When the father of anti-virus software, John McAfee, was carrying the tax bill issued by the IRS, he was promoting a heroic ambition to run for the US president on a small yacht in the Bahamas.
Prior to this, McAfee had not reported taxes for 8 years because of the use of BTC and ETH.
In fact, McAfee's tax evasion is just the epitome of many encrypted users. Due to the anonymity of the cryptocurrency itself and the classification of cryptocurrencies, the taxation of the cryptocurrency sector by government departments has been difficult to implement effectively.
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However, with the disclosure of a slide on the IRS, this status quo is likely to break.
IRS presents an extreme strategy for investigating encrypted users
According to Bitcoin.com, the IRS has recently published a slide detailing how tax authorities should handle non-taxable digital currency users.
It is understood that the slide was produced by IDS Cyber Crime Project Manager James Daniels. It introduces some of the methods that IRS agents should use to combat tax evaders who use cryptocurrencies.
Prior to this, IRS had stated that it would release more tax guidelines on cryptocurrencies, including tax rules for digital assets and forks (see: In the upcoming IRS cryptocurrency guide, there are three things to note) . Although the new tax guide has not yet been released to the public, so far, IRS agents who have implemented tax laws have not encountered any problems with tax evasion charges against Bitcoin users.
In short, this slide suggests that IRS agents ask friends and family members of encrypted users, sort out social media posts, and issue subpoenas to ensure that US residents are paying taxes on their cryptocurrency.
In the slide, James Daniels detailed how the detectives should use various investigation methods to combat tax evasion by cryptocurrencies. In this 181-page document, it describes in detail what the cryptocurrency is, and records the assets such as XRP and BCH. In addition, the report discusses a number of digital currencies, including BTC, XMR, BCH, XLM, XRP and LTC. James Daniels' descriptive research even calls some hardware wallet users "fans."
At the end of the report, the slide explains how to track bitcoin addresses using a common block browser.
“Once a bitcoin address is determined, it can be found on the Bitcoin blockchain browser for information such as its value, transaction time, transaction location, etc. This may help to confirm information, determine other addresses, or help identify topics. ”
It is stated in the text that it can also be used to show whether Bitcoin has been transferred after receiving the attachment order. (This will be discussed below.)
In addition, these slides provide a well-documented summary of how Bitmixer.io and how they are used to confuse transaction trajectories on public books. (Note: Bitcoin obfuscator is a tool for confusing transaction sources through multiple transactions. Not long ago, the Dutch Financial Security Agency seized the website and server of Bestmixer.io, the world's largest bitcoin obfuscation provider; subsequently, Bit Bitcoin Blender provider Bitcoin Blender also stopped operating.)
Not only that, if an agent of the US Internal Revenue Service (IRS) identified a tax evasion suspect, the slide suggested sending a grand jury subpoena to various technology companies.
"For the full application download history of Apple, Google and Microsoft, you should consider issuing a subpoena to the grand jury."
Investigate the financial habits of Bitcoin users
Even more worrisome is the fact that James Daniels’ slides also encourage agents to investigate the financial habits of individuals who use cryptocurrencies to evade taxes.
This includes (but is not limited to) interviewing “bank tellers, family and friends (if applicable) and subject frequent customers who may accept Bitcoin”; investigating Facebook, Twitter and other social media and searching for tax evaders’ financial accounts, including Banks, credit cards and Paypal records.
The slide shows: “The automatic clearinghouse should identify ACHs and wire transfers to determine if they are related to Bitcoin.”
The "Getting Information" section of the slide shows:
“You should analyze the transfer of subjects between Paypal accounts in roughly the same way, verifying that the parties involved in each transaction – accepting Bitcoin suppliers, such as Amazon payments, may also consider issuing a subpoena. This method may not produce results reliably."
At the end of the slide, James Daniels said that if the respondents did maintain Bitcoin balances, they should try to identify their Bitcoin wallet and related addresses. The IRS report also emphasizes that users can have many encrypted addresses.
In addition, if a person makes a public speech on social media, it can also be identified. The slide suggests "searching through the topic on the user's Facebook page or on a Twitter account". "If a suspected tax evader uses the Bitcoin Wallet service, a subpoena can be issued to the wallet company to provide a record identifying the object's bitcoin balance, address and any identifying information." The IRS Cybercriminal Agency also stated that there is A variety of blockchain monitoring companies can help with the investigation.
Companies that provide distributed ledger monitoring services as mentioned in the IRS slide include Chainalysis, Elliptic and Ciphertrace.
“The software accurately tracks the history of bitcoin payments and wallets – in addition, it maps wallets to known “clusters”—that is, maps addresses to known entities, such as the Silk Road, Coinbase and other large Bitcoin holders."
IRS is studying cryptocurrency technology extensively
The 181-page report is a daunting demonstration of how IRS agents invade a person's private life to sue them for tax evasion.
The slide shows that the IRS is well aware of the bitcoin mixer, the use of Tor, and other transaction obfuscation methods. A detailed analysis of Bitmixer.io was performed.
James Daniels said that since 2014, the company's monthly turnover was 65,000 BTCs before the site was closed. "In addition to the Bitmixer website on clearnet, this operation also has an official Tor mirror on the dark."
In addition, the slideshow provides step-by-step guidance for beginners of encryption and explains how agents can easily register Coinbase and other popular exchanges, as well as Bitcoin ATM walkthroughs.
People may be shocked by the fact that law enforcement agencies have spared no effort to obtain cryptocurrency information from specific groups of people. Because very few encrypted users are actively taking steps to protect their privacy at all times.
Perhaps this slide will encourage more people to use hybrid applications, such as Cashshuffle, use VPN to operate the wallet, and make sure their address is not on the clearnet. But according to the IRS, "If you don't follow the virtual currency guidelines, the agency's agents will investigate or sue you anyway."
Either pay taxes or be kept in a cage.
Author: Jamie Redman
Compile: Sharing Finance Neo