns, federal prosecutors said in an April 11 press release.

Back in April 2022, Wilcox filed a false individual income tax return for the tax year 2021, which purposely undervalued his income tax by roughly $8.5 million and reduced his tax due by approximately $2.1 million.

In October 2023, Wilcox filed another false individual tax income return for the fiscal year of 2022, purposely undervaluing his income tax by an estimated $4.6 million and reducing his tax due by nearly $1.1 million.

The trader bought and sold 97 pieces of the CryptoPunk NFT collection, the industry’s largest NFT collection, with a $687 million market capitalization.

In 2021, Wilcox sold 62 CryptoPunk NFTs for a gain of about $7.4 million but reported significantly less on his taxes. In 2022, he sold 35 more CryptoPunks for $4.9 million. The Department of Justice said Wilcox intentionally selected “no” when asked if he had engaged in digital asset transactions on both filings.

“IRS Criminal Investigation is committed to unraveling complex financial schemes involving virtual currencies and NFT transactions designed to conceal taxable income,” Philadelphia Field Office Special Agent in charge Yury Kruty said, adding:

The case was investigated by the Internal Revenue Service (IRS) and the Criminal Investigation Department.

Crypto tax rules gain traction

Crypto tax laws attracted interest worldwide in June 2024 after the IRS issued a new crypto regulation making US crypto transactions subject to third-party tax reporting requirements for the first time.

Since January, centralized crypto exchanges (CEXs) and other brokers have been required to report the sales and exchanges of digital assets, including cryptocurrencies.

On April 10, US President Donald Trump signed a joint congressional resolution to overturn a Biden administration-era legislation that would have required decentralized finance (DeFi) protocols to also report transactions to the IRS.

Set to take effect in 2027, the so-called IRS DeFi broker rule would have expanded the tax authority’s existing reporting obligations to include DeFi platforms, necessitating them to disclose gross proceeds from crypto sales, including information regarding taxpayers.

However, some crypto regulatory advisers believe that stablecoin and crypto banking legislation should be a priority above new tax legislation in the US.

A “tailored regulatory approach” for areas including securities laws and removing “obstacles in banking” is a priority for US lawmakers with “more upside” for the industry, Mattan Erder, general counsel at layer-3 decentralized blockchain network Orbs, told Cointelegraph.