The Potential Impact of Enhanced IRS Surveillance on Cryptocurrency Confiscation

As the Internal Revenue Service (IRS) progresses with its plans to bolster surveillance of cryptocurrency transactions, concerns have arisen regarding a potential surge in crypto confiscations. A report published by the Department of Justice (DOJ) in response to President Biden’s Executive Order 14067 sheds light on how this information may be utilized, highlighting potential consequences for cryptocurrency holders.

Unprecedented Means to Seize Cryptocurrencies

The IRS is poised to monitor Americans’ cryptocurrency usage through an anticipated 8 billion new returns, potentially placing the DOJ in possession of unparalleled methods for confiscating cryptocurrencies. In fact, the commission mentioned the necessity of an enhanced ability to seize cryptocurrencies, citing the importance of forfeiting the proceeds of cryptocurrency fraud and manipulation as a means to deter and strip wrongdoers of their illicit gains. Consequently, the DOJ recommends expanding its authority over criminal, civil, and administrative forfeiture, emphasizing the need for more effective tools to deprive offenders of ill-gotten gains and potentially restore funds to victims.

However, the DOJ’s argument for increased seizure capabilities raises questions, considering the government’s demonstrated ability to seize significant amounts of cryptocurrency in the past. The report itself acknowledges that between 2014 and 2022, the FBI seized approximately $427 million in cryptocurrency, while the IRS confiscated another $3.8 billion between 2018 and 2021. These figures exceed $4 billion, suggesting that the government has achieved success in cryptocurrency confiscation.

Implications of Extensive Surveillance and Administrative Forfeiture

The IRS’s proposal to monitor cryptocurrency transactions takes on even greater significance when considered alongside the DOJ’s report. The extensive surveillance that the proposal would entail could potentially facilitate an even higher rate of cryptocurrency confiscation. One particular concern pertains to the practice of administrative forfeiture, which allows agencies to decide on the forfeiture of property without judicial involvement. This means that agencies are not required to provide evidence of a crime to a judge in order to seize the property.

The DOJ has commended administrative forfeiture as an efficient way to allocate government resources and reduce burdens on the federal judicial system. Administrative forfeitures accounted for 78% of the DOJ’s total forfeitures from 2000 to 2019. With the IRS collecting vast amounts of data on Americans’ cryptocurrency usage, there is potential for the DOJ to discover new avenues for cryptocurrency confiscation, even without concrete evidence of a crime.

It is worth noting that the US government is one of the largest holders of Bitcoin, accumulated through a series of seizures related to criminal activities. Reports indicate that the US holds approximately 210,000 coins, valued at around $5.5 billion. This figure is significant considering the fact that the total supply of bitcoin is capped at 21 million coins.

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