The IRS claims its Criminal Investigation (CI) division can trace any crypto transaction and has used those capabilities to double crypto seizures. Among those cases, about half are tax related.
Things started to heat up in 2022 when the IRS announced it was building “hundreds” of cases. For the first time, the IRS began using such tactics as issuing a “John Doe summons” seeking information from banks about suspected tax compliance deficiencies related to cryptocurrencies and digital assets.
“The government’s ability to obtain third-party information on those failing to report their gains from digital assets remains a critical tool in catching tax cheats,” IRS Commissioner Charles P. Rettig said when announcing the inaugural use of the court order. “The court’s granting of the John Doe summons reinforces our ongoing, significant efforts to ensure that everyone pays their fair share. Taxpayers earning income from digital asset transactions need to come into compliance with their filing and reporting responsibilities.”
By the fall of 2022, CI had seized “record amounts of data and cryptocurrency,” including $7 billion in crypto, double what was seized the year before. The division also created the Office of Cyber and Forensic Services to group digital asset investigations, cybercrime investigations, digital forensics, and physical forensics under one unit.
“In the last three years, I’ve really seen a shift” in digital asset investigations, CI division chief Jim Lee said in late 2022. Previously, most were related to money laundering, but tax cases now make up about half the mix, Bloomberg Tax reports Lee saying.
On June 16, 2023, the IRS announced the formalization of an alliance with other federal partners focused on darknet drug vendors and cryptocurrency-enabled crimes. The partnership between the U.S. Attorney General’s Office, IRS-CI, Homeland Security Investigations, the Drug Enforcement Administration (DEA), and the United States Postal Inspection Service is being called the Darknet Marketplace and Digital Currency Crimes Task Force (DNMDCC Task Force). The FBI Cybercrimes Task Force will also work alongside these agencies, particularly in cases involving ransomware attacks.
And then there are public-private technology partnerships, including one between the IRS and blockchain analytics firm Chainalysis, which Cointelegraph reports has played a key role in helping the agency solve cryptocurrency-related crimes. Lee told Cointelegraphthat blockchain analysis has allowed the IRS to seize an estimated $10 billion worth of cryptocurrency since it began investigating crimes involving digital assets.
“The partnership with Chainalysis has become invaluable, with Lee stressing that his unit’s efforts to investigate crypto-related crimes would be near ‘impossible’ without the infrastructure and tools it now has access to,” the outlet reports.
While tracing tax crimes—particularly those that involve cryptocurrency—has been a staffing and technology challenge for the IRS in the past, convictions have not. The IRS has long boasted a conviction rate of over 90%, and that rate hasn’t changed.
“We are thorough and good at what we do. As I tell crowds around the country, if a CI special agent has you in their crosshairs, there is a good chance you are going to jail,” Lee recently said.
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