A recently issued IRS memo indicates plans to beef up investigations of U.S. taxpayers who hold crypto
By Alissa Fleck
In a move with shades of George Orwell’s 1984, the IRS has placed a target on the backs of U.S. citizens who own crypto. A recent memo sent by the government tax agency to its special agents indicates that the IRS is not only keeping an eye on crypto holders, but has plans to surreptitiously investigate these individuals as well.
The memo, which ICO Ranker received through Tax Notes, highlights what threatens to become a risky proposition for crypto holders. The agency proposes serving major companies like Apple and Google with Grand Jury subpoenas to compel them to share users’ information — including download history and anything else that might suggest the holding or use of crypto assets. In order to track holders’ financial records, the agency is mulling issuing Grand Jury subpoenas to banks, online payment platforms and other financial institutions and clearinghouses.
The agency also proposes its agents employ targeted digital surveillance of an individual’s social media and open-source searches. It seeks to complement this with “interviews,” perhaps the most ominous word in the document. (“Knock, knock. Who’s there? The IRS, and we’d like to speak with you about your interest in cryptocurrencies.”)
In the memo, the agency reminds agents these investigations should be done without the subject’s knowledge, so as to avoid tipping off the target. The document specifically notes, “Notification of the Subject about the obtainment of information regarding their use of bitcoin may be detrimental to the seizure of any bitcoin balance.”
On its face, the IRS memo appears to be concerned only with tax-related crime, which it has the legal right to pursue. But it also raises questions: Is the agency more likely to target major holders, or those who engage in more frequent crypto-related activity? How do we define tax-related crimes when so much remains undefined about crypto? Is any of our private information off-limits to the IRS? Can a fully decentralized currency ever be sustained in a heavily regulated society?
The document also indicates that the agency may not fully comprehend how crypto and blockchain operate, and seems at times more interested in defining the hundreds of relevant crypto terms than setting forth a plan of action. For example, it instructs agents to track holders’ wallet addresses, but the memo does not acknowledge the ease with which a crypto holder could move coins between, for instance, hundreds of wallet addresses, on and off various exchanges and even convert them into privacy coins. Investigators trying to track even a single digital paper trail for crypto are likely to find themselves in a never-ending game of cat-and-mouse.
While this may be encouraging for the particularly digitally savvy who can squirrel their assets away in a dark, forgotten corner of the internet, it also implies a dangerous possibility: A U.S. government agency intends to surveil citizens — and potentially take action against them — based on technology it does not fully understand. This could leave the average, law-abiding U.S. crypto-holding citizen defenseless against government censure, not to mention America has a storied past with surveillance.
In the meantime, crypto holders can protect themselves by making sure they act in accordance with the latest government regulations. They can do this by declaring all crypto-related gains on their taxes and by speaking to a tax professional who specializes in digital currency.
The full memo can be found here.