The era of ‘suitcase money’ is over: Why your offshore crypto is no longer safe from the taxman

David Klasing, a tax attorney from California, recalls meeting a client whose early cryptocurrency holdings had grown to $700 million in eight years and, having never reported a dime of it, was losing sleep they’d be jailed for tax fraud.

Klasing says he recommended the client complete a voluntary disclosure, a penalty-reducing program for taxpayers who wilfully fail to report foreign assets. By coming forward proactively, they would avoid a criminal prosecution.

“That’s the fix for anybody that has large amounts of unreported crypto,” Klasing said in an interview. “I have people coming to me on a daily basis who are now reading about new reporting requirements the government’s trying to put in place with foreign exchanges, and who haven’t reported anything going back eons.”

There’s no doubt that if you’ve accumulated significant unreported gains on cryptocurrency held off-shore, tax authorities in the U.S., Europe and many other jurisdictions are now on your trail. The Crypto Asset Reporting Framework (CARF), which went into operation in various jurisdictions this month, was designed to align global reporting standards and, basically, compels foreign brokerages and exchanges to open their kimonos to tax authorities.

“I expect to see a lot of countries taking the CARF as an inspiration to establish their own domestic reporting requirements,” said Colby Mangels, head of government solutions at crypto tax compliance firm Taxbit, “We will also see a lot more people educate themselves about crypto tax compliance. Because if you don’t report it, the authorities will find out what’s going on and that’ll be worse.”

The taxman cometh

It was already the case that U.S. taxpayers with cryptocurrency in foreign accounts had to report their holdings to the IRS over certain thresholds. The Foreign Bank Account Reporting (FBAR) requirements apply to accounts over $10,000, while a Foreign Account Tax Compliance Act (FATCA) form must be filled out for foreign assets varying between $50,000 and $100,000-plus.

Of course, crypto was designed to stay out of sight of governments, which means it’s taken some time — bitcoin BTC$78,026.99 first appeared in 2009 — for tax authorities to get to grips with the asset class, not to mention the global patchwork of exchanges and trading platforms. But it’s a process that has steadily advanced, Klasing said, going all the way back to when the IRS challenged Swiss banking secrecy back in the mid-noughties.

Back then, the agency issued a John Doe summons to Swiss wealth management powerhouse UBS for the names of U.S. taxpayers with undeclared accounts between 2002 and 2007. It’s possible to see similarities between numbered bank accounts and cryptocurrency-controlling alphanumeric keys, with the obvious exception that anyone can be issued with the latter.

‘Money in a suitcase’

While crypto exchanges and brokerages are now being asked to provide authorities with account information in a way that doesn’t hurt investors, Klasing says he comes across people who are using techniques like decentralized finance (DeFi) to cover their tracks.

“They believe the paper trail behind DeFi is harder for the government to follow or is untraceable. A lot of them are using mixers, and doing everything they can not to report cryptocurrency,” Klasing said.

Taxbit’s Mangels remembers working on the early version of the U.S. foreign account tax rules common reporting standard (FATCA CRS), which was enabled in 2010 and focused on “old school money laundering and tax evasion,” he said.

“The original framework is from the days when you had to put your money in a suitcase and get on an airplane to some foreign country and open a bank account there,” Mangels said in an interview. “Today, I can use my laptop to transact in crypto from my living room, using platforms located anywhere in the world, which is a huge risk for governments.”

Mangels went on to join the Organisation for Economic Co-operation and Development (OECD) in Paris where he became one of the main architects of CARF.

Like crypto’s anti-money laundering (AML) procedures and standards, CARF requires crypto service providers such as exchanges and wallet providers to collect private and sensitive information about their customers. In this case, customers’ transactions are reported to local tax authorities, who then share the information with the customers’ home countries, just as they do with traditional bank account data.

While sophisticated blockchain analytics firms such as Chainalysis, Elliptic, TRM and Crystal can track and trace wallet transactions onchain, the trail goes dark when transactions take place within a crypto exchange or other private trading platform, which is where the vast majority occur, Mangels pointed out.

The new rules provide authorities with the light they need. Tax examiners and law enforcement will become privy to a three-fold combination of information including fiat on- and off-ramp data, onchain analytics of wallets on the public blockchains and CARF’s hitherto unseen ledger book data from inside exchanges.

Wallet tracking, tax IDs, subpoenas

“It’s going to trigger a lot of investigations and a lot of interest from governments who have wanted this data and find it’s very complementary to onchain analytics,” Mangels said. “Let’s say the government gets some CARF data and realizes someone didn’t declare some taxes, they’ll then subpoena the crypto asset service provider that they’ve identified as holding the relevant information.”

Over 70 countries have now committed to CARF, and over 50 saw the legislation go live at the beginning of 2026, Mangels said. This means many crypto firms will begin collecting self-certification information on their customers such as their tax ID and tax residency.

Transactions will be tracked during 2026, and the first bout of reporting will take place in 2027, when each tax authority will have gathered the necessary information from its exchange partners.

As for Klasing’s client, since they were prepared to turn themself in, the terms they face, which include six years of amended returns, penalties and interest, might seem a little egregious, Klasing said. But they’re being given a pass for something that’s almost like money laundering, he added.

“This is the only crime in America where it can be a completed crime and if you handle it right, you get absolved for your sins and you don’t go to jail,” Klasing said. “Why? Because you’re voluntarily fixing the problem.”