The Internal Revenue Service’s Criminal Investigation division (IRS-CI) reportedly faces sharp criticism for failing to properly document and secure billions of dollars in seized cryptocurrency, according to a recent report by the Treasury Inspector General for Tax Administration (TIGTA).
As of late 2023, the IRS-CI had taken custody of roughly $8 billion in digital assets linked to ongoing investigations. However, TIGTA’s investigation uncovered significant lapses in how these assets were recorded and managed. The report highlights that the IRS-CI often did not follow its own procedures for documenting seizures, resulting in missing or inaccurate information such as wallet addresses, transaction amounts, and seizure dates.
One major shortfall involved seizure memoranda, which are official documents that should log the transfer of crypto assets into government-controlled wallets. TIGTA found that many seizures lacked these memoranda entirely, while others contained critical errors, including swapped wallet addresses. More alarmingly, three hardware wallets went missing after being transferred from the FBI to IRS custody. In a separate incident, IRS staff destroyed the recovery seed phrase for a government wallet, risking permanent loss of access to the funds, though the assets were eventually recovered.
The report also criticised IRS-CI for converting seized Litecoin into Bitcoin, which violated best practices for preserving digital assets in their original form. The IRS updated its guidelines only after TIGTA raised concerns in May 2024.
Additionally, the IRS’s inventory system, AFTRAK, showed serious errors. Approximately 43% of seized assets were recorded in incorrect locations, and some entries had quantity mismatches. For example, a bitcoin holding was undervalued by over $9,000 due to a decimal point error.
Meanwhile, the European Union recently marked the one-year anniversary of the Markets in Crypto-Assets (MiCA) regulation coming into force for stablecoins, industry leaders are reflecting on its achievements, while also spotlighting areas in urgent need of improvement.
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