IRS Crypto Tracking May Lead to Spike in Seizures

The Internal Revenue Service’s (IRS) latest proposal to ramp up cryptocurrency surveillance could signal an impending wave of asset confiscation, leveraging the vast data from an expected 8 billion new returns. This initiative aligns with the Department of Justice’s (DOJ) aspirations, as outlined in a 2022 report responding to Executive Order 14067, to broaden its forfeiture capabilities, particularly in the realm of digital currencies.

Executive Order 14067, President Biden’s inaugural foray into cryptocurrency regulation, initially stoked fears of a stringent crackdown. However, it primarily set the stage for agencies to draft reports to shape future policies. The DOJ’s report, a comprehensive document, laid out recommendations to enhance prosecutions, investigations, penalties, and resources related to cryptocurrency crimes, with a notable focus on expanding the government’s power to seize crypto assets.

The DOJ contends that such measures are crucial for deterring fraudulent activities and stripping violators of their illicit profits. However, this stance seems paradoxical given the government’s track record of successful cryptocurrency seizures, amounting to approximately $4.2 billion between 2014 and 2021, as per the FBI and IRS data cited in the report itself.

The IRS’s proposed broker regulations cast these recommendations in a new, perhaps more ominous light, hinting at the potential for increased confiscations under the guise of enhanced surveillance. The crux of the issue lies in the practice of administrative forfeiture, which allows agencies to bypass judicial oversight, forfeiting property solely based on suspicion of wrongdoing, not concrete evidence.

This process, which the DOJ praises for its efficiency and for alleviating the judicial system’s burden, accounted for a staggering 78 percent of DOJ forfeitures from 2000 to 2019. With the IRS poised to collect detailed information on Americans’ cryptocurrency transactions, the DOJ might find ample opportunities to escalate its seizure operations, even in the absence of proven criminal activity.

The potential for misinterpretation and suspicion is high, as evidenced by recent Congressional actions spurred by a flawed report demanding a cryptocurrency crackdown. Such incidents underscore the inherent dangers of mass data collection, not only for government overreach but also for the risks posed by hackers and other malicious actors targeting these vast repositories of information.

As the IRS moves forward with its surveillance proposal, cryptocurrency users should remain vigilant, monitoring how their data is utilized by government entities. The balance between regulatory oversight and individual privacy rights hangs in the balance, with the potential for misuse of information casting a long shadow over the future of digital asset ownership and use.

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