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What we learned from the IRS Cyber Crimes leaked training document

Cyber Crime - IRS-Virtual currency-Leak

Page 3 of the leaked IRS training document titled “IRS Cyber Crimes, Virtual Currencies, by James Daniel” opens ceremoniously to state that virtual currencies are “money on the internet” that “does not have legal tender status in any jurisdiction”.
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This is wrong on two counts.  

One: there are countries that are issuing their own virtual currency (which for all intentions and purposes is still virtual currency) and two: these government issued virtual currencies as a legal tender. For instance, this Library of Congress issued report (page 116) states that Marshall Island is issuing its own virtual currency as legal tender.

To the credit of the training document, it does confide that virtual currency has “all the characteristics of traditional money.”

Surprisingly, the document does shed light on the benefits and issues of centralized vs. decentralized systems.

Page 6 did an excellent job on going over the birth of bitcoin.

There does seem to be a few pages missing from the leaked document that would have logically talked about Ethereum based on the sequence listed on the deck. 

Too much detail around certain projects and mining

Earlier pages of the 181 page document goes through the detail behind selective crypto projects with substantial market cap. 

The detail around smart contracts was detailed explaining how smart contracts could help the Government, Supply Chain, Automobile, Real Estate, Healthcare industries. 

Document then dives into ICO related fraud, risks and examples of ICO failures. Nothing ground shaking in these pages.

For a government training session, the amount of time spent on mining is mind-numbing without actual steps on using this information in identifying and catching people involved in mining.  There seemed a little point of the details presented in the pages on mining.

Forks, Exchanges, Kiosks and wallets? Yes, training got it covered

Investigate bitcoin cryptocurrencyAgain, there is way too much detail behind forks without actually providing any guidance on why it matters and what the IRS agents should be looking out for when people hold Bitcoins and their forked coins.

The document goes through various Digital Currency Exchanges (DCE), specifically, Coinbase, Binance, eToro and bunch of others, without any reference as to why that knowledge could be useful to the IRS agents or how to look for the ownership details in these exchanges.

An unnecessary amount of slides were spent on Kiosks with little to no information on those pages.

Wallets occupied a large amount of pages in this presentation without any apparent guidance to the agents, in our view. 

Bitcoin benefits?

Presentation goes through the benefits of using bitcoin and list of name brands that accept bitcoin. And in a surprising twist, document spends 7-8 pages on bitcoin tumbling/mixing, that is, masking the identity and covering the trail of transaction. What’s weirder is they used screenshots from the site that is no longer operational. 

Subpoena Google, Apple and Microsoft: Real meat starts on Page 95

privacyIt feels like a big hoax talking about stuff that most people in crypto place know. None of the information in the 94 slides that precede matches IRS’s consistency nor did it meet quality standards that you would expect from a Cyber Crimes agency, in our view. 

Moving on, page 95 is where the juicy stuff starts on which all the crypto media is drooling.

On page 95, this paragraph caught everyone’s attention “one method that should be considered is serving Grand Jury Subpoenas to a variety of companies. Issuance of a Grand Jury Subpoena should be considered for Apple, Google, and Microsoft for the Subject’s complete application download history.” 

Would IRS’s Cyber Crimes division be so blatant to propose Subpoena of these tech giants? IF so, do we believe that companies like Apple would grant access?

Remember, Apple denied access to the FBI in a matter of National security when it comes to its users privacy? 

How then does IRS expect to serve subpoena successfully to companies like Apple on a tax ground? 

It would be interesting to see what parts of this training actually passes as  law.

A call for blanket Subpoena

One of the most interesting aspects of this training material is to just learn about how far the IRS is ready to reach to dig up the details of bitcoin (and virtual currency) holdings.

Read this paragraph “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. In the Subject’s bank and credit card accounts, ACHs and wire transfers should be identified to see if any of them are related to bitcoin or other TPEs. Transfers to and from a Subject’s PayPal account should be analyzed in much the same way, verifying the parties involved with each transaction.”

IRS wants to go after bank, credit card, paypal records to sniff out the bitcoin and other crypto purchases.

It is scary, for those who were evading taxes and FinCEN disclosures

cryptocurrency taxAt CryptoTapas, we have urged our audience to never mess with the agency that brought Al Capone down.

We at CryptoTapas have always been advocating the full disclosure of taxes to the IRS and disclosure of foreign financial accounts to the United States Treasury.  We have even written a free guide on FinCEN disclosure, published 5 best practices  and provided insights into the FinCEN 114 requirements even before Crypto space started talking about it.  

We are planning on updating based on 2019 guidance, later this year.

Be sure to subscribe to get the updated 2019 FinCEN 114 guide for FREE and to be the first to know when we release the summary of upcoming IRS guidance on Crypto currency taxation.

Why the presentation itself could be a hoax?

We cannot discount the overzealous nature of the crypto news space. We latch onto anything that promises sensation. While the overall document was elaborate, we cannot discount the possibility that the document itself is a hoax or to some degree doctored.  

There are specific phrases in the presentation that seem out of place in an IRS’s Cyber Crimes presentation…

Also, the amount of detail presented around the top 14 or so cryptocurrencies is skewed and doesn’t reek the consistency of an IRS training.

Sheer amount of decks bombarded with generic information and references made to otherwise non-authoritative sources is probably a tell-tell sign that this is not a real/entire presentation? 

Obviously there are some pages missing and some pages are repeated while the page numbers proceeded, what data are we missing?  What implications do those missing pages have?

Consider some specific examples on few pages: 

  • Page 10: References made to Investopedia’s article on Ripple, this just seems like lazy work for a government agency
  • Page 16: References made to “Where to Buy Stellar”, if this was required – why was this not presented for other assets?
  • Page 20: usage of “whatever” in this phrase seems odd for a government agency presentation “With smart contracts, you simply drop a bitcoin into the vending machine (i.e. ledger), and your escrow, driver’s license, or whatever drops into your account.” 
  • Page 21: This statement: No one has that much computing power, so it would need God to hack the system! 
  • Page 36: usage of stock photography. On page 36, the blockchain slide uses the picture that has been used way too many times and is freely available on Pixabay.com; IRS’s slides are usually monotone and don’t go into design aspects, much less picking pictures randomly from the internet, something stinks
  • Page 94: Taxman’s picture on the deck

If it turns out that IRS did prepare this slide deck, as Coindesk claims to have confirmed, may be our observations will help IRS avoid these aspects in future that take away the ‘genuine feel’ from a government deck, who knows.

Coindesk confirmation on IRS’s training

Coindesk ran an article stating that it confirmed that IRS did indeed use this slide-deck to train its agents. Even if IRS did train the agents using ‘a slide deck’, we are not certain and cannot be certain that it was this slide deck until we find a link or official copy released by the IRS.

First Trump and then the IRS, crackdown in sight

donald-trump-bitcoinLooking at the timing of Trump’s comment, Congressional crackdown on Libra and this alleged IRS training leak, they seem more than a coincidence.

A perfect FUD storm is brewing and people who are new to the space are sure to be rattled.

In the light of these events, we expect a lot of congressional activity, legal framework, IRS guidance on tax rules and more in the coming months.

It will be a lot of adjustment for the anarchists and moon-soon folks, but this is a much needed cleansing of Crypto space that will clear the way for bigger and better things to come.


What do you think will be the implications of this proposal for blanket subpoena?


Thank you for reading the article.
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About the author

RK Reddy holds two Masters degrees, one in Accounting and another in Business Administration with over 15 years of experience in the financial services industry.

RK Reddy is an ardent fan of Blockchain and Cryptocurrencies. You can see the excitement about this new blockchain technology in every article on Cryptotapas.com. Sometimes this excitement leads to an overly optimistic view. Guilty as charged. RK Reddy says what may seem like an ‘overly optimistic expectation’ today may become an everyday norm in 5-10 years; look at the history of cars or airplanes, Blockchain and Cryptocurrencies belong to a similar frame of reference.”  Of course, that is just his opinion.

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