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

Jul 2, 2020 at 17:06 UTCUpdated Jul 2, 2020 at 17:17 UTC

(Andrew F. Kazmierski/Shutterstock)

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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