On the heels of the federal government’s push to track cryptocurrency more closely, the IRS’s criminal division is seeking new tools that will enable it to defeat, or “crack,” crypto wallets.
According to Nextgov’s Aaron Boyd, the IRS has had difficulty cracking crypto wallets it has seized via criminal investigations. And that has the tax agency asking potential vendors to submit proposals that will allow it to “obtain reliable results” as well as:
Validate cybersecurity research in cryptographic wallets exploitation.
Identify new methods to gain access to cryptographic wallets.
Identify successful cryptographic models for exploits.
Document the processes, hardware and skill sets needed for reproduction in an advanced digital forensic laboratory.
Create hands-on training for the identified techniques in support of IRS-CI Digital Forensics Laboratory.
Of course, the IRS should have tools to track down bad guys and recover assets. That’s what its law enforcement wing is supposed to do. But as with anything related to the IRS, there are legitimate concerns about how it will use its shiny new tech, and under what circumstances.
Remember, the IRS has a habit of becoming a political tool and has a long history of abusing its authority. It should not be given new investigative tools without equally strong oversight.
A current lawsuit over alleged IRS harassment of crypto users in a case in point:
In August 2019 James Harper received a letter from the IRS. So did 10,000 other people. The letter informed him the agency had obtained his financial records related to owning bitcoin. The IRS said the letter was “educational” and that the receivers had “potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly,” according to an IRS statement at the time.
“Taxpayers should take these letters very seriously by reviewing their tax filings and, when appropriate, amend past returns and pay back taxes, interest and penalties,” said IRS Commissioner Chuck Rettig. “The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations.”
At the time, the move caused an uproar among confused recipients who believed they had complied with all of their tax obligations and was seen as the IRS coming out swinging against crypto holders.
We’ll be watching this case — and the IRS’ move for wallet-cracking tools — with great interest.
