CryptoPunks NFT Trader "Wilcox" Faces 6-Year Jail Term After Avoiding Taxes on $13M in Income

The United States Attorney has found Waylon Wilcox, a crypto and non-fungible token investor, guilty of filing false income tax returns.

The United States Attorney for the Middle District of Pennsylvania has announced that Waylon Wilcox, a 45-year-old Dillsburg, Pennsylvania resident and non-fungible token investor, has been found guilty of filing false income tax returns.

According to the Department of Justice (DOJ), Wilcox pleaded guilty to two (2) counts of filing false individual income tax returns with the United States Internal Revenue Service (IRS). The case was brought in the U.S. District Court for the Middle District of Pennsylvania.

Annually, during the individual income tax return, Wilcox falsely reported his income to reduce his tax bill. For instance, in 2021, Wilcox allegedly filed his annual income tax returns by about $4,599,532 and decreased his tax again by about $1,098,623.

Most of this unclaimed income was generated from the sale of his CryptoPunks NFTs. In 2021, Wilcox sold 62 Punks for a total of $7,402,935. In 2022, Wilcox sold 35 CryptoPunks NFTs for a total of roughly $4,899,180.

Launched in 2017, CryptoPunks is a non-fungible token collection featuring a limited supply of 10,000 unique, 24×24 pixel art characters stored on the Ethereum blockchain. Punks NFTs have grown in popularity, becoming a symbol of digital art and collectability.

Each CryptoPunk NFT is unique, with randomly generated attributes like clothing, accessories, and hairstyles. Punks were initially created by the digital asset firm Larva Labs but are now managed by the digital asset firm Yuga Labs.

When a taxpayer sells an NFT, including a CryptoPunk, they must report sales proceeds and any gains or losses from the sale of the NFT on their tax return.

In his annual tax returns filing, Wilcox falsely answered “no” to the question “At any time during 2022, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or dispose of a digital asset (or a financial interest in a digital asset)?”

This action attracts a six-year jail term, plus a fine of $500,000.

The case was investigated by the Internal Revenue Service, Criminal Investigation. The Assistant U.S. Attorney David C. Williams prosecuted the case.

The IRS Special Agent in Charge of the Philadelphia Field Office, Yury Kruty, made the following statement about the case:

“IRS Criminal Investigation is committed to unraveling complex financial schemes involving virtual currencies and non-fungible token (NFT) transactions designed to conceal taxable income. 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 has been covered by several media outlets, including Bloomberg and CoinDesk. It is a significant development in the world of cryptocurrency and taxation.

It remains to be seen what sentence Wilcox will ultimately receive. However, the case serves as a warning to other cryptocurrency investors to be aware of their tax obligations.