US to crack down on virtual currency tax fraud US officials are targeting virtual currencies due to fears that Americans are using them to evade taxes, opening a new front in the crackdown on tax fraud. Virtual currencies such as Bitcoin and the exchanges where they trade have come under increased scrutiny since last month's arrest of five individuals associated with Liberty Reserve, a Costa Rican-based digital currency business, on charges of running a $6bn money laundering scheme. Authorities alleged Liberty Reserve was the "bank of choice" for drug traffickers, computer hackers, child pornographers and identity thieves. Now US authorities have signalled they believe that virtual currencies - which can be traded anonymously - are being used improperly in other ways including to evade tax. "Clearly the increasing use and misuse of cyber-based currency and payment systems to anonymously transfer illicit funds as well as hide unreported income from the IRS is a threat that we are vigorously responding to," Victor Lessoff of the Internal Revenue Service told the Financial Times. Mr Lessoff, the director of an IRS unit that investigates cyber threats, was expanding on remarks made at a conference run by New York University on Friday. "The globalisation and digitalisation of our currencies is a significant emerging threat," Mr Lessoff said at the conference. "It doesn't take much of a leap [to think] that these currencies would be used for tax evasion," he added. Mr Lessoff said the IRS could demand that taxpayers say whether they are doing any business using non-traditional methods such as using PayPal accounts that allow for the virtual transfer of money. "That's one of the things on the horizon," he said. The targeting of virtual currencies follows an aggressive crackdown by the IRS and US Department of Justice on citizens who evade taxes by stashing money in offshore bank accounts. Around 70 individuals, including clients, bankers and lawyers, have been criminally charged in connection with schemes to evade taxes and an investigation is still ongoing. More than $5bn in unpaid taxes has been collected from a voluntary IRS disclosure programme. The actions have altered the landscape: foreign banks are turning over the names of US clients to the DoJ. Switzerland is in talks with the DoJ to resolve a long-running dispute concerning the country's strict bank secrecy laws. As people around the globe use computers to access bank accounts, file fraudulent tax returns and move money it has heightened the need for global co-operation. "We need to expand our efforts to catch cyber criminals as they're doing the crime," Mr Lessoff said. He said the IRS "needs to work closely with foreign regulators" to follow IP addresses to catch the person behind computer screens red handed.