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A Pennsylvania man has pleaded guilty to federal charges after failing to report millions of dollars in profits from trading non-fungible tokens (NFTs). This case highlights the importance of accurately reporting income from cryptocurrency and NFT transactions.
Underreported Income from NFT Trades
The United States Attorney’s Office for the Middle District of Pennsylvania announced that Waylon Wilcox, 45, admitted to filing false tax returns for 2021 and 2022. Wilcox failed to report over $13 million in income generated from buying and selling NFTs, primarily from the popular CryptoPunks collection.
Prosecutors revealed that Wilcox filed a false return in April 2022, significantly underreporting his income for 2021, which reduced his tax liability by more than $2.1 million. He repeated the offense in October 2023 for the 2022 tax year, avoiding an additional $1.1 million in taxes. In total, Wilcox underreported approximately $8.5 million in 2021 and $4.6 million in 2022.
On both tax returns, Wilcox falsely answered “no” when asked whether he had engaged in digital asset trading, even though federal investigators found that he made $7.4 million from selling 62 CryptoPunks in 2021 and $4.9 million from selling 35 CryptoPunks in 2022.
IRS Investigations and Legal Implications
The Internal Revenue Service (IRS) and its Criminal Investigation Division led the investigation into Wilcox’s activities. Taxpayers are required to report all gains or losses from NFT sales as part of their taxable income, in line with federal tax regulations.
“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,” said Yury Kruty, Special Agent in Charge of the IRS Philadelphia Field Office.
Wilcox faces serious legal consequences, including a maximum sentence of up to six years in prison, supervised release, and potential fines. His final sentencing will be determined by a federal judge based on established statutes and sentencing guidelines.
NFT Market Under Pressure
The case comes amid a broader downturn in the NFT market. Weekly sales volumes have declined, with total NFT sales volume dropping by 4.7% last week to $94.7 million, down from $102.8 million the week prior. This dip reflects ongoing challenges in the digital asset space.
Market activity has also seen a sharp decline, with the number of NFT buyers and sellers falling by more than 75%. Additionally, Q1 2025 trading volume has decreased by 24% compared to the previous quarter, according to industry reports.
Impact on CryptoPunks
Even high-profile collections like CryptoPunks have not been immune to the market pressure. Last week, CryptoPunk #3100, one of only nine Alien Punks, was sold at a staggering $10 million loss. The collection’s floor price has dropped by 67% from its peak in 2021, reflecting the broader struggles in the NFT sector.
This case serves as a reminder for cryptocurrency and NFT traders to follow tax compliance rules and report earnings accurately. As the market evolves, proper financial management and adherence to legal requirements will be crucial for investors in this space.
