IRS confiscated $3.5B crypto last fiscal year, 93% of all seizures

The IRS seized more than $1 billion worth of crypto from 'Individual X' in November, a hacker who raided Silk Road's Bitcoin in 2012.

The IRS’ Criminal Investigation unit seized $3.5 billion worth of crypto during its fiscal 2021 year, according to the agency’s annual report.

The IRS, which operates under the Treasury, maintains a Cyber Crime Unit to investigate complex financial crimes that include a cybernetic component. 

IRS:CI prioritizes crypto, blockchain, and open-source intelligence technologies. Crypto accounted for a disproportionate 93% of all IRS:CI seizures for the year.

IRS:CI identified an additional $10 billion in tax fraud and other financial crimes.

Congress previously considered a tax plan that included a “paid-for” provision to fund its infrastructure package. 

Legislators estimated they could raise an extra $28 billion in taxes coming from enforcing unpaid taxes from crypto traders. 

The plan would have also required businesses to report crypto transactions worth more than $10,000.

In its annual report, IRS:CI also issued a warning about shady tax preparers, citing a recent case in which a tax preparer pleaded guilty to charges of aiding the preparation of fraudulent tax returns.

Notable IRS crypto seizures

November 5, 2020: the US moved to seize Bitcoin worth more than $1 billion that IRS agents took from an anonymous party known as Individual X, who hacked Silk Road.

Individual X was allegedly named in a lawsuit as fraudster Raymond Ngan.

November 9, 2020: a court sentenced Volodymyr Kvashuk to nine years in prison on conviction of charges related to a $10 million crypto scheme to defraud Microsoft. 

Kvashuk used software to obtain gift cards at no cost, selling them for Bitcoin.

The IRS’ Criminal Investigation division released its annual report last week.

April 27, 2021: law enforcement arrested Roman Sterlingov on charges related to his alleged operation of the darknet bitcoin money-laundering service Bitcoin Fog. 

Bitcoin Fog allegedly mixed more than 1.2 million illegally obtained BTC since 2011, equal to about 6% of Bitcoin’s circulating supply.

September 7, 2021: a US magistrate ordered Glib Oleksandr Ivanov-Tolpintsev into detention to await trial for charges related to his operation of a botnet. 

Ivanov-Tolpintsev’s expansive system was capable of cracking up to 2,000 passwords per week. He sold credentials on the dark web for potential use in tax fraud schemes and ransomware attacks.

IRS to double workforce to chase tax cheats

President Joe Biden in May announced a mission to nearly double the IRS workforce by hiring 87,000 new employees over the next decade to help track down tax cheats.

According to a report issued by the Department of the Treasury around the same time, the plan will enable the IRS to close the “tax gap” caused by tax evasion and fraud. 

It claims the efforts will pay for portions of the American Families Plan legislation.

The White House says the move will pull in $700 billion in taxes owed over a decade. It also claims the program will not increase the number of audits for people earning under $400,000 a year.

Treasury Secretary Janet Yellen has repeatedly called for tighter regulation for digital currencies, most recently criticizing the lack of oversight for stablecoins like Tether (USDT). 

A Treasury report recommends requiring stablecoin issuers to register as banks.

Proponents frequently criticize moves to regulate crypto with reminders that crypto exists due to outdated banking practices and preferential bailouts doled out to bankers in 2008.

Even PayPal co-founder and world’s richest person Elon Musk recently accused banks of relying on outdated computing technology that authorities could easily manipulate.

Lost Bitcoin opportunity

While it’s not explicitly clear what IRS:CI will do with its seized crypto, the agency has auctioned it off in the past.

And although the US Marshals is not the same as the IRS, it is interesting to calculate the government’s foregone opportunity by auctioning off its seized Bitcoin instead of holding it. 

According to Jameson Lopp’s Github, US Marshals collected a total almost $151.5 million from auction sales of about 185,231 BTC seized during their lifetime investigations.


Read more: [A history of Bitcoin Fog, the crypto mixer that washed 6% of BTC’s supply]

That BTC is now worth $11 billion, meaning the US has effectively missed out on almost that much in ‘profits.’

Due to pending forfeiture cases, US authorities have not sold all Bitcoin seized in its Silk Road investigations — but it did sell most of it to venture capitalist and Theranos fan Tim Draper.

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