IRS Says ‘Dozens’ of New Crypto, Cybercriminals Are Identified | Hacker News Reader

IRS Says ‘Dozens’ of New Crypto, Cybercriminals Are Identified

bloomberg.com

They are creating new techniques to tackle people potentially avoiding paying taxes on crytpo. By and large, this is not going to yield a ton of money as its likely small traders, just trading and hoping to avoid paying on what are likely small to no profits. There are obviously going to be exceptions.

They could instead just open up the Panama papers and target people and companies hiding billions. The issue is that this would then target those with money and power something the IRS appears loath to do. So instead the rich continue to pay a far lower proportion of taxes than they actually owe and the poor and middle class get hammered.

The IRS already openly admits to not auditing the rich as its too complicated and to instead going after the less wealthy.

No wonder the rich get richer...

> this is not going to yield a ton of money as its likely small traders

Thanks to said tax evaders keeping a public record of their evasion (and for those who used tumblers, money laundering), the investigative costs are also lower. (We also have no evidence that these are small fry.)

> they could instead just open up the Panama papers and target people and companies hiding billions

One, the IRS doesn't control the release of the Panama papers. That's the ICIJ, the consortium that collected and vetted the papers.

Two, Americans have been charged [2]. These investigations are expensive and resource-consuming. Simply having an entity in Panama doesn't mean someone is evading American taxes.

[2] https://www.icij.org/investigations/panama-papers/first-amer...

> Simply having an entity in Panama doesn't mean someone is evading American taxes.

Just like using a tumbler doesn’t mean the crime of money laundering is occurring, as that crime requires an illicit origin not the mere act of obfuscation

> using a tumbler doesn’t mean the crime of money laundering is occurring, as that crime requires an illicit origin not the mere act of obfuscation

Correct. But if someone (a) didn't pay taxes on cryptocurrency proceeds they (b) didn't declare after (c) using a tumbler, that's as pre-packaged a case as one gets.

Using bitcoin to purchase goods and services would be a taxable event, but is there really a clear case that using a tumbler is a taxable event? On what grounds?

I think their arguments is you went say eth->btc and then through a tumbler, they would be able to charge you for tax avoidance on the eth->btc (assuming you didn't declare this and pay the tax) and then money laundering on the tumbler because it was meant to obfuscate that.

There are legitimate reasons for wanting privacy/anonymity. Not everyone who uses a tumbler does so to evade taxes or launder money.

I think it would be better for plausible deniability to just use a coin that has default privacy built-in. That way no one can point to the fact that person went out of their way and spent money (transaction fees) to attempt a measure of privacy.

Read a couple of tax court rulings, IRS embarrasses itself all the time on overzealous stretches.

With non-reporting the IRS doesn't know how a taxpayer is categorizing a transaction. They wouldn't know if a transfer was a payment for a good/service with a capital gain or less required, or if a transfer was collateralizing debt to a third party that manages their collateral however they want which would not be a tax event, for example.

Humphreys County, Mississipp is one of the poorest and the most audited county in the US - https://www.marketplace.org/2019/04/15/study-where-irs-audit...

Also ~75% black, but I'm sure that does not factor into the IRS' decisions...

It seems to be mostly targeting the poor, in particular the Earned Income Tax Credit, because Republicans hate it and constantly pressure the IRS to target people who use it.

If this true ? Can politicians target taxpayers based on what perfectly legal activities they do ? For example can Trump ask IRS to target say H1B employees ?

The IRS publicly says that it audits poorer taxpayers at a higher rate because they require less manpower to audit.

https://www.propublica.org/article/irs-sorry-but-its-just-ea...

Sure it's easier, but it seems like the return on investment must be lousy. Is it really easier to audit 1 million people who end up owing an average of $100, or 10 people who end up owing $20 million?

I would bet that it's much easier to predict costs in both time and money for auditing a poorer person than a wealthier one.

Is this the "run the government like a business" I keep hearing so much good stuff about?

You can just as easily file this one under "every organization has finite resources to allocate".

Depends on the fee structure.

If those poor people end up owing $100, but the IRS can slap $500 of wrongful filing fees on them, and then come up with a 15 year payment plan at 30% interest, they get $25k.

Rich people would just pay the fine and move on, or claim bankruptcy and become rich again in a few years.

Can a private (or corporate) entity take the IRS to court?

As a non-American, I always assumed a big reason of why the rich aren't taxed/audited as much was because tying the funds up in infinite legality was cheaper than actually paying taxes.

The IRS cannot charge a 30% interest rate. They charge short term plus 300bps. There's some other fees, but they cap out too.

The difficulty of auditing someone is totally dependent on the complexity of their tax return. If someone just adds up the numbers wrong and pays the wrong amount of tax, how hard is that to catch? Whereas if someone reports thousands of different stock transactions over a five-year period, and those don’t quite add up, that could easily be a more expensive audit than a thousand automated ones.

also more likely to be breaking the law

As long as they're all legitimate audits, that seems like a reasonable way to prioritize work. I too tackle the lower-hanging fruit first when I begin a task. If this is the methodology that generates the most revenue, then it is generating the most potential benefit to those who rely on government services -- largely, those drawing SS/Medicare/Medicaid/SNAP/EITC.

This report is based upon data from during the Obama administration only.

"Audit rates were calculated per 1,000 income tax filings, over the four tax years from 2012 to 2015."

> For example can Trump ask IRS to target say H1B employees ?

I anal but my guess is no, at least not as an order, and at least not in a way that is consistent with our laws.

> In 2013, the United States Internal Revenue Service (IRS) revealed that it had selected political groups applying for tax-exempt status for intensive scrutiny based on their names or political themes. This led to wide condemnation of the agency and triggered several investigations, including a Federal Bureau of Investigation (FBI) criminal probe ordered by United States Attorney General Eric Holder.

https://en.wikipedia.org/wiki/IRS_targeting_controversy

However, sitting senators and representatives can write letters to the IRS or any federal agency and my understanding is the people at the federal agency actually read those letters.

Here's just an example I found on Google search

> Senate Finance Committee Ranking Member Sen. Ron Wyden, D-Ore., and House Ways and Means Ranking Member Rep. Richard Neal, D-Mass., today questioned whether the Trump administration is wrongfully pressuring the IRS to produce 2018 withholding tables that would result in systematic underwithholding of federal taxes from taxpayer earnings. In a letter to Acting IRS Commissioner and Assistant Secretary for Tax Policy David Kautter, Wyden and Neal asked about interactions between Trump officials and the IRS regarding the development of the tables, which are expected to be released in the near future. If an undue amount of taxes are underwithheld by employers now, millions of hardworking Americans will owe taxes next April instead of receiving a tax refund.

https://www.finance.senate.gov/imo/media/doc/010818%20IRS%20...

https://www.finance.senate.gov/ranking-members-news/wyden-ne...

I don't see why not, it appears nobody is held accountable anymore

Not directly, but certain IRS ranking officials have targeted specific groups in the past for both administrations.

However, there is also rampant fraud with the EITC. Similarly with the Child Tax Credit, it is likely because it is refundable, meaning that you receive a check after your taxes are paid rather than a deduction which can only bring your liability down to zero. Also auditing these are fairly trivial and usually only done through the mail so they can send them out en masse based on red flags.

> "The IRS estimates that 22 to 26 percent of EITC payments were issued improperly in Fiscal Year 2013. The dollar value of these improper payments was estimated to be between $13.3 billion and $15.6 billion."

https://www.washingtonexaminer.com/report-massive-fraud-stil...

https://www.eitc.irs.gov/tax-preparer-toolkit/frequently-ask...

> Republicans hate it

It was created under the Nixon administration. The biggest expansion came under Reagan and he called the EITC the “the best anti-poverty bill, the best pro-family measure, and the best job-creation program ever to come out of the Congress.” George W. Bush administration also increased the benefits.

I don't think anyone would be that far out of order arguing that the Republican party of today and its principals are very different than those of a decade ago. Your mileage may vary on a case by case basis.

The EPA was also created under Nixon, good luck arguing that today's republicans don't hate it

https://www.businessinsider.com/how-trump-administration-has...

How does changing the purview of the EPA say they "hate" it? Seems like few argue that it has no utility, and many of the complaints are legitimate, particularly complaints about ludicrous misapplication of WOTUS to small agricultural ditches and artificial pools.

https://www.washingtonexaminer.com/trump-says-hed-eliminate-...

I might have somewhat agreed with your assessment 10 years ago, but now?

I'd say that the EPA is doing roughly the right things right now, and they've been doing some groundbreaking stuff lately in collaboration with NASA. It's not like they've been shut down. The CAFE regulation schedules are being reviewed, might be a good opportunity for somebody to improve the model for them to benefit good actors in the broad public and in industry, while it's up for grabs; even if in the short run the targets are less aggressive.

Obviously the President has said some broad, sweeping things about the EPA, but in practice has not done anything near what he said he was interested in. I think at one point he literally said he'd abolish the whole agency, but that was before he'd been nominated, and obviously no such attempt has been made. At the end of the day, if it doesn't get in the way of the populist policies, it seems like the President and his administration are not interested in gutting the EPA; but if you push the EPA into the line of fire, sure, they'll take some hits.

> “Since the 1990s, Republicans in Congress have put a lot of pressure on IRS to prevent payments going to people who didn’t deserve the credit or who didn’t qualify for the credit,” Kiel said

It's part of the war on "Welfare Queens".

It would be easier to condemn this crusade if the examples of actual welfare queens weren't so infuriating. It is a phenomenon dripping with palpable entitlement, at a scale that most people are familiar with.

The myth of the "welfare queen" is an ugly racial stereotype based on a single person, and bears very little relationship to the reality on the ground.

https://newrepublic.com/article/154404/myth-welfare-queen

It's not a myth, it's just that the extreme cases people are thinking of are relatively few and far between.

I'm not making any case for it being somehow common, just that when people see the genuine article, which obviously exists, it's pretty repulsive. It's not that they're all getting rich or even middle class, and you can't really get rich off this stuff, it's that they get off on getting something for nothing. "The Queen" is not the only welfare queen because New Republic wrote a story about one lady.

There are also far less repulsive, but very disappointing misuses of public welfare systems. I know a lady in my city who receives a housing benefit which could buy her a rental unit here, but she spends it on hard drugs instead. You can follow the money from these programs from the public coffers to the wallets of illicit drug dealers and traffickers. An argument could be made that paying more attention to how that benefit is paid out, would give some people a better chance of seeking treatment rather than buying more drugs.

And no, it's not based on "a single person"; it takes a profound kind of class ignorance to say something that ridiculous.

What do you mean war? Are you suggesting that the IRS should target people who "don't deserve or qualify for the credit"?

Maybe just let people claim it who shouldn't be getting it?

"Audit rates were calculated per 1,000 income tax filings, over the four tax years from 2012 to 2015."

You realize that this entire dataset is from the Obama administration, right?

"Audit rates were calculated per 1,000 income tax filings, over the four tax years from 2012 to 2015."

I mean isn't it possible that it is very poor due to rampant corruption?

>The issue is that this would then target those with money and power something the IRS appears loath to do.

Ability to fight back makes one a less desirable target. We need to equalize access to courts so that wealth is not a factor.

The government shouldn't be picking who to prosecute based on ease of conviction. Wealthy criminals are just as guilty as poor ones.

Well it seems in the US that just being poor is a crime

If you could catch 10 child abusers or 1 child abuser within the next 2 months with your given resources, which would you choose?

We need to make it so that catching any of the 11 takes equal amounts of work, so when they pick the 10 of 11 to go after they rank it by severity of crime or other more reasonable factors than the criminal's wealth.

A better analogy would be: would you rather catch 10 thieves who stole $10 or one theif who stole $1,000,000?

If the metric employees (police, prosecutors, etc.) are judged by is how many criminals are caught, does the answer change?

For those employees maybe

Your argument appears to be that lighter tax evasion shouldn't be prosecuted as long as there are heavy tax evaders that haven't been prosecuted. There are no doubt people right now plotting highly technical 15-person bank vault heists, but I absolutely expect the police to investigate a B&E of my house.

In my experience the police don't investigate B&E's into people's homes that often or with any vigor.

That has not been my experience.

That probably depends a lot on whose house and where it is.

Twice for me. Both in lower rent apartment row houses in college in different locations. Tons of electronics stolen and I had the S/N for 80% of them and one firearm, cops didn't seem to care. On one instance I gave them the likely culprit. Which was someone I had known from the neighborhood that I saw looking in windows when I drove left the afternoon I got robbed, didn't think too much of it at the time; just thought he was trying hang out with friend and was trying to see if they were home.

My argument is that the rich have been evading paying taxes for decades and the IRS acknowledges this. They also acknowledge that they actively target the poor due to auditing the rich being difficult. I am sure politics and lobbying adds to that difficulty.

The current system is geared towards keeping the rich and poor where they are. I find it interesting that the IRS devotes resources towards targeting a new wealth source available to the poor while not dedicating those same resources towards auditing the wealthy. (I am in no way a crypto evangelist). One could argue that they are going after low hanging fruit, and I would not disagree but I would also argue that they are actively choosing to not target the rich with their limited resources.

I think you analogy is flawed, I would instead compare this case to the police hanging out in poor neighborhoods targeting house parties vs doing the same in rich neighborhoods as they may need to go the extra step of getting a gate code to the rich neighborhoods.

Especially since the IRS has come out and said they go after minor tax evasion more since going after the bigger fish requires more money and resources. The IRS also has it’s budget decrease year after year.

It’s not like going after the bigger evaders would yield bigger fines and maybe lead to bigger budgets.

>Your argument appears to be that lighter tax evasion shouldn't be prosecuted as long as there are heavy tax evaders that haven't been prosecuted.

I think the argument is more along the lines of: "Something is wrong if the police spend zero or minimal effort investigating major burglaries (when they have the resources to do so, as evidenced by their investigations into lesser burglaries). This lack of investigation incentivizes major burglaries by those who have the means to do."

Though I agree with your sentiment my understanding is that the Panama Papers had very little for the IRS to work with because the law firm in question, who were not interested in fighting the US government, actively avoided having US citizens as clients.

ahem, its resources...a billionaire can afford a team of highly skilled trial lawyers whereas gov orgs tend to have trouble with this...the main reason why Trump did not testify in the special prosecutor probe was that the gov team did not have an adequate amount of experienced trial lawyers on staff to take it to the Supreme court.

That is not the only example... financial crisis of 2008 and why no bank execs did time...same reason DOJ lacking exp trial lawyers on staff

Perhaps this is phase 2 of the IRS "we're going to crack down on crypto coin transactions." articles. First we had the various letters went out, now we have them testing their tools that sift through peoples returns to identify possible tax avoidance.

https://github.com/nopara73/ZeroLink/#ii-chaumian-coinjoin

A tumbler may theoretically[1] help[2] you launder coins that you have received from theft, extortion, drug dealing, or other criminal activity.

It won't do anything to help you avoid paying the tax man, come April.

[1] Assuming it's not a honeypot ran by a TLA.

[2] Assuming that, by legislature, tumbled coins don't become 'tainted'.

Alternatively, a coin-join helps provide anonymity and privacy to legitimate users.

In order for a government to enforce taxation on cryptoassets, they would need to definitively prove that a person owned coins at a specific address. This is basically only possible if coins are bought/sold through an exchange following KYC laws.

> In order for a government to enforce taxation on cryptoassets, they would need to definitively prove that a person owned coins at a specific address. This is basically only possible if coins are bought/sold through an exchange following KYC laws.

It blows me away how flippantly so many cryptocurrency enthusiasts discuss criminal money laundering.

Next you'll be amazed how many high school students discuss trying to not get caught breaking school rules.

Or how many drivers speed.

Criminals talking about their crimes really shouldn't blow your mind. It's very common for criminals to get caught because they couldn't keep their mouth shut. Murderers get caught like this all the time, and murder is much more serious than money laundering.

Criminal money laundering?

We're discussing the technicals on what it takes for a government to enforce taxation on a new asset class. There's no conspiracy here, only an attempt at sound understanding.

Did you not realize we talk about topics like how to penetrate computer security, with great specificity, ALL the time here on HN? Does this objective discussion about potential illegal acts blow you away too?

"In order for a government to enforce taxation on cryptoassets, they would need to definitively prove that a person owned coins at a specific address." is not really true.

For starters, the government is allowed to simply ask "we think that maybe you might have had some income in the form of cryptoassets. Please provide an exhaustive list of such income" with the understanding that any lies or omision on that answer changes it from "how much do I need to pay tax?" question into a "go-to-jail-for-how-long" tax fraud.

If they find your answer suspicious (for example, it doesn't match some third party info that they have e.g. from a TLA running a honeypot tumbling service, or a honeypot 'trade crypto for cash in a park' op or Tor node monitoring or whatever, all these things are being done by gov't), then this can be followed up by a tax audit (i.e. have you purchased any assets or services that are above your declared income?) and/or a warrant to search your devices (possibly without you knowing) for forensic evidence of your crypto transactions - which might, for example, result in evidence that you used a coin-join service with an intent to circumvent KYC/AML laws, which by itself can be treated as a crime even if they don't find definitive proof that you owned coins at a particular address.

Of course, this all assumes there are no loopholes in the current cryptoasset system. That is, there is no way for the government to go "we found your tax fraud, now you are going to jail for life" – they can't, as long as it doesn't "undermine" the purpose of this inquiry.

Right. I've used Bitcoin for a decade, and I've never used an exchange. There is no link between Bitcoin and my meatspace identity. Bitcoin is only for playing online.

or, just use Monero.

Exactly, I'm not sure why people continually try to add privacy to bitcoin when there's a better alternative. With all of the blockchain monitoring services it's nearly a lost cause.

Monero has a ton of issues that make it not nearly as private as you might believe.

https://www.wired.com/story/monero-privacy/

FYI, that's outdated now. Monero has made improvements, and researchers continue to make more improvements.

Previous HN discussion about article: https://news.ycombinator.com/item?id=16687008

r/Monero discussion: https://old.reddit.com/r/Monero/comments/87hr28/hn_discussio...

Only one of those particular issues is outdated, as the article tells you up front. Monero still has issues that remain and continue to be found as time goes on. It's not a good protocol and not a safe one for privacy.

It's digital, so it or any other digital currency can never be perfectly-perfect. It's private which is it's main goal. If others want to be anonymous, just like any other digital currency, they need to take additional steps that can never be solved by any digital currency.

There are much better people to discuss any problems you think it might have over at r/Monero, including people with PhDs (I'll never be as smart or have as much dedication as they do). I suggest using the search function about your concern, and if you don't see it, create a post or make a comment in their Skepticism Sunday threads.

I learned about Monero here on HN years ago, understood its limitations then, and keep mostly up-to-date. I won't claim that any thing in the world won't have its limitations or problems, but I do still believe that Monero is the best project currently and still looks promising going forward in terms of user financial privacy.

Nothing is ever going to be perfect. Saying "it's not perfect but it's private" is claiming that it's doing the job it purports to do. It's not. It's been broken from the beginning.

Most of reddit is self-aggrandizing cliques who believe they are much smarter than they really are -- especially in the cryptocurrency space. My concerns are not obscure or unknown, everyone who pays attention knows that Monero has issues.

There are multiple projects that are better in terms of financial privacy -- Monero is primarily an ugly hack to barely obfuscate transactions.

> Most of reddit is self-aggrandizing cliques who believe they are much smarter than they really are -- especially in the cryptocurrency space.

I highly encourage you to visit r/Monero. Those devs are the first to say it isn't perfect. They've never promised the moon or hype themselves. They acknowledge that people's lives could balance on whether or not their finacial transactions are private, so they don't overpromise and always continue to look for ways to improve.

It seems like you have an agenda and a viewpoint that doesn't line up with reality.

(And a lot of people seem to criticize Monero because it's not anonymous (which is not the goal), so that's why I say it isn't perfect. And of course there will always be an attack vector for everything: people could track serial numbers of physical cash, the NSA could track every keystroke/tap on every device, etc, but realistically it's very good and getting better about blockchain analysis attacks.)

I've been there. I've spent significant amounts of time reading reddit cryptocurrency boards.

I don't have an agenda. My "viewpoint" is reality. You don't have to like it, and feel free to put your trust in technology that does not deliver what you believe it does.

Monero's trading volume is not that great - you can reveal information through relatively-large movements, a sort of side-channel attack.

That's the first time I've heard that claim before.

I know its volume is way higher than Zcash's shielded transactions.

Do you have any details on how it might work?

I assume you're just not talking about simple timing correlation combined with trading BTC->XMR->BTC (poor opsec).

As far as I know, you can't reveal XMR amounts, receipent, or sender if you're just remaining in XMR and not going through a third party (exchange, conversion service, etc). So I'm really curious about the details of your claim.

Mostly just simple timing correlation, because coiners turn out to talk a much better game about opsec than they practice.

https://www.crowdfundinsider.com/2019/09/151096-wasabi-walle...

I hope you wouldn't also suggest using a dex with 100k/day volume, and receiving pedocoins?

These privacy-enhancing technologies would be good if a fraction of the people advertising their merits actually used them, but the reality is, the only people using coinjoins/monero/dex are people who need to, which is a huge problem to associate yourself with.

That's a terrible article. The only source is a reddit user who made two short posts with very little details.

The sort of responsiveness described from LE by the poster also sounds downright unbelievable, I'd bet that's a fake story.

Would love to see a cryptocurrency that is fully auditable by everyone... That is, when did a cryptocoin come into circulation, who got it first, why did they get it, who did they send it to next, what was traded for it, etc., etc, down the line...

And finally, if/when the cryptocoin is ever decirculated, and/or held for too long a time period in a single individual or entity's account...

The IRS would love such a system, but also every Professor of Economics (and government financial policy makers) would, too...

Such a system would exist as the nexus between cryptocurrency, hard identity, transactional tracking, big databases, regulation, macroeconomics, and monetary/fiscal policy.

If a rule was made in the system to automatically take 1% out of the accounts of the account holders that earned/owned the most, and equally distribute it (every year) to the accounts of the 1% of account holders that earned or owned the least, then basic income could also be created by the system...

That would also be interesting because it would essentially make the cryptocoins non-fungible. For example, people might be willing to pay more for a coin if it was used in the past by a movie star.

The IRS already openly admits to not auditing the rich as its too complicated and to instead going after the less wealthy.

Not true.

This is a "viralization" of the article linked below, with this very clear headline:

    The IRS Now Audits Poor Americans at About the Same Rate as the Top 1%

That's of course a problem in itself, but very far from the "internet truth" that the rich don't get audited at all.

https://www.propublica.org/article/irs-now-audits-poor-ameri...

So totally true, but using not perfectly precise language for the sake of brevity, got it.

No.

"The rich are not audited" is not an imprecise way of phrasing "The rich are audited at much as everyone else".

Yes, you misread a chart and did not read the article you linked yourself.

Why "instead"?

The IRS has identified that certain refundable credits (EITC) have a very high error rate (25-30%). As I understand it, it has created a mostly-automated mechanism to identify the filing errors that lead to these issues.

Should the IRS not be doing that because it lacks the resources to perform audits which are less subject to automation? Or should it not be doing that because EITC is only paid to lower-income households?

Some fraction of the incorrect EITC filings are undoubtedly fraudulent. What, in your view, is the acceptable rate of potential fraud that the IRS should detect, but ignore, based on income level?

Finally!

Reply on news.ycombinator.com