USA: IRS Uses AI to Detect Tax Fraud with Cryptocurrencies

The Treasury implements AI to improve the supervision of cryptocurrency transactions. The draft Form 1099-DA represents an important step in the implementation of crypto taxation. A House of Representatives committee is investigating the IRS’s use of artificial intelligence.

The Internal Revenue Service (IRS) is improving its oversight of cryptocurrency transactions through the use of artificial intelligence (AI).

In a groundbreaking move, the IRS released a draft Form 1099-DA for Digital Assets from Broker Transactions, marking a significant step forward in cryptocurrency tax compliance enforcement.

Concerns Mount as IRS Employs AI

Said development aligns with the agency’s proposed regulations introduced last year, aimed at refining the reporting of digital asset sales and exchanges by brokers.

The regulations stipulate that, starting January 1, 2025, exchanges, including digital asset trading platforms and payment processors, must report these transactions to the Treasury using the recently presented form.

Additionally, the reporting requirements extend to real estate transactions, and relevant entities are expected to disclose digital asset provisions and fair market values ​​in real estate transactions starting January 1, 2025.

In a separate but related revelation, the House of Representatives Committee has launched an investigation into the IRS’s use of AI to examine Americans’ financial data, expressing concerns about potential civil liberties infringements.

The Committee, led by Chairman Jim Jordan (R-Ohio) and Rep. Harriet Hageman (R-Wyo.), investigates allegations that the IRS uses AI without proper legal procedures to monitor private transactions and financial accounts.

However, recent reports charge that the IRS’s use of AI has also included active surveillance of bank accounts of American citizens en masse and without legal process. A video obtained by an investigative media outlet appears to capture Alex Mena, an IRS official who works in the agency’s Criminal Investigations Unit.

They admitted that the IRS has ‘a new system’ that uses AI to locate ‘possible abusers’ by examining all returns, bank statements and related financial information to detect ‘possible fraud.’

New Measures to be Taken by the IRS

If the IRS perceives that there are citizens committing any of these crimes (tax evasion, not declaring taxes or profits and tax fraud) the intervention of Justice is immediately requested and there is talk of a prison sentence. There are different levels of sanctions, such as fines, prison sentences, restitution, disqualification and asset seizure, whose levels of punishment become increasingly harder.

The US will Heed Complaints against Cryptocurrency Fraud

The investigation follows reports of IRS officials using AI. In particular, to locate taxpayers’ bank accounts without a court order. These allegations, uncovered by investigative journalism, suggest that the IRS has widespread access to banking data.

Regarding this issue, on April 25, Wall Street Silver posted the following on X:

“ALERT: IRS Using AI to Target Middle Class.

What we have learned is that the IRS, in fact, has been using AI to access bank accounts of American citizens. Without any kind of search warrant.

This was something that was just discovered by an undercover journalist. What they found is that the IRS has claimed that they have access to every single person’s bank account.”

This raises questions about privacy and the extent of government oversight. Accordingly, the IRS’s foray into AI-powered enforcement illustrates the agency’s commitment. In particular, to modernize its approach to tax collection and maintain the integrity of the financial system. However, the balance between technological advancement and the protection of individual rights remains a critical dialogue in this evolving narrative.

By Leonardo Perez