As cryptocurrencies continue to gain mainstream adoption, regulatory oversight has intensified, particularly in cases involving the seizure of digital assets. However, a recent report from the U.S. Treasury Inspector General for Tax Administration (TIGTA) reveals that the Internal Revenue Service’s Criminal Investigation (IRS-CI) division has repeatedly failed to follow proper procedures when handling confiscated cryptocurrencies.
Between December 2023 and January 2025, an evaluation conducted by the watchdog found several deficiencies in the IRS-CI’s methods related to seizing, documenting, and tracking crypto assets, prompting calls for sweeping reforms within the agency.
Lapses in Procedure and Documentation
The report highlights that IRS-CI did not consistently adhere to internal guidelines when executing crypto seizures. In several instances, seizure memorandums were either incomplete or absent altogether, missing critical details such as wallet addresses, amounts seized, and the exact dates of confiscation. These memorandums serve as essential legal records and play a vital role in maintaining transparency and accountability within law enforcement processes.
The watchdog noted that these failures increase the risk of asset mismanagement, potential legal challenges, and inconsistent treatment of digital assets.
Recommended Reforms and Agency Response
In response to the evaluation, the IRS-CI has agreed to adopt several reforms aimed at improving its crypto seizure and management framework. These include:
Mandatory Training: Ensuring that all IRS-CI personnel are adequately trained on seizure memorandum requirements.
Digital Asset Inventory System: Establishing a specialised inventory system capable of accurately tracking seized digital assets, including real-time valuation, wallet addresses, and transaction histories.
Updated Guidelines: Introducing clear internal timelines for preparing seizure memorandums and updating records in the inventory system to enhance transparency and efficiency.
These measures are intended to align IRS practices with modern standards for asset management in a rapidly evolving digital landscape.
A Growing Stockpile of Seized Crypto
The scrutiny around the IRS’s crypto handling comes at a time when the U.S. government holds one of the largest caches of Bitcoin globally. As of March 2025, officials estimate the federal government holds around 200,000 BTC, worth over $21 billion, primarily seized through criminal investigations.
Notable contributions to this stockpile include:
94,000 BTC from the 2016 Bitfinex hack
50,000 BTC linked to the Silk Road marketplace
This digital hoard has raised discussions at the federal level about establishing strategic crypto reserves, with some officials suggesting broader plans for crypto-backed assets and alternative financial instruments.
The Bigger Picture: Crypto and Government Oversight
The TIGTA report underscores a broader concern within U.S. federal agencies: while the government is increasing its involvement with digital assets, the infrastructure and expertise to manage these assets effectively remain underdeveloped. The IRS-CI’s shortcomings highlight the challenges faced by legacy institutions trying to adapt to a decentralised and complex financial technology.
With cryptocurrencies playing an ever-growing role in criminal investigations, tax enforcement, and financial policy, the need for robust and transparent systems within agencies like the IRS has never been more critical. Whether the IRS-CI can adapt and implement reforms effectively remains to be seen, but the pressure to get it right is mounting.
As digital assets become integral to law enforcement and fiscal policy, proper seizure and management protocols are essential to maintaining public trust and institutional integrity. The TIGTA report serves as a wake-up call, not just for the IRS but for all federal agencies navigating the complex intersection of technology, law, and finance.
