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Thread: IRS Now Has a Tool to Unmask Bitcoin Tax Cheats

  1. #1

    IRS Now Has a Tool to Unmask Bitcoin Tax Cheats

    http://www.thedailybeast.com/irs-now...oin-tax-cheats

    JOSEPH COX 08.22.17

    Cryptocurrencies were supposed to be largely anonymous. But a software tool gives the IRS has a better chance of identifying people who hide their wealth.

    You can use bitcoin. But you can’t hide from the taxman.

    At least, that’s the hope of the Internal Revenue Service, which has purchased specialist software to track those using bitcoin, according to a contract obtained by The Daily Beast.

    The document highlights how law enforcement isn’t only concerned with criminals accumulating bitcoin from selling drugs or hacking targets, but also those who use the currency to hide wealth or avoid paying taxes.

    The IRS has claimed that only 802 people declared bitcoin losses or profits in 2015; clearly fewer than the actual number of people trading the cryptocurrency—especially as more investors dip into the world of cryptocurrencies, and the value of bitcoin punches past the $4,000 mark. Maybe lots of bitcoin traders didn't realize the government expects to collect tax on their digital earnings, or perhaps some thought they'd be able to get away with stockpiling bitcoin thanks to the perception that the cryptocurrency is largely anonymous.

    “The purpose of this acquisition is… to help us trace the movement of money through the bitcoin economy,” a section of the contract reads. The Daily Beast obtained the document through the Freedom of Information Act.

    The contractor in this case is Chainalysis, a startup offering its “Reactor” tool to visualize, track, and analyze bitcoin transactions. Chainalysis’ users include law enforcement agencies, banks, and regulatory entities.

    The software can follow bitcoin as it moves from one wallet to another, and eventually to an exchange where the bitcoin user will likely cash out into dollars or another currency. This is the point law enforcement could issue a subpoena to the exchange and figure out who is really behind the bitcoin.

    Jonathan Levin, a co-founder of Chainalysis, told The Daily Beast in an email, “All government agencies who have traditionally needed to 'follow the money' now need to also be able to follow digital currencies.”

    “This is necessary to identify and obtain evidence on individuals using bitcoin to either launder money or conceal income as part of tax fraud or other Federal crimes,” the IRS contract notes. The document also mentions the IRS’ use of World Check, a database on companies, organizations and businesses designed to provide insight into financial crime and who might be behind it. (World Check does have issues though, including sometimes using Wikipedia as a source).

    Public records show the IRS has paid Chainalysis over $88,700 since 2015 for its services.

    Of course, just because the IRS has an easier time of tracing bitcoin today doesn’t mean that criminals won’t adapt.

    “Those who are actively seeking to avoid tax, especially large amounts of tax, will move onto the next cryptocurrency that is not susceptible to the current tracking tools,” Alan Woodward, a computer science professor at the University of Surrey with a focus on cybercrime and cryptography told The Daily Beast.

    Some criminals already use alternatives such as Zcash or Monero, both of which provide more privacy features over bitcoin.

    The IRS acknowledged a request for comment but did not provide a response.

    The IRS has approached bitcoin tax evasion in some more controversial ways in the past. In a legal order filed last November the IRS demanded the identities of all US users of the bitcoin exchange Coinbase over a three year period. The case is ongoing.




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  3. #2
    government moving toward a digital currency so they can track every dime? nah, can't be.

  4. #3
    Quote Originally Posted by angelatc View Post
    government moving toward a digital currency so they can track every dime? nah, can't be.
    If we wait for government to make and implement their own pure digital currency, they won't have to piece the info togethe, it'll be integrated as a feature. Pray Bitcoin survives and thrives, the alternative will be designed to spy.

  5. #4
    I'm not a bitcoin user so I pose this question in ignorance. What's to stop me from having, say, 1000 digital wallets and cashing them out on different exchanges? I'm guess then subpoenas aren't triggered for small transactions, or else the gubmit would have to subpoena everything.
    9/11 Thermate experiments

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    "I am so %^&*^ sick of this cult of Ron Paul. The Paulites. What is with these %^&*^ people? Why are there so many of them?" YouTube rant by "TheAmazingAtheist"

    "We as a country have lost faith and confidence in freedom." -- Ron Paul

    "It can be a challenge to follow the pronouncements of President Trump, as he often seems to change his position on any number of items from week to week, or from day to day, or even from minute to minute." -- Ron Paul
    Quote Originally Posted by Brian4Liberty View Post
    The road to hell is paved with good intentions. No need to make it a superhighway.
    Quote Originally Posted by osan View Post
    The only way I see Trump as likely to affect any real change would be through martial law, and that has zero chances of success without strong buy-in by the JCS at the very minimum.

  6. #5
    Nothing electronic is safe or secure.

    Ever.

  7. #6
    Quote Originally Posted by jmdrake View Post
    I'm not a bitcoin user so I pose this question in ignorance. What's to stop me from having, say, 1000 digital wallets and cashing them out on different exchanges? I'm guess then subpoenas aren't triggered for small transactions, or else the gubmit would have to subpoena everything.
    the feds got the records for coinbase, which is a USD/Bitcoin exchange. It's the converting to US Dollars that really has the feds interested. There are very few places you can convert back to USD. Once it hits the banking system it doesn't matter how many wallets you may have had.

    Now if you never leave Bitcoin and buy goods or services with bitcoin then it's another matter. I believe then you're supposed to voluntarily tell the IRS about things.
    “…let us teach them that all who draw breath are of equal worth, and that those who seek to press heel upon the throat of liberty, will fall to the cry of FREEDOM!!!” – Spartacus, War of the Damned

    BTC: 1AFbCLYU3G1dkbsSJnk3spWeEwpqYVC2Pq

  8. #7
    $#@! the gov. THey have no way of tracking anything. There are too many ways around them.

  9. #8
    Quote Originally Posted by Anti Federalist View Post
    Nothing electronic is safe or secure.

    Ever.
    Neither is anything physical. It's not like the police don't raid, and / or seize property regularly. Gold was made virtually useless in the US for decades via a stroke of the pen, and they would confiscate it if they found out about it, and they did.

    You could "hide" all your bitcoin if you wanted to, it's just most won't jump the hoops to do it, so they can track it.

    You could........ mine bitcoin, you can still mine bitcoin via pools with any made up username you wish, and some pools don't even require a username, or you could buy from local bitcoins, just use a fake name if they even ask.

    You could sell bitcoins for "cash" via local bitcoins, or buy gift cards online, they don't enforce strick identity verification.

    Anyway, it'd be very difficult to transact 100's of thousands in bitcoin outside like coinbase though. But 1000's of dollars worth a year wouldn't be hard.



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  11. #9
    How far back can they track in terms of years?
    “…I believe that at this point in history, the greatest danger to our freedom and way of life comes from the reasonable fear of omniscient State powers kept in check by nothing more than policy documents.”

  12. #10
    Quote Originally Posted by kfarnan View Post
    $#@! the gov. THey have no way of tracking anything. There are too many ways around them.
    What are you talking about? It only took them 8 years to have a slim chance of seeing who last touched a bitcoin! There's no place safe anymore for hardened criminals like tax evaders!
    There are no crimes against people.
    There are only crimes against the state.
    And the state will never, ever choose to hold accountable its agents, because a thing can not commit a crime against itself.

  13. #11
    Quote Originally Posted by DGambler View Post
    How far back can they track in terms of years?
    I think it's clear from the article that all the software does is show who exchanged it for another currency, and they're hyping that up to mean absolute traceability.
    I don't know much about BTC but I do know that miners are trying to resolve transactions, meaning that the identity of which wallet has which bitcoin has technically been publicly available from the very start.
    All the software seems to be doing is making it possible to trace that some bitcoin that is getting exchanged belonged to a wallet that did business with other wallets.
    I'm not sure what that's supposed to say - I mean, individual coins aren't tracked like this. It seems like they'll be able to tell that money changed hands, but not what for, and ultimately they won't be able to tell who any of the previous wallets belong to.
    There are no crimes against people.
    There are only crimes against the state.
    And the state will never, ever choose to hold accountable its agents, because a thing can not commit a crime against itself.

  14. #12
    Quote Originally Posted by DGambler View Post
    How far back can they track in terms of years?
    They can go back to block 1. All they are doing it appears to me is.....

    1. IF you post your BTC address on a website, with all the goobermint spying and working with ISP's they can say oh that is DGAMBLER aka Thomas Morrisey per the ISP billing for that address IP address. Now, it's not 100% proof though. Someone could be stealing your wifi, or it could be your kid, or family member but they are close anyway.

    2. If you input your identity at coinbase or most exchanges, then you deposit coins to that exchange using that account, they will then track back all the transactions that touched that address, and "associate" it with you.

    3. If you buy something from a retailer that accepts bitcoin and also has your identity on file, which 99% of the time they'll at least have your real street address, again, they'll say oh that address is Thomas DickGobbler, and it looks like he's been receiving bitcoin to that address since 2014,etc.........

    So, they are simply reconstructing via users themselves "leaking" information.

    If you want to be super paranoid, you should use lots of different addresses and keep them isolated from each other, as in don't send coins from Wallet A you own to Wallet B you own that also has coins, as then the coins in both walllets will be associated with each other.

    Don't use bitcoins any place that requires your real identity.

    Don't post any BTC address anywhere that you don't want everyone knowing about.

    Or you could just pay the taxes... If you buy the coins with dollars then your cost basis is that dollar amount and if you held the bitcoin longer than a year you'd owe like 15 percent on the gains.
    Last edited by RonPaulIsGreat; 08-23-2017 at 10:46 AM.

  15. #13
    Quote Originally Posted by kpitcher View Post
    the feds got the records for coinbase, which is a USD/Bitcoin exchange. It's the converting to US Dollars that really has the feds interested. There are very few places you can convert back to USD. Once it hits the banking system it doesn't matter how many wallets you may have had.

    Now if you never leave Bitcoin and buy goods or services with bitcoin then it's another matter. I believe then you're supposed to voluntarily tell the IRS about things.
    So if I buy gold jewlery with Bitcoin and sell it at a pawn shop.....?
    9/11 Thermate experiments

    Winston Churchhill on why the U.S. should have stayed OUT of World War I

    "I am so %^&*^ sick of this cult of Ron Paul. The Paulites. What is with these %^&*^ people? Why are there so many of them?" YouTube rant by "TheAmazingAtheist"

    "We as a country have lost faith and confidence in freedom." -- Ron Paul

    "It can be a challenge to follow the pronouncements of President Trump, as he often seems to change his position on any number of items from week to week, or from day to day, or even from minute to minute." -- Ron Paul
    Quote Originally Posted by Brian4Liberty View Post
    The road to hell is paved with good intentions. No need to make it a superhighway.
    Quote Originally Posted by osan View Post
    The only way I see Trump as likely to affect any real change would be through martial law, and that has zero chances of success without strong buy-in by the JCS at the very minimum.

  16. #14
    Quote Originally Posted by jmdrake View Post
    So if I buy gold jewlery with Bitcoin and sell it at a pawn shop.....?
    unless the seller rats you out to the irs, even then they couldn't track you.

  17. #15
    Quote Originally Posted by jmdrake View Post
    So if I buy gold jewlery with Bitcoin and sell it at a pawn shop.....?
    Those who are opposed to bitcoin, in some cases are insightful but not incredibly imaginative
    "He's talkin' to his gut like it's a person!!" -me
    "dumpster diving isn't professional." - angelatc
    "You don't need a medical degree to spot obvious bullshit, that's actually a separate skill." -Scott Adams
    "When you are divided, and angry, and controlled, you target those 'different' from you, not those responsible [controllers]" -Q

    "Each of us must choose which course of action we should take: education, conventional political action, or even peaceful civil disobedience to bring about necessary changes. But let it not be said that we did nothing." - Ron Paul

    "Paul said "the wave of the future" is a coalition of anti-authoritarian progressive Democrats and libertarian Republicans in Congress opposed to domestic surveillance, opposed to starting new wars and in favor of ending the so-called War on Drugs."

  18. #16
    Answer is Monero.. Monero is the perfect Bitcoin mixer.



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  20. #17
    //
    "He's talkin' to his gut like it's a person!!" -me
    "dumpster diving isn't professional." - angelatc
    "You don't need a medical degree to spot obvious bullshit, that's actually a separate skill." -Scott Adams
    "When you are divided, and angry, and controlled, you target those 'different' from you, not those responsible [controllers]" -Q

    "Each of us must choose which course of action we should take: education, conventional political action, or even peaceful civil disobedience to bring about necessary changes. But let it not be said that we did nothing." - Ron Paul

    "Paul said "the wave of the future" is a coalition of anti-authoritarian progressive Democrats and libertarian Republicans in Congress opposed to domestic surveillance, opposed to starting new wars and in favor of ending the so-called War on Drugs."



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