The IRS Wants to Know More About Privacy-Enhancing Crypto Coins, Tools

America's tax collector is laying the groundwork for a possible assault on privacy-enhancing cryptocurrency technologies.

Jul 2, 2020 at 5:06 p.m. UTC
Updated Sep 14, 2021 at 8:59 a.m. UTC

The Internal Revenue Service (IRS) is laying the groundwork for a possible assault on privacy-enhancing cryptocurrency technologies.

  • IRS-CI Cyber Crimes Unit challenged its “industry partners” to explain where the crypto tracing community stands on privacy coins, Layer 2 protocols, sidechains and the Schnorr signature algorithm in a June 30 Request for Information (RFI), as first reported by The Block.
  • “There are few investigative resources for tracing transactions” that move across these privacy-enhancing vectors, the IRS said, noting a recent spike in illicit privacy coin use. “The CI Cyber Crimes program is working to get in front of this trend.”
  • The IRS singled out the monero, zcash, dash, grin, komodo, verge and horizen privacy coins, sidechains Plasma and OmiseGo, and Layer 2 protocol networks Lightning, Raiden and Celer.
  • What’s good for user privacy is bad for investigative efficacy: The IRS bemoaned the Bitcoin blockchain’s apparent plans to integrate Schnorr signatures, writing that such a move will undercut IRS agents’ current tracing techniques. 
  • The tax agency seeks estimates of how much it would cost to “support this initiative” as well as return on investment estimates.

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