Crypto Asset Taxation: The 7 Pillars of Highly Effective Tax Authorities in the Digital Age

Key takeaways

• Building crypto competency is essential: Tax agencies must upskill their workforce across departments with foundational blockchain training and crypto-specific compliance education to ensure effective oversight and taxpayer engagement.
• Data is the backbone of modern tax enforcement: Robust systems for collecting, ingesting, and structuring both on-chain and off-chain crypto data enable authorities to triage cases, verify taxpayer disclosures, and uncover noncompliance at scale.
• Automation unlocks enforcement efficiency: Integrating automation and blockchain intelligence tools allows tax agencies to analyze high-volume crypto data efficiently and power enforcement actions — even with limited resources.
• Risk-based case modeling boosts precision: Tax agencies can modernize enforcement by leveraging data to flag high-risk behavior and prioritize crypto-related tax cases, streamlining audits and optimizing limited examiner capacity.
• End-to-end visibility is critical for collections: Blockchain intelligence allows agencies to monitor taxpayer wallets in real-time, trace asset movements across chains, and execute rapid seizures — helping close the loop on crypto tax compliance.

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Introduction

The rapid rise of digital assets has reshaped the financial landscape, creating both unprecedented opportunities and complex challenges for tax authorities. Crypto now moves across borders at internet speed, often outside traditional reporting channels, eroding the visibility tax systems rely on to safeguard compliance. Unlike conventional finance, where regulated intermediaries provide a clear trail, crypto’s pseudonymous and decentralized nature opens the door to underreporting, tax evasion, and widening revenue gaps.

For governments, the issue is no longer whether crypto adoption is significant — it is how to ensure that tax frameworks keep pace with a market that is constantly evolving. The stakes are high: billions in potential revenue, fairness across taxpayers, and public trust in the integrity of the tax system.

This paper lays out a framework for how tax agencies can meet this moment, outlining seven core pillars that define an effective authority in the crypto era.

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<span class="premium-content_chapter">PILLAR 1</span>

Building crypto competency across the workforce

Crypto is rapidly evolving from a niche investment option to a mainstream asset class. According to TRM’s 2025 Crypto Adoption and Stablecoin Usage Report, global retail-led adoption accelerated in 2025, as retail transactions rose by more than 125% between January – September 2024 and during the same period in 2025.

As crypto has matured, it has also ushered in diverse applications and use cases beyond mere speculative trading — including services like custody, tokenized assets and funds, remittances, and everyday payments — fostering a complex ecosystem where both retail and institutional actors actively participate. 

But this shift has also increased the ways in which taxpayers trigger taxable events and has intensified tax compliance risks — ranging from uncertainty or a lack of knowledge of tax reporting requirements to intentional, deliberate underreporting and tax evasion.

How the complexity of crypto can inadvertently increase noncompliance 

Consider, for example, the application of crypto as a payment mechanism. The value of payments received or sent may represent income or tax deductions in a traditional sense — but the use of crypto assets as the method of value transfer adds an additional layer of complexity. Here, the receipt and disposal of assets need to be tracked for separate tax reporting requirements relating to the acquisition and disposition of property. 

This increased complexity can drive up noncompliance for taxpayers — who may be unclear on how to report accurately. And it can create opportunities for bad actors — who use this complexity and the pseudonymous nature of crypto assets to introduce taxable on-chain events and circumvent tax liabilities.

Collectively, blockchain intelligence and tax software specifically designed to handle crypto use cases can help tax authorities overcome these obstacles. Together, they help enable effective tracking of on-chain activity, assets, taxable events, and potential fraud — ultimately bridging the knowledge gap and supporting tax authorities in ensuring compliance.

Why tax authorities need to be equipped to handle crypto with confidence

Even in the largest G20 economies, tax authorities often find themselves under-resourced — lacking the funding, personnel, and technology to effectively serve taxpayers and effectively enforce tax laws. Yet even if tax authorities are significantly limited in these kinds of resources, they can still begin establishing the organizational structures, support, and training programs necessary to develop their teams’ knowledge and capacity to understand crypto. 

The need for crypto asset and blockchain technology knowledge is not just limited to a select few overseeing tax examinations involving crypto assets. It extends to almost all personnel, departments, and roles — including compliance specialists, counsel, data scientists, engineers, research analysts, investigators, and front-line customer service providers — thanks to crypto’s growing pervasiveness. And as crypto continues to integrate into daily financial transactions, issues relating to digital assets are likely to arise in new ways that won’t be limited to specialized groups of subject matter experts alone.

Learning objectives for increasing crypto competency

To build the in-house expertise needed to ensure compliance in the digital asset age, tax authorities must invest in specialized training and continuous enablement. This training may involve a combination of role-based learning pathways and scalable hybrid learning models — blending in-person and virtual sessions. Self-paced training (and re-training) programs should cover topics like:

• Blockchain technology fundamentals
• Blockchain analytics
• The different ways individuals and businesses can derive wealth from the crypto economy
• Emerging trends in tax evasion typologies

Pairing role-specific training with operational objectives ensures that personnel across various departments receive targeted knowledge and practical skills relevant to their responsibilities. Here is an outline of the foundational skills, learning objectives, and focus areas to consider for various common roles within a tax agency.

The customer service aspect of a tax authority’s mandate, in particular, is critical — but can sometimes be overlooked. Serving taxpayers with the right level of expertise and responsiveness with respect to an emerging asset and technology increases cross-functional competency and increases tax agency effectiveness in two key ways:

1. It serves taxpayers by boosting voluntary compliance
2. It creates opportunities to achieve robust enforcement through models designed to identify tax noncompliance actors, triage taxpayer filings, and investigate the most complicated tax issues

Establishing a center of excellence to share expertise internally

In addition to workforce training, tax authorities should consider establishing an internal center of excellence (CoE) — made up of specialists within their organization — to serve as a crypto knowledge hub. These internal organizations can be effective for developing and sharing expertise within the tax authority, as well with other external teams — particularly as the ecosystem and assets continue to evolve and training runs the risk of becoming stale. 

CoEs not only enhance best practices, knowledge, and information sharing, but can also foster agency-wide consistency and standardization on complicated topics where examiners might otherwise pursue differing approaches (e.g. analyzing indirect exposure on-chain or calculating asset prices for activities stemming from smart contract activity).

For instance, as was outlined in a recent US Treasury report on virtual currency tax compliance enforcement, in 2022, “the IRS recognized that a Service-wide approach was needed to address digital assets and created the Digital Asset Advisory Committee” to serve as a centralized group to collaborate, plan, and share information across the agency. The IRS further developed a Digital Asset Initiative to set priorities and objectives in order to increase voluntary compliance and educate its taxpayers. 

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<span class="premium-content_chapter">PILLAR 2</span>

Data collection and ingestion

Crypto assets are the new frontier of taxation — but tax authorities around the world are just beginning to operationalize and scale crypto asset programs focused on increasing voluntary compliance and identifying noncompliance. A core requirement to make these programs successful? The ability to access and analyze relevant data at scale.

Historically, transactional data for crypto trades and transfers may have been challenging to obtain. In some jurisdictions, exchanges may not have had a regulatory obligation to report customer transactions. Tax authorities may not have had the expertise to analyze the data, even if it was collected. And transactions in unhosted wallets may not have been collected at all. 

Today, that data is more readily available, and tax authorities must adapt their data collection processes to account for the complexities and nuances of the crypto ecosystem. This includes not only gathering data, but also ensuring it is structured and accessible in ways that allow for effective case triage and investigation. 

As crypto transactions inherently generate vast amounts of digital records, the challenge lies in identifying the most relevant data points — such as wallet addresses and transaction hashes — and integrating them into workflows that enable precise and efficient tax enforcement. 

Understanding how tax data differs across geographies

Countries may differ in their approach to the specific data they collect and how they aggregate it. The collected data may range from taxpayer disclosures, to third-party reporting received from entities like Virtual Asset Service Providers (VASPs), to industry notice letters. 

One of the key issues for tax authorities is considering whether data collection processes will include the request for crypto identifiers — for example, wallet addresses and transaction hashes. These identifiers play a key role in unlocking the ability to gather additional insights from public blockchain data. Early work by tax authorities in crypto assets has demonstrated that a taxpayer’s own reporting about transactions and tax liabilities alone may not be enough to identify and verify issues of underreporting or noncompliance.

Crypto identifiers help agencies answer key questions that are necessary for a complete assessment, including: 

• Is this taxpayer trading at multiple exchanges and services? 
• Is this taxpayer disclosing all of the crypto assets they are transacting in? 
• Is this taxpayer engaging in behaviors that obfuscate their tax liabilities? 

Data acceleration from information-sharing regimes

Another trend to watch closely that could impact the amount of available data is the implementation of various automated information-sharing regimes. These regimes will provide tax authorities with previously unavailable off-chain data — that is, data relating to transactions occurring through custodians inside private wallets held on a blockchain. 

For instance, in October 2022, the OECD released guidance on its Crypto Asset Reporting Framework (“CARF”), which is largely based on existing Common Reporting Standards (“CRS”). Like the CRS, CARF is designed to increase transparency in crypto asset transactions and enable automatic information-sharing among the jurisdictions of resident taxpayers. In the European Union, an eighth amendment to the Directive on Administrative Cooperation (“DAC8”) would require crypto asset service providers to report certain information about their customers to participating tax authorities.­­­

John Doe summons

One unique way the US Internal Revenue Service (IRS) has collected relevant data from third parties is through a procedural tool known as a “John Doe summons.”

In 2016, the IRS used this tool to collect information from the cryptocurrency exchange Coinbase. The summons sought information about US taxpayers who had conducted transactions in virtual currency through Coinbase over a certain number of years. A subset of that taxpayer group (approximately 58%) had realized more than USD 100 million of gross proceeds from the sale of crypto during the requested years. 

The ultimate output of the summons included a bulk data set of wallet address, transaction IDs, and additional identifying information. By obtaining this information, the IRS was able to identify individuals who failed to report cryptocurrency-related income, and provided the agency with avenues to collect additional tax revenue that otherwise would have been missed. 

The IRS has since replicated this approach with summonses to other US-based exchanges, such as Circle and Kraken. Other tax authorities, like the Canadian Revenue Authority and the UK’s HMRC have used similar mechanisms to request taxpayer information from crypto exchanges.

Regardless of how traditional fiat and crypto asset data is obtained, tax authorities will have to develop ways to connect existing databases (and information about each taxpayer) with new crypto-specific data points — including crypto asset identifiers such as wallet addresses and/or transaction hashes. Given the rising scale of crypto asset adoption and use, this is a significant data challenge involving sophisticated correlation and analytics — albeit one that has the potential to accelerate the goals of collecting the right tax and closing the tax gap.

Partner spotlight: TaxBit

TaxBit, a TRM Labs partner, plays a key role in solving this data challenge. They offer robust tools for automated data processing, on- and off-chain data aggregation, and specialized accounting solutions for government operations and tracking — enabling tax authorities to scale their operations with precision and efficiency. As crypto adoption continues to grow, partnerships with innovative providers like TaxBit will be critical for ensuring fair and effective tax administration. 

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<span class="premium-content_chapter">PILLAR 3</span>

Enhancing automation and digitization

Once a tax authority has aggregated crypto data from a variety of sources, the challenge becomes how to effectively act on that immense collection of data points — which could comprise thousands or millions of records and taxpayer profiles and transactions. Although there are many tax authorities worldwide with less sophisticated technological capabilities, those agencies can still achieve effective use of data through a “crawl, walk, run” approach to using blockchain intelligence and automation. 

The silver lining for many tax authorities is that they have already begun modernizing their technology infrastructure with automation and digital transformation initiatives, irrespective of crypto — enabling them to become more efficient with resources, enable better customer service, and enhance enforcement capabilities. 

For instance, the IRS has seen tremendous success through its return-matching process known as the Automated Under Reporter program. This system matches amounts shown on tax returns to information reported by third parties, generating compliance inquiries where potential discrepancies are identified in reported income. Since its inception, the IRS has continually expanded the variety of information that can be matched, and upscaled system accuracy through robust parsing of data. In 2022 alone, it resolved over 1.5 million inquiries, resulting in more than USD 8.7 billion in additional tax assessments.

The Australian Taxation Office has also implemented automated systems across a variety of programs — including specific data-matching processes that identify businesses that may not be reporting all their income, are operating outside of the system, or aren’t lodging any returns. Similarly, the Canadian Revenue Agency has implemented AI algorithms to help identify anomalies and potential indicators of offshore tax evasion among multinational enterprises and high-net-worth individuals.

Aggregating on- and off-chain data

Due to the nature of blockchains, tax authorities need to work with two buckets of information relating to crypto assets: private off-chain data and public on-chain data. 

Tax authorities are adopting various reporting rules that require service providers within the industry to report information about customer crypto activity to tax authorities. This information, however, will only ever show a limited picture of an individual user’s activity. The remainder of that activity happens in peer-to-peer, non-intermediated, transactions. These on-chain transactions are publicly available and can be used by tax authorities to gain a more complete picture of an individual’s economic activity. 

Appropriately implemented, blockchain intelligence augments and enhances existing automated processes — so that tax authorities can begin analyzing noncompliance with crypto assets at scale and build out more holistic pictures of individual’s wealth portfolios. The assembly of both off-chain data (received by tax authorities from various custodians and intermediaries) with on-chain data is the key to success.

Efficiency and scaling 

Currently, initial case identification or development for crypto assets often sits with individuals manually reviewing information. While at times useful, manual reviews of wallet addresses and tracing to identify taxable events one-by-one ultimately won’t scale on a national level. 

Consider, for example, a tax examiner who uncovers a private wallet address in the course of collecting documentation leading up to a live meeting for an audit.

This one data point introduces several questions and inefficiency pitfalls: 

• Are there any assets in this wallet?
• Is the value high enough that it’s worth a referral to an expert?
• If the expert has a backlog of referrals piling up, how will they know if this one is worth prioritizing?

In any single case, the following are all crucial data points for a tax authority:

• A wallet address’ point-in-time balance
• The address’ transactional count
• The assets the address holds
• The price of those assets when transacted in
• The potential trading dates
• Evidence of additional sources of income

Relying on individual agents or examiners to manually uncover this information — often during an existing examination or as a one-off development project — is inefficient, resource intensive, and unsustainable. 

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<span class="premium-content_chapter">PILLAR 4</span>

Case selection modeling 

Many tax authorities around the globe struggle with limited resources. They need to deploy these resources as efficiently as possible (particularly when it comes to enforcement) to best ensure compliance, maximize revenue collection, and deter tax evasion — especially in the rapidly evolving landscape of digital assets and decentralized finance.

Tax authorities should seek to modernize their examination and enforcement capabilities by identifying various risk levels of non-compliance, then use that information to allocate investigative resources — in other words, case selection modeling.

The role of blockchain intelligence in case selection modeling

Using blockchain analytics, the objective of case selection modeling is to design a centralized risk-based framework and methodology to identify subsets of taxpayers exhibiting behaviors or signals indicative of tax noncompliance, aggressive avoidance, or tax fraud.

A case selection model based on both data centralization and data-driven analytics can enable tax authorities to create a process that optimizes both efficiency and consistency in the use of audit and examination resources. This model also allows a tax authority to prioritize the highest risk cases and better understand the margin of error associated with each risk score. 

Understanding the expected risk — as well as the variance on that expected risk — are key factors that tax authorities need to consider when determining whether a case should be put in a criminal or civil investigation workstream, as well as the type of workstream involved. The IRS, Canadian Revenue Authority, and others have been some of the first tax authorities to conceptualize this notion and put it into practice.

Tax authorities across the globe possess varying degrees of technological capacity, which may create reservations with implementing measures like case selection monitoring. However, these frameworks don’t need to be overly complicated, and may take many different forms based on the sophistication of the tax authority’s existing capabilities and processes. 

For example, a tax authority may have a relatively small number of wallet addresses obtained from an exchange, whistleblower, or investigation that originated in another law enforcement department. With relative ease, blockchain intelligence tools like those provided by TRM Labs can perform bulk data analyses on those addresses to determine how much value sits in each one, which exchanges those addresses are connected to, and whether any of them have links to illicit finance categories such as darknet marketplaces, sanctioned entities, gambling establishments, or cybercriminal networks. 

These enriched data points on crypto wallets and transactions enable tax authorities to quickly prioritize potential cases without exponentially increasing headcount. Ultimately, tax authorities can implement a framework that aligns with the level of data available and depth of detail needed. When coupled with additional data points tax authorities already possess, these frameworks can become even more dynamic, ingesting many complex inputs from a variety of sources and scaling the analysis across many thousands of addresses. 

Using risk profiles to prioritize case work

In an ideal scenario, tax authorities can use the available data to design several high-risk behavioral profiles for noncompliance — depending on specific tax code parameters, available data, and targeted compliance needs.

One type of risk profile that may align with underreporting crypto asset income in the US may include a common set of factors or patterns, surfaced through multiple data sources. For instance:

• Taxpayer A reports gains and losses from a few crypto assets traded on one specific exchange through a Form 8949
• Taxpayer A’s personal identifying information also matches the records received from a separate exchange via third-party reporting, and those records indicate undisclosed deposit and withdrawal activity to a separate unhosted wallet address
• That unhosted wallet address includes activity for the same tax year, involving a larger set of assets than what was disclosed in the Form 8949 filing, as well as information indicating activity at other undisclosed crypto exchanges, DeFi protocols, and mining pools 

Using available data, a tax authority can flag this taxpayer for possible further examination, along with other similar taxpayers that exhibit the same structural pattern. Additional data elements relating to the value involved or whether the taxpayer engaged with high-risk wallets on-chain can then be incorporated to determine what type of compliance workstream the taxpayer should be routed through: civil or criminal. 

Importantly, due to the nature of blockchain data being open and public, blockchain intelligence tools provide a unique way to enable a kind of on-chain fingerprinting of transactional patterns that may be indicative of noncompliance. And the case selection modeling process is the fulcrum to identify these compliance cases, now ready to be assigned out. These patterns can also serve as a feedback loop for broadening taxpayer education and industry engagement in crypto, where patterns or trends of noncompliance begin to reveal themselves at scale.

Ultimately, the output of any case selection design will ideally provide tax authorities with a manageable number of cases — as well as a triage process ready for referral or further preparation for audits, notice letters, or other forms of civil or criminal proceedings.

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<span class="premium-content_chapter">PILLAR 5</span>

Case building

Effective case building is essential for tax authorities to streamline investigations, reduce cycle times, and enhance productivity. Once cases are selected using a structured modeling process, tax authorities can enrich case files with critical data to support examiners, investigators, and inspectors. This step — scaling your crypto tax operations through case building — ensures that investigations are well-informed and actionable.

Leveraging blockchain intelligence and data aggregation

Regardless of the framework used, blockchain intelligence and data aggregation tools are key to developing robust cases. These tools enable tax authorities to analyze crypto transactions, identify potential risks, and gather key insights like:

• A complete portfolio balance over a given time period
• Full transactional history, which may reveal asset dispositions (e.g. trades with a decentralized exchange or purchases through a non-fungible token (NFT) auction house) and crypto-based income (e.g. AirDrops, mining, staking)
• Direct and indirect connections to Virtual Asset Service Providers (VASPs), which may surface previously unreported accounts
• Direct and indirect connections to other unhosted wallets belonging to the taxpayer
• Direct and indirect connections to potential illicit sources of wealth (e.g. scams, hacks, darknet marketplaces)
• Signatures® — on-chain fingerprints of transactional activity — which could surface evidence of money laundering, tax evasion, or fraud

Case building can also include the identification and inclusion of additional wallet address data from blockchain intelligence providers that would help complete the holistic picture necessary for the audit, and allow for a more manual process to evaluate the possible instances of indirect links and risks.

Integrating on- and off-chain data

Since taxpayer activity extends beyond blockchain transactions, integrating off-chain data is crucial. By combining blockchain intelligence with existing tax records and third-party reports, tax authorities can develop a holistic view of taxpayer activity and uncover:

• Pro forma tax calculations
• Investigative leads to determine what data is missing and where that data may be located
• A unified view of the individual’s activity across all types of assets
• Possible flags for areas requiring specific follow up 

Ultimately, by leveraging blockchain intelligence and data aggregation tools, tax authorities can develop rich data environments for an investigator — complete with transaction timestamps, a detailed accounting of the activity history, pro forma tax calculations, and investigative leads. Here, a tax authority may consider a variety of technical tools, including API feeds and/or direct software licenses for these types of technology services. Collectively, this enables tax authorities to be more targeted and efficient in what would otherwise be an overly complex and manual analysis.

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<span class="premium-content_chapter">PILLAR 6</span>

Robust examinations

You have the framework for data-driven case evaluation and selection in place. Now you need to maximize that data. The challenge? Traditional methods or tools may not be enough to keep pace with the complexities of digital assets — but it’s possible with both training and purpose-built technology.

In the examination process, examiners may come across crypto identifiers. It’s critical not to overlook evidence of crypto activity, as doing so can embolden future noncompliance. Two key challenges that quickly emerge at this stage are:

1. How to recognize evidence of crypto activity within documentation provided
2. How to assess the importance of that information in real-time, rather than referring the issue out and waiting for a response

Frontline examiners, auditors, analysts, and anyone involved in the documentation collection process should consider training on how to spot crypto identifiers. These include relevant indicators of crypto activity — whether it be fiat movements to exchanges, evidence of on-chain activity through hardware wallets or software wallets, or references in the public domain (e.g. social media accounts, news articles, etc.).

Because the data involved with a crypto examination is often both unique and expansive, traditional tools like spreadsheets are inefficient or impossible to use. To maintain efficiency — and the ability to effectively work large complex cases — frontline personnel need blockchain intelligence and data aggregation and reconciliation tools — many of which present a low barrier to entry, even for investigative personnel with little or no past training on cryptocurrency.

How blockchain intelligence scales crypto-related enablement

Although some tax agencies have specialized crypto groups, examiners often don’t have the time to refer every crypto-related question to those individuals. And as crypto continues to gain mainstream traction, bandwidth constraints will only continue to increase. 

Tax authorities need to find ways to enable all of their frontline personnel to deal with a broad array of basic crypto issues, while maintaining specialty groups to tackle the most complex cases. Blockchain intelligence solutions for tax authorities — like those from TRM Labs — can provide powerful insights to any user, including those with limited expertise in the inner workings of blockchain technology.

As examiners compile transaction data from both on- and off-chain sources, that data needs to be standardized, organized, and correlated in order to use it effectively in examinations. Specialized data aggregation and reconciliation tools — such as TRM partner Taxbit’s DARTS tool — can be used to standardize and assemble the data so that investigators can work with it more meaningfully.

Why teams need both blockchain intelligence and data aggregation tools

The combination of blockchain intelligence and aggregated data is critical for simplifying and streamlining issues that commonly arise in investigations and audit reviews. 

For example, entering a Bitcoin address found on a piece of paper at a scene might return not only Bitcoin, but also a bitcoin fork, like Bitcoin Cash — showing available balances at each address. Transactions on the Bitcoin network and the Bitcoin Cash network can then easily be added to the taxpayer’s data through a data aggregation tool that automatically correlates unit movements with existing data, and provides insights into the economic or tax impact on the audit.

As information is gathered and data is correlated, examiners or investigators can use blockchain intelligence to identify illicit risk connections, transaction history, and — crucially — any quick investigative leads linked to the address, including other native assets and tokens connected to that crypto identifier, like NFTs.

Together, blockchain intelligence and data aggregation and reconciliation tools are essential in enabling tax authorities to build a holistic picture of an individual’s crypto asset profile — efficiently, scalably, and self-sufficiently — while increasing the chance for tax authorities to identify noncompliance and revenue collection in all stages of the compliance case process.

By correlating data across sources, blockchain intelligence equips examiners to uncover illicit connections, trace full transaction histories, and even surface quick investigative leads. On blockchains like Ethereum, these tools can also detect native assets and tokens such as NFTs, adding crucial context to a taxpayer’s digital footprint. Together, these capabilities preserve efficiency, scalability, and speed — enabling investigators to build a holistic picture of a taxpayer’s crypto profile and maximize the chances of identifying noncompliance. 

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<span class="premium-content_chapter">PILLAR 7</span>

Streamlined seizures and collections

Once a tax examiner completes an investigation and makes an assessment of the amount of tax owed, the collection process begins. For tax authorities, this is where the stakes are highest. Without effective collections, even the most sophisticated examination process risks losing its deterrent power.

Traditional tools like liens and levies remain important — but digital assets introduce new challenges. Noncompliant taxpayers may keep wealth across centralized exchanges, DeFi protocols, and self-hosted wallets, often moving assets quickly to obscure ownership. Some may even claim insolvency while holding substantial value in crypto wallets beyond the immediate reach of traditional enforcement methods.

Unlike traditional bank accounts or tangible assets, crypto can be transferred across borders or into anonymity-enhanced services in seconds. This creates enforcement risks that demand agility. Tax authorities cannot rely on paper-based seizures or slow-moving asset freezes alone — they must adopt tools and processes that allow for rapid action.

Some of the key challenges tax authorities face include:

• Asset dispersion: Taxpayers may hold dozens of wallets across different chains, each with varying degrees of visibility
• Custodial diversity: Wealth may sit in centralized exchanges, decentralized protocols, or peer-to-peer marketplaces, requiring different legal and operational approaches for seizure
• Volatility: The value of seized assets can fluctuate rapidly, creating urgency for secure custody and timely liquidation
• Evasion tactics: Techniques such as chain-hopping, use of privacy coins, or layering funds through mixers complicate enforcement if authorities lack real-time blockchain visibility

Here, blockchain intelligence becomes critical. By continuously monitoring wallets linked to delinquent taxpayers, authorities can be alerted the moment funds move. This visibility allows agencies to trace assets across blockchains and services, enabling targeted seizures before wealth disappears into cold storage or cross-chain swaps. In practice, this transforms collections from a slow, manual process into a near real-time capability.

Seizures and collections are not only the final step in the compliance lifecycle, but also the most visible. Successful actions here demonstrate to taxpayers that crypto is not beyond the reach of tax law. Each seizure sends a strong signal that noncompliance carries real consequences — ultimately reinforcing voluntary compliance and strengthening public trust in the fairness of the system.

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Conclusion

Tax agencies worldwide face a generational opportunity: to harness blockchain intelligence not only to enforce compliance, but to modernize and build trust in the financial system. These seven pillars provide a practical roadmap for this transformation.

Agencies should start with foundational steps:

• Training their workforce
• Establishing secure data pipelines
• Testing automation workflows

From there, they can evolve into advanced capabilities, such as:

• Risk-based case selection
• Robust examinations
• Crypto-native collections

This progression allows agencies to move incrementally while building lasting institutional capacity.

As the IMF recently stated, “. . . tax systems need to accommodate [crypto assets] with a coherence, clarity, and effectiveness that, not having been constructed without crypto assets in mind, they currently lack. The challenges are both conceptual and, still more, practical.”

This is an exciting time for teams within tax authorities. With the right tools and frameworks, they can reimagine compliance itself — shifting from reactive enforcement to a proactive, fair, and efficient system that keeps pace with the digital economy. 

TRM Labs is proud to partner with governments around the world to turn these principles into practice — equipping agencies with the intelligence, technology, and expertise needed to close the tax gap and deliver greater fairness for taxpayers. If you’d like to learn more about how we work with tax authorities, get in touch here.

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Frequently asked questions (FAQs)

1. Why is building crypto knowledge across all tax agency roles important?

Because crypto tax issues now arise across examinations, fraud investigations, customer service, and policymaking. Workforce-wide training ensures consistent and effective enforcement.

2. How can tax agencies access crypto transaction data?

Through a combination of taxpayer disclosures, third-party VASP reporting, public blockchain data, and tools like John Doe summonses that compel platforms to share historical data.

3. What types of data should agencies collect to monitor crypto activity?

Wallet addresses, transaction hashes, account IDs, and timestamps are critical identifiers for understanding digital asset flows and linking taxpayer behavior across ecosystems.

4. How does blockchain intelligence support audit workflows?

‍It enables real-time tracing of crypto transactions, identifies potential income, and flags connections to illicit activity — giving investigators a complete digital asset profile.

5. What are the biggest barriers to effective crypto tax enforcement?

A lack of workforce training, insufficient data integration capabilities, and manual case triage processes that can’t scale to match the pace of digital asset adoption.

6. Can automation really work for agencies with limited tech maturity?

Yes. TRM’s “crawl, walk, run” approach helps agencies start small — layering in automation and blockchain analytics progressively to improve enforcement outcomes.

7. How does case selection modeling help reduce the tax gap?

It uses blockchain data and risk scoring to identify and prioritize taxpayers most likely to be underreporting or evading, increasing audit accuracy and efficiency.

8. What role do blockchain intelligence platforms like TRM play?

TRM Labs provides data-rich insights, risk indicators, and tracing capabilities to help tax agencies detect, investigate, and enforce compliance across the crypto ecosystem.

9. What makes crypto asset seizures so complex?

Taxpayers often hold assets in multiple wallets or services across blockchains, use privacy tools, and move funds quickly — making real-time intelligence essential for recovery.

10. What is the long-term goal of adopting these seven pillars?

To build adaptive, data-driven tax agencies that proactively enforce compliance, reduce the crypto-related tax gap, and maintain trust in the financial system.

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About TRM Labs

TRM Labs provides blockchain analytics solutions to help law enforcement and national security agencies, financial institutions, and cryptocurrency businesses detect, investigate, and disrupt crypto-related fraud and financial crime. TRM’s blockchain intelligence platform includes solutions to trace the source and destination of funds, identify illicit activity, build cases, and construct an operating picture of threats. TRM is trusted by leading agencies and businesses worldwide who rely on TRM to enable a safer, more secure crypto ecosystem.

TRM is based in San Francisco, CA, and is hiring across engineering, product, sales, and data science. To learn more, visit www.trmlabs.com.