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IRS wants to trace cryptocurrency transactions using AI

  • The IRS wants to deploy AI to effectively trace crypto transactions
  • The move is to ensure more tax compliance in the crypto space
  • The IRS is making moves to ensure crypto traders and investors pay their taxes

Tax agencies have been paying more attention to the cryptocurrency sector in recent years. The market has been growing, and people have been making money from the massive rallies. However, some traders and investors don’t report their cryptocurrency transactions to avoid paying taxes. The United States IRS wants to use artificial intelligence to effectively trace cryptocurrency transactions.

IRS to deploy AI to trace crypto transactions

The United States Internal Revenue Service (IRS) plans to deploy artificial intelligence (AI) and machine learning to trace cryptocurrency transactions. This would ensure compliance amongst the market participants.

The IRS revealed this information in an official notice, stating that it would use AI and other technologies to effectively trace crypto transactions. The tax agency listed several ways it could achieve compliance in the market.

It stated that “The IRS utilizes publicly available sources of information regarding cryptocurrency, and an initiative to bring in public, open-source data for necessary deconfliction and analytics could demonstrate value to the Service.”

The agency intends to achieve this by using the data feeds via API calls from current firms with whom the IRS currently has a contractual relationship to determine potential use cases throughout the agency. The source data the IRS could use includes scrapped dark web/clear web information, social media, public records/filings, and technical components like Domain Name Registration (DNS), Geolocational IP data, and more.

Tax agencies struggle with cryptocurrency market participants

Over the past few years, tax agencies in various parts of the world complained that some crypto traders and investors don’t properly report their cryptocurrency transactions or choose not to report them at all.

This has led the tax agencies to devise various means of obtaining customer records and trace their cryptocurrency transactions. One such method is seeking customer information from cryptocurrency exchanges. Last week, the IRS received court orders to obtain customer data from Circle and Kraken exchanges. The tax agency intends to use the customer data to trace cryptocurrency traders and investors that failed to report their earnings in recent years.

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