The U.S. Internal Revenue Service (IRS) may consider subpoenaing major tech companies like Apple, Google and Microsoft in search of taxpayers’ unreported cryptocurrency holdings.
That's according to a slide deck presentation from an IRS cyber training session, which details a number of ways the agency's criminal investigators might find potential crypto tax cheats.
"Issuance of a Grand Jury Subpoena should be considered for Apple, Google, and Microsoft for the Subject’s complete application download history," says the slide deck prepared by James Daniels, the program manager for cyber crimes at the IRS' criminal investigation unit.
"Each application’s function should be explored to determine whether or not the application can transmit, or otherwise allow, transactions in bitcoin," Daniels wrote. If so, it should be checked whether the app allows only peer-to-peer transactions, or also transactions with crypto-related businesses.
The deck was leaked on Twitter this week by a certified public accountant (CPA) named Laura Walter. The IRS confirmed to CoinDesk that the slides were genuine.
Justin Cole, director of communication and education at IRS' criminal investigation unit, said the materials were presented to agency staff at an event at the World Bank in Washington, D.C., on June 5-7.
"The training material has been used around the world to various law enforcement partner audiences and was again given at this forum in a room that included partners from dozens of countries around the world as well as various press members," Cole wrote in an email.
He would not say whether the IRS will definitely implement the suggested measures. "I can’t discuss specific investigative actions that the agency may or may not take in the future," Cole said.
Searching social media
Daniels' presentation also suggested that the IRS request information from “those who know the financial habits of the Subject, including, but not limited to, bank tellers, family and friends of the Subject (if feasible), and establishments the Subject frequents that may accept bitcoins.”
Social media accounts, such as Facebook and Twitter, also should be searched for public mentions of crypto-related information, as well as vendors that accept bitcoin, the deck says.
“A Grand Jury Subpoena should also be considered for (and may already have been obtained during the normal course of the investigation) the Subject’s financial accounts, including, but not limited to, the Subject’s bank, credit card, and PayPal records,” the document goes on, for the further analysis of transactions.
If it becomes clear that the subject of an investigation owns bitcoin, all wallet addresses and balances should be identified, Daniels wrote.
If they use an exchange or online wallet service these companies can be subpoenaed for the user’s balance, addresses, and “any identifying information,” including “any linked financial accounts, login times and information, correspondence, and transaction details,” the slide deck says.
However, the reliability of this approach “has yet to be extensively tested,” Daniels acknowledged. “As such, it may not be advised to send a Subpoena for records if not critically necessary.”
The taxpayers under investigation themselves shouldn’t be sent subpoenas, as this “may be detrimental to the seizure of any bitcoin balance.”
The IRS’s subpoena power applies in civil cases as well as criminal ones, noted Lisa Zarlenga, a partner at the law firm of Steptoe & Johnson. "While this presentation was given by the criminal investigation unit and clearly indicates that criminal investigation will use that tool, there is nothing preventing the civil side from using it as well," she said.
However, Zarlenga pointed out, the IRS is required to notify taxpayers before it subpoenas third parties, so people will likely know if the tax agency is looking for their bitcoin.
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