The IRS Takes Its Tax Evasion Hunt to the Blockchain

As the adage goes, there are two certainties in life: death and taxes. For any U.S. bitcoiners considering wriggling out of the latter, that task just got a little harder. The country’s Internal Revenue Service has revealed that it’s bolstering its armory to make it easier to track down crypto tax evaders. It’s now assembled a crack team of blockchain forensic experts to help claim its pound of flesh.

The Taxman Tools Up

U.S. citizens have known for some time that the IRS has been shining its spotlight on the crypto space. The first flickers emerged over a year ago, after the tax body subpoenaed Coinbase for its user data in a case that wound up in the courts before the IRS ultimately prevailed, securing the details of over 15,000 exchange customers. That spotlight has gotten discernibly brighter now that the IRS has successfully enlisted heavyweights with the tools and skills to pry into blockchain activity.

The IRS Takes Its Tax Evasion Hunt to the Blockchain
Don Fort

In an interview, IRS chief Don Fort revealed how the Criminal Investigation Division, which he heads, has added 10 new investigators. “It’s possible to use Bitcoin and other cryptocurrencies in the same fashion as foreign bank accounts to facilitate tax evasion,” he said. Bloomberg reports how the Criminal Investigation Division has actually lost key staffers since 2011 on account of budget cuts. The recruitment of 10 new staffers will see the division returned to full strength, complete with its own crew of blockchain experts.

Forensic Tools for a Digital Age

The range of blockchain tools available to U.S. investigators is getting more numerous and sophisticated. Companies such as Bitfury have earned ire from the crypto community for their willingness to work hand in glove with law enforcement to scrutinize blockchain activity, clustering related addresses together and highlighting suspicious activity. The company’s advisor, Jason Weinstein, a former DOJ investigator, crowed: “Having a traceable public ledger of every bitcoin transaction ever conducted allows law enforcement to ‘follow the money’ in a way that would never be possible with cash.”

The IRS Takes Its Tax Evasion Hunt to the BlockchainMost countries expect their citizens to pay tax on cryptocurrency, so it is not atypical for an agency such as the IRS to take a proactive stance on bitcoin. U.S. agencies are famed for their unparalleled investigative powers, though, and tentacles that extend way beyond home turf. In fact, the IRS recently wrapped up a successful investigation into U.S. assets concealed in Swiss bank accounts. If it has reason to believe citizens within its jurisdiction are hiding their cryptocurrency in overseas exchanges, it will have no qualms about following suit.

When it comes to taxation, U.S. bitcoiners can roughly be split into three groups: those (begrudgingly) intending to pay, those hoping the IRS will spare them on account of having bigger fish to fry, and those willing to do whatever it takes not to pay, even if that means moving to Puerto Rico. While the IRS lacks the resources to pursue every U.S. citizen with a stake in cryptocurrency, the tide is evidently turning. The days of wide scale cryptocurrency tax avoidance are surely numbered.

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