The IRS Investigation Division Is Requesting Information About Privacy-Centric Cryptocurrencies

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The United States tax agency has published a request for information pertaining to privacy-centric cryptocurrencies and technologies that obfuscate crypto transactions. The IRS-CI Cyber Crimes Unit request is also asking for information in relation to “layer two offchain protocol networks, sidechains, and the Schnorr Signature algorithm.

A recently published IRS-CI Cyber Crimes Unit request that’s available for public viewing is requesting information from “industry partners” in regards to crypto assets that leverage privacy techniques and other types of protocols that hide transaction data. The Request for Information (RFI) was published on June 30, 2020, and the RFI is dubbed “Pilot IRS Cryptocurrency Tracing.”

The IRS-CI request states:

This RFI is associated with a pilot IRS Criminal Investigation Division (CI) program. CI Cyber Crimes is requesting information about systems that will allow developers and testers to conduct investigative research of distributed ledger transactions involving privacy cryptocurrency coins.

The privacy-centric crypto tokens mentioned in the IRS-CI request include “monero (XMR), zcash (ZEC), dash (DASH), grin (GRIN), komodo (KMD), verge (XVG), and horizon (ZEN). Alongside this, the IRS wants data concerning offchain networks and sidechains like “Lightning Network (LN), Raiden Network, Celer Network, Plasma, Omisego,” and coins that have integrated the Schnorr Signature algorithm like bitcoin cash (BCH).

The United States tax agency says the entity currently has little knowledge of these protocols and is looking to build its expertise. The IRS would also like to leverage applications that allow them to investigate these privacy tools and coins.

“Acquiring applications to allow an investigation to more easily trace privacy coins and other protocols that provide anonymity to illicit actors would allow investigations to be more effective, as well as facilitate a higher level of deterrence by making it harder to conceal criminal activity. It also provides an investigative efficiency that is currently limited,” the IRS request notes.

Similarly, there are only a “few investigative resources” that allow investigators to intercept or trace transactions involving “Layer 2 network protocol transactions [and] sidechain ledgers.” Including “distributed ledgers that are adopting signature algorithms that provide privacy to illicit actors.”

The IRS notes in the request that the use of privacy coins and offchain/sidchain networks are “becoming more popular for general use.” But also the tax agency is “seeing an increase in use by illicit actors.”

What do you think about the recently published IRS-CI Cyber Crimes Unit request? Let us know in the comments section below.

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