Bitcoin is not untraceable for the taxman. According to IRS documents, anonymous bitcoin addresses can actually be traced, at least sometimes.
IRS documents show the IRS has been involved in tracing addresses since 2015. They use analysis software from Chainalysis to “trace the movement of money through the bitcoin economy.”
The Daily Beast first had this story which emerged from a Freedom of Information Act request. It makes clear just how determined the IRS is to ensure that US citizens did not use cryptocurrency to dodge bitcoin taxes.
The IRS gave Chainalysis some $88,700 to access its anti-money laundering software. From the Chainalysis website:
“Through formal partnerships with Europol and other international law enforcement, our investigative tools have been used globally to successfully track, apprehend, and convict money launderers and cyber criminals.”
Bitcoin coins are not tracked on the Internet. But if you know where the coin has landed and think you know the person, you might then get a subpoena for the wallet if you are an appropriate government agency.
The IRS is currently fighting with Coinbase over revealing customer identities if the IRS considers such individuals potential tax cheats. The IRS is focused on supporting its bitcoin tax. It says only about 800 people declared bitcoin in 2016.
Meanwhile, some cryptocurrencies such as Dash, Monero, and Zcash are more anonymous and may grow as bitcoin potentially subsides. Dash and Monero prices are at all-time highs.
The IRS still has not been disciplined for discrimination against Tea Party entities to which it would not grant a tax exempt status during the Obama years. It lost paperwork and computer files that it has never recovered and otherwise declined to cooperate with Congressional committees looking into IRS wrongdoing.
Now the IRS is going after a bitcoin tax, but presumably the IRS itself has decided that bitcoin is legal to tax and not Congress. Surely Congress should take up the issue of cryptocurrency taxes rather than leaving it to solely to the IRS. Why just tax bitcoin. Or, to reverse it, why tax bitcoin at all, considering there are well over 1,000 cryptocurrencies.
Right now the IRS is more like a rogue agency than a responsible one in some ways. Maybe it ought to pay more attention to obeying laws and less time creating and enforcing new ones.