[2018-02-10] The IRS Takes Its Tax Evasion Hunt to the Blockchain

[limek]

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.

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.

source: https://news.bitcoin.com/irs-takes-tax-evasion-hunt-blockchain

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[B!t_Kong]

Guess it was just a matter of when not if the taxman getting involve in crypto.
Anonymous crypto-currency.? Not so much.

[Fredyink]

It's still not an easy tax for a tax man. But they will do it for sure. They always do.
Regulating crypto is not a bad thing necessary, but I don't like to be regulated in greedy people favor.

[darkangel11]

It's still not an easy tax for a tax man. But they will do it for sure. They always do.
Regulating crypto is not a bad thing necessary, but I don't like to be regulated in greedy people favor.

Oh yea, forcing the slaves to pay more for the "common good" while the politicians are rolling in it and cruising in their private jets is not such a bad thing. We need regulations, they will allow our masters to get our private wallets under control and surveillance and that's exactly what they need to keep us in line.

Guess it was just a matter of when not if the taxman getting involve in crypto.
Anonymous crypto-currency.? Not so much.

It's still anonymous as long as you avoid exchanges. I think that in time there will be anonymous and traceable bitcoins. Anonymous will be those coins that are being held on private addresses before the introduction of tax surveillance. If such coins are moved from one address to another (private one) nobody will know who paid who. Bad news for those who buy on an exchange as their coins will start to leave a trace.

[richardsNY]

Bad news for those who buy on an exchange as their coins will start to leave a trace.

It's an expected development in this market with more regulations being enforced by authorities. It won't take long before people who don't pay their due taxes to regret having fully verified themselves there. I have even considered once to ask if the exchanges I am verified at offer the possibility to delete my account with all my personal information. I can't seem to find anything in their TOS, so I have to email them for real in the coming days to ask what the options are. I am actually worried, because an exchange can easily be forced to hand over user information with all trading and deposit/withdrawal logs.

[bbc.reporter]

darkangel11. No, but it is still not anonymous enough. The government regulators can follow a suspicious address and watch the funds move from address to address and wait for the user to make the slightest of mistakes.

Also remember, most bitcoin holders who bought during the mania are not that experienced. The IRS would surely come after them first and get what they are owed.

They also imprisoned Al Capone for tax evasion. No one can hide from the IRS hehehe.

[BitHodler]

No one can hide from the IRS hehehe.

If you manage to avoid centralized entities in this market entirely, which is quite difficult but not impossible, no one will be able to connect you with whatever addresses containing x number of coins.

Currently the majority of the people here in this market are so dependent on centralized entities, that they have already a profile of themselves (without them knowing) that at a later point can, and will be used against them.

On the other hand, if we look at the average joes, they are less bothered by tax rates, which is quite difficult to swallow for me. Are they just accepting their faith, or actually think taxation is a beneficial necessity.......

I know people talking about the importance of tax because that allows governments to improve infrastructure, etc.

[Carlton Banks]

I know people talking about the importance of tax because that allows governments to improve infrastructure, etc.

Private companies are contracted to mostly do all that work, they could do all of it. The government essentially just takes (very high amounts of) middleman's fees from the contracts. It's completely corrupt, the government chooses their best buddies in the industry for the contracts (the infamous "no bid" contracts), and we get to pay the extra money they all gift themselves with.

[1Referee]

On the other hand, if we look at the average joes, they are less bothered by tax rates, which is quite difficult to swallow for me. Are they just accepting their faith, or actually think taxation is a beneficial necessity.......

Less bothered doesn't necessarily mean they agree with all the tax forms. I can't think of anyone being happy to pay a ridiculous amount of tax over their income or profits, that's just impossible. In that regard it's indeed more a matter of accepting their faith due to them not knowing any better. The point is that if there is one aspect of the government you don't want to mess with, then it's the tax department. It's not for nothing that in some cases tax fraud or tax evasion (which in my book means that you just want to protect your own capital and income) gets punished harder than rape and whatnot. It's basically like the mafia forcing brick and mortar stores to pay a certain form of "protection" tax, and when you refuse to pay, you'll find out what's going to happen with you and your business. This system is one rotten hole people can't escape from, unless they take the necessary actions, where Bitcoin is the perfect alternative to achieve the freedom this system will never give you.

[okae]

Bad news for those who buy on an exchange as their coins will start to leave a trace.

It's an expected development in this market with more regulations being enforced by authorities. It won't take long before people who don't pay their due taxes to regret having fully verified themselves there. I have even considered once to ask if the exchanges I am verified at offer the possibility to delete my account with all my personal information. I can't seem to find anything in their TOS, so I have to email them for real in the coming days to ask what the options are. I am actually worried, because an exchange can easily be forced to hand over user information with all trading and deposit/withdrawal logs.

Exactly, you are not the only one who have that "fear", but as you know this is only the beginning, with time all of them will require it, what made me doubt if this is good or not :S, anyway i hope that you didn't ask to exchanges like polo to do it, if yes, i'm pretty sure you are still waiting for a reply, like me, for more than 2 months at the moment...

[J. Cooper]

Bad news for those who buy on an exchange as their coins will start to leave a trace.

I have even considered once to ask if the exchanges I am verified at offer the possibility to delete my account with all my personal information. I can't seem to find anything in their TOS, so I have to email them for real in the coming days to ask what the options are. I am actually worried, because an exchange can easily be forced to hand over user information with all trading and deposit/withdrawal logs.

Once you have verified yourself I'm pretty sure there will always be some trace of your personal information, regardless if you ask them to 'delete' it. There will always be that one backup server that still has your private information on, and if the price starts ramping up again and the IRS starts smelling money things could potentially go down. They can (and probably) will force a lot of exchanges to hand over personal information and then they will start their witch hunt. Of course that would be the worst case scenario but that doesn't make it less probable.

[bbc.reporter]

No one can hide from the IRS hehehe.

If you manage to avoid centralized entities in this market entirely, which is quite difficult but not impossible, no one will be able to connect you with whatever addresses containing x number of coins.

Currently the majority of the people here in this market are so dependent on centralized entities, that they have already a profile of themselves (without them knowing) that at a later point can, and will be used against them.

On the other hand, if we look at the average joes, they are less bothered by tax rates, which is quite difficult to swallow for me. Are they just accepting their faith, or actually think taxation is a beneficial necessity.......

I know people talking about the importance of tax because that allows governments to improve infrastructure, etc.

That is the key phrase, is quite difficult but not impossible. The blockchain is also public in which regulators can follow all your transactions by using something like Chainalysis.

Also, mixing services cannot be trusted as some of them might be honeypots or compromised.

On the topic of taxes, they are beneficial. How do you think your country's government manages to stay afloat and keep the peace?

[darkangel11]

On the topic of taxes, they are beneficial. How do you think your country's government manages to stay afloat and keep the peace?

Is that how you see it? They need taxes to keep the peace? Where? Inside the country? So, they are collecting taxes to fund the police and the army that will beat us if we protest, put us in jail if we stop paying and kill us if we try to abolish the government. Is that the peacekeeping that you have in mind?
And knowing how it works you continue to support it? You're like a slave who every evening after coming from work whips himself and locks himself in his cage for the night.

[Kemarit]

Bad news for those who buy on an exchange as their coins will start to leave a trace.

It's an expected development in this market with more regulations being enforced by authorities. It won't take long before people who don't pay their due taxes to regret having fully verified themselves there. I have even considered once to ask if the exchanges I am verified at offer the possibility to delete my account with all my personal information. I can't seem to find anything in their TOS, so I have to email them for real in the coming days to ask what the options are. I am actually worried, because an exchange can easily be forced to hand over user information with all trading and deposit/withdrawal logs.

Correct. Even crypto trading South Korea has implement such schemes already. They are now sharing exchanges information to their local banks. Its one way that the government can track and hunt you down for not paying taxes.

As for the US, its been reported already that only few has filed taxes for their crypto earnings that's why they step up the plate and used blockchain and tools like blockchain analysis to look for those tax evaders. Just a matter of time that US citizens can be caught, penalized and fined heavy for their crypto wealth.

[bbc.reporter]

On the topic of taxes, they are beneficial. How do you think your country's government manages to stay afloat and keep the peace?

Is that how you see it? They need taxes to keep the peace? Where? Inside the country? So, they are collecting taxes to fund the police and the army that will beat us if we protest, put us in jail if we stop paying and kill us if we try to abolish the government. Is that the peacekeeping that you have in mind?
And knowing how it works you continue to support it? You're like a slave who every evening after coming from work whips himself and locks himself in his cage for the night.

So what do you propose if you hate the government? What should we do to start governing ourselves better and how do we create a better system?

I reckon the problem with the government is not about collecting taxes. From what you mentioned, the problem is a country becoming a police state like what is happening in America now.

[Wheelige]

Why is there such a concern with governments making sure that people pay their taxes? I can understand the issue in places where there is rampant corruption and leaders are building palaces or estates and spending money that should really be going to services. But in 1st world countries tax is needed, and if people arent paying their fair share that drags the whole system down. I like the roads I drive on, the school i went to, the hospital i can walk into without any additional cost. Do you want to drive on dirt tracks with uneducated people attempting to wash your windows at intersections that the lights dont work at correctly? I dont, so I pay my tax.

[michelinstar]

Aren`t they supposed to tax profits on a period basis? I don`t see an exchange trade where they put the taxation same as VAT and you pay it immidiately. When they start jailing, taxing, whatever fud, contact me we will fix anything. That is the reason they have not done it until now. There are so many backdoors etc. Let them come they won`t get a penny if you have some balls.

Absolutely agree, your balls and brains can always save you from IRS. Do you really think they have a team of 10 professional blockchain experts? I don't think they own a necessary budget to keep PRO experts, while keeping some 10 suckers who will investigate schemes like purchasing 10 btc with ACH or credit card and then selling it back. Use mixers, cash, vpn, don't make gifts to them with any of your personal and banking details left in blockchain apps and services like exchanges and you will be safe.

[michelinstar]

Why is there such a concern with governments making sure that people pay their taxes? I can understand the issue in places where there is rampant corruption and leaders are building palaces or estates and spending money that should really be going to services. But in 1st world countries tax is needed, and if people arent paying their fair share that drags the whole system down. I like the roads I drive on, the school i went to, the hospital i can walk into without any additional cost. Do you want to drive on dirt tracks with uneducated people attempting to wash your windows at intersections that the lights dont work at correctly? I dont, so I pay my tax.

You must be earning not that much and paying not that much tax. I know many americans who fairly consider they must NOT pay so much tax for actually poor services and feeding those who don't work and don't want to work.

[Carlton Banks]

So what do you propose if you hate the government?

This is an incredibly loaded question, bbc.reporter

There's no mention of hate, simply statement of easily verifiable facts. These may be unpalatable facts to some, but it's entirely correct to say that police in pretty much every western "1st world" country behave oppressively towards members of the public that they should in fact be protecting from bullying behaviour. The problem may be more serious in the USA, but it's happening on a small scale everywhere.

What should we do to start governing ourselves better and how do we create a better system?

Be the change, etc. With Bitcoin, we're already doing something very important, using a private system. Try to live your whole life without using government services, and encourage others to do the same. If no government will ever honestly decrease waste and corruption in public services if they are voted for, then we should vote instead with our money for services that are properly incentivised to serve it's users.

I reckon the problem with the government is not about collecting taxes. From what you mentioned, the problem is a country becoming a police state like what is happening in America now.

All states are police states to some degree, as they all rely on threats, theft and violence to ensure people pay for government services.

The magic is in how this has evolved; as recently as the middle ages, governments didn't even try to pretend that they weren't bullying people to steal from them, taxes were collected exclusively for maintaining the position and lifestyle of royalty and local lords. But as the education of regular people became more widespread, and possibilities in infrastructure and industry improved, government gradually changed itself from the previous system of obvious open theft into a more benevolently styled system. It's no coincidence that the power of the church simultaneously waned; all the best liars could earn a more attractive wage constructing lies for governments than they could as church ministers. The psychological control of the masses switched from church to state.

The truth is we never needed them. Most people treat each other well without the threat of state punishing them, they value their reputation (and simple reputation is a more effective policing system than ever in the internet-age). We're paying alot of money to the government for very little improvement in our own lives, when we could simply pay for what they do provide (far cheaper than the corrupt deals they make) directly.

And we can avoid paying them to start fights (i.e. wars) with other governments that threaten everyone's safety, and in the end only serve the needs of their friends who pick up all the contracts to rebuild the destroyed cities or to steal the natural resources from the previous owners exploiting them. Or you could just believe all that BBC reporting that says governments invade and bomb other countries to pieces because of what nice people they are.

[darkangel11]

All states are police states to some degree, as they all rely on threats, theft and violence to ensure people pay for government services.

The magic is in how this has evolved; as recently as the middle ages, governments didn't even try to pretend that they weren't bullying people to steal from them, taxes were collected exclusively for maintaining the position and lifestyle of royalty and local lords. But as the education of regular people became more widespread, and possibilities in infrastructure and industry improved, government gradually changed itself from the previous system of obvious open theft into a more benevolently styled system. It's no coincidence that the power of the church simultaneously waned; all the best liars could earn a more attractive wage constructing lies for governments than they could as church ministers. The psychological control of the masses switched from church to state.

The truth is we never needed them. Most people treat each other well without the threat of state punishing them, they value their reputation (and simple reputation is a more effective policing system than ever in the internet-age). We're paying alot of money to the government for very little improvement in our own lives, when we could simply pay for what they do provide (far cheaper than the corrupt deals they make) directly.

And we can avoid paying them to start fights (i.e. wars) with other governments that threaten everyone's safety, and in the end only serve the needs of their friends who pick up all the contracts to rebuild the destroyed cities or to steal the natural resources from the previous owners exploiting them. Or you could just believe all that BBC reporting that says governments invade and bomb other countries to pieces because of what nice people they are.

I only wish that more people read this and understood how the system works.
It never ceases to amaze me how the state has kept on adding taxes on top of taxes and nobody opposed this. 200 years ago all people had to pay was a poll tax. It was a common tax in many countries around the world and one of it's main downsides was that it was easy to avoid. If somebody had no money and didn't pay the tax there wasn't much the state could do about it as there was no wealth or property that it could seize. It was just though, as all people had the same amount to contribute.

Indirect taxation in time evolved into what we are whitnessing. Sales tax, income tax (local and federal), excise tax, import tax,  VAT, road tax, health insurance, social security, and so on. In some countries you have to pay taxes for the air you breathe, for owning a dog, and for many other ridiculous things.