"A transaction involving virtual currency does not include the holding of virtual currency in a wallet or account, or the transfer of virtual currency from one wallet or account you own or control to another that you own or control." (2020 1040 instructions, pg. 16)
So as long as you "own or control" both wallets, your described transfer would not be a reportable event under the current tax instructions.
If both parties have shared ownership and control of the joint wallet, I think this would get around the reporting requirement.
All these sort of regulations tend to have language disallowing actions made just to avoid the requirement (see, for example, "structuring")
"Lifehack - you can just take all the luggage off the conveyor belt at the airport and leave with it. They don't check at the door!"
1) Buy "dirty" ETH through a KYC exchange like Coinbase
2) Send to tornado.cash
3) Wait a few days, remove from tornado.cash
4) You now have "clean" ETH uncorrelated with your identity
5) Use one of the many DeFi non-KYC exchanges to get whatever crypto you want
The blockchain trail would just show that you sent to tornado.cash, and nothing after. This could be an interesting problem for US regulatory pariahs.
Whether tornado.cash survives will determine the future of ETH. Is it a free, global exchange network? Or will it cripple under regulatory pressure? As the US continues to debase its currency (and regulatory institutions), it will not go down without a fight.
The problem with “gaming” any system involving state-level entities is that they always have the power to retroactively look at your behaviour and declare that there is a pattern that amounts to criminal behaviour, even if none of the actions taken in isolation would be considered criminal.
Oh no, the hackers got our accounting database encrypted. We can't process your thing for 2 weeks and we paid 80M in crypto for ransom. Can we please get a tax write-off for our embezzlement?
An example: If any future >$10k transaction can be traced back to a wallet that you control (it wouldn't matter how you got the funds, only that you transferred them), then you'd be on the hook.
Or, in the case that The Man gets a copy of the overseas bank's records with your name on it and a long and credible-looking list of transfers from wallets that match the amounts put into the mixer, it is going to look real suspicious.
Investigators are smart people with many tools at their disposal.
During a routine audit of registered exchanges we discovered that you transferred/received $30k of the crypto token Montero.
Under penalty of perjury provide us with documentation as to the destination/source of this funds within 7 business day.
Failing to do so is a felony under the Crypto act of 2022.
Cheerio
The Government
And if you're using a shared wallet that obscures internal money movements then the feds can still see any entry/exit point activity - they might just be uncertain about what happened to the money in the middle.
I guess if you created a private coin for your nefarious dealings you could keep it really hidden (maybe one tied as a stable coin to a more major coin) - but only so long as you managed to keep the feds from getting a ledger view of the private coin - which would require limiting the spending power of that coin to only parties you strongly trusted which, again, would strongly devalue the coin.
The real world equivalent might be deciding, as a criminal ring, to use gems as a currency to avoid handling USD directly too often - but those gems become worthless apart from their inherent value as soon as trust collapses.
If you want to actually enjoy your wealth you better find a way to legalize your anonymous money and pay taxes on it.
"I dunno...It just appeared in my crypto Wallet" is not convincing
Eg. Monero doesn't leave a trail by default.
Exchanging BTC/ETH for Monero leaves just as much of a trail as using Tornado.cash, unless you use a decentralized P2P exchange.
This is arguably a problem I've been far from rich enough to encounter, so it's a genuine question should that someday change :)
This reporting primarily exists to make money laundering less efficient by forcing parties that want to keep things out of view of law enforcement to make many relatively small money movements - and 10k is high enough that it doesn't affect normal folks all that often.
Honestly, when it comes to anything involving a bank these transfers are usually automatically reported by the institution.
Pedantic note here - "You" don't have to do anything here, your bank will do the reporting.