NFT Trader Admits Hiding $13M in Profits, Faces 6-Year Sentence

NFT trader Waylon Wilcox, a 45-year-old resident of Pennsylvania, has admitted to hiding over $13 million in profits from trading 97 CryptoPunk NFTs between 2021 and 2022. This admission comes as part of his guilty plea to tax evasion, where he falsely claimed on his tax returns that he had no virtual asset income, resulting in an estimated $3.2 million in unpaid taxes.

According to federal prosecutors, Wilcox sold 62 CryptoPunk NFTs in 2021, earning around $7.4 million, and an additional $4.9 million from 35 sales in 2022. However, he reported substantially lower income amounts to the Internal Revenue Service (IRS). In April 2022, Wilcox filed a false return for 2021, underreporting $8.5 million in income and reducing his tax bill by about $2.1 million. He repeated this underreporting in October 2023, underreporting $4.6 million in income for 2022 and avoiding roughly $1.1 million in taxes.

Wilcox's actions involved intentionally answering “no” when asked if he engaged in digital asset transactions, despite his active involvement in buying and selling 97 CryptoPunk NFTs. This case highlights the increasing regulatory scrutiny on the NFT market and the importance of accurate tax reporting. The IRS Criminal Investigation division remains dedicated to uncovering complex financial schemes involving virtual currencies, and since January 2024, centralized crypto exchanges have been required to report users’ sales and trades to the IRS.

Wilcox pleaded guilty to two counts of filing false returns, which carry a maximum sentence of six years in prison, supervised release, and fines. However, a sentencing date has not yet been set. This case serves as a warning to other NFT traders about the potential legal repercussions of failing to comply with tax regulations. With the IRS's growing focus on digital asset transactions, individuals involved in the NFT market must ensure they comply with tax regulations to avoid legal repercussions.

As the NFT market continues to experience significant growth and mainstream appeal, this case emphasizes the need for clear and comprehensive tax guidelines for digital asset transactions. Stakeholders in the NFT ecosystem should stay informed about regulatory developments to navigate the evolving legal landscape effectively. The prosecution of Wilcox underscores the growing attention from authorities on tax evasion within the digital asset space, serving as a reminder of the importance of accurate tax reporting in the NFT sector.