WC might have been critical of the Internal Revenue Service from time to time. WC might have suggested they were vengeful and incompetent.
Partly that’s because at one point in WC’s legal career, WC developed a specialized practice in discharging what is supposed to be undischargeable federal income taxes. Ordinarily, if you file bankruptcy you emerge still owing the Feds any unpaid taxes. But at one time there was a loophole premised on the IRS’s incompetence. It worked a treat. WC made several million dollars in tax debt disappear for a stream of clients. The IRS wasn’t very happy about that, and for three years in a row WC had his personal tax return audited. It was expensive – WC wasn’t about to go to an audit without a CPA along – and time-consuming. And the IRS never found a thing wrong. The auditors told WC, with a straight face, there was no connection.
Then there’s the recent, more generalized incompetence. As just one example, WC is still waiting on his 2019 federal income tax refund. This past Fall, WC got a love letter from the IRS, telling him that if he failed to file his 2019 return soon, WC would forfeit the amount of the refund. WC had filed, of course, had done so digitally and had the receipt to prove it. WC sent off via U.S. Mail a new copy of the tax return, a copy of the receipt from filing 1.5 years earlier, and a reasonably polite letter, asking how the IRS knew the exact amount of WC’s refund if it didn’t have the tax return already. WC hasn’t heard back. Or received his missing refund.
But recently, albeit in an unrelated area, the IRS has demonstrated impressive competence.
In a show of affability, WC will report the good with the bad.1
You may have heard that the U.S. Department of Justice recently busted Ilya Lichtenstein and Heather Morgan for laundering a record $4.5 billion worth of stolen cryptocurrency.2 That’s an impressive number, WC’s readers will agree. What’s more impressive is that the IRS was the agency that traced the stolen funds through more than a dozen money-laundering steps designed to make it impossible to trace the thieves or their stolen goods.
The hiding and obfuscation techniques included the couple’s alleged use of “chain-hopping” – transferring funds from one cryptocurrency to another to make them more difficult to follow. The couple exchanged bitcoins for “privacy coins” like Monero and Dash, both designed to foil blockchain analysis. And Licenstein and Morgan also moved the stolen wealth through the Alphabay dark web market—the biggest of its kind at the time.
The IRS’s Criminal Investigations Divisions seems to have traced all of the 120,000 bitcoins stolen from the cryptocurrency exchange Bitfinex in 2016. Some of the tracing has cryptocurrency experts talking to themselves. Monero is a cryptocurrency explicitly designed to obfuscate the trails of funds within its blockchain by mixing up the payments of multiple monero users using both real transactions and artificially generated ones and concealing their value.
In a 20-page “statement of facts” filed with the USDOJ’s criminal complaint against Lichtenstein and Morgan on Tuesday, the IRS has detailed the winding and tangled routes the couple allegedly took to launder their stolen goods. WC wants to be clear about this: the IRS traced the bitcoins – themselves designed to be hard to trace – through at least a dozen transactions intended to be impossible to trace. That’s impressive, and WC doesn’t mind praising the IRS-CI for an excellent effort.
Now if the IRS would only put those highly effective agents on getting WC his long-delayed refund.
1 Not that WC really expects the IRS to treat him any better – or more competently – as a result.
2 Many of the defendants’ friends are reportedly shocked (paywalled) that the defendants pulled off this theft. There’s a strong tone of “They’re not smart enough.” Well, yeah. Of course, these are only allegations until the jury returns a verdict. Or they cop a plea.
Wickersham's Conscience 
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