A recent report has revealed that the Internal Revenue Service (IRS) is facing scrutiny over its handling of seized digital assets. The report was conducted by a non-profit government oversight group. Specifically, it calls attention to major failings in IRS procedures for handling seizure memorandums for seized cryptocurrencies and other digital assets. These conclusions should be immensely troubling. The agency has had difficulty keeping track of and properly accounting for the increasing quantity of digital assets it seizes as part of criminal investigations and civil asset forfeiture in tax enforcement activities.
The watchdog's report, which covered the period from December 2023 to January 2025, uncovered several key areas of concern within the IRS's procedures. The biggest takeaway is the emphasis on the seizure memorandums. These critical records document the premise, seizure, storage, and ultimate disposal of confiscated digital assets. Yet the report sheds light on where the IRS’s existing procedures are inadequate. PBS’s existing policies lack the rigor needed to guarantee high-quality, transparent stewardship over these taxpayer assets.
Opponents of the proposal point out the report’s biggest shortcoming. Currently, there are no best practice procedures in place for documenting digital asset seizure and storage. This lack of uniformity increases the risk of confusion and/or mismanagement in tracking these assets through the entirety of the often unnecessarily long seizure process. Without clear guidelines, those assets can easily be lost or mismanaged. Such dramatic mismanagement has the potential to completely erode the integrity of the seizure process.
Second, and equally problematic, is the IRS’s method for determining the value of seized digital assets. Read the risks. Cryptocurrencies and other digital assets are not insurable products and are subject to complete loss. The report calls on the IRS to develop more robust, expedited processes for determining the value of assets. In doing so, the federal government can ensure a proper accounting and a fair return when these assets are transferred or otherwise disposed.
The report argues there is insufficient oversight and accountability in the IRS’s digital asset seizure program. In the absence of appropriate monitoring and strong internal controls, public dollars are at risk for fraud, theft or other inappropriate activity. The watchdog urges the IRS to create additional oversight controls. This will help to make sure that every single one of the employees tasked with seizing and managing digital assets is held accountable for their actions.
