NFT Trader Faces Six Years in Prison for Underreporting $13M in CryptoPunks Profits

An NFT trader is facing up to six years in prison after pleading guilty to underreporting nearly $13 million in profits from trading CryptoPunks. Waylon Wilcox, 45, admitted to filing false income tax returns for the 2021 and 2022 tax years. He pleaded guilty on April 9 to two counts of filing false individual income tax returns, according to federal prosecutors.

In April 2022, Wilcox filed a false individual income tax return for the tax year 2021, underreporting his income tax by roughly $8.5 million and reducing his tax due by approximately $2.1 million. In October 2023, he filed another false individual tax income return for the fiscal year of 2022, underreporting 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. 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,” 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 case was investigated by the Internal Revenue Service (IRS) and the Criminal Investigation Department. The total maximum penalty under federal law for these offenses is up to six years of imprisonment, a term of supervised release following imprisonment, and a fine. However, the exact details and timing of his sentence remain unclear.

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 requirements to include DeFi platforms, requiring them to disclose gross proceeds from crypto sales, including information regarding taxpayers involved in the transactions.

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, according to Mattan Erder, general counsel at layer-3 decentralized blockchain network Orbs.