On April 17, 2023, IRS Criminal Investigation (“IRS CI”) Chief Jim Lee announced that IRS CI will soon launch a new data center to provide resources and support towards combating highly technical and cryptocurrency-related crimes. The center, which will be known as the Advanced Collaboration and Data Center (“ACDC”), will involve a support-focused, task force model that combines the expertise of cybercrime special agents, computer scientists, data scientists, and experts from other agencies to ensure that IRS CI agents have the necessary resources to confront technical challenges while investigating cyber-related crimes.1
IRS CI’s efforts to combat cybercrime are focused out of its flagship Eastern and Western Cyber Crimes Units (“CCUs”), which are headquartered in Washington, D.C., and Los Angeles, respectively. In FY 2021, IRS CI established the Office of Cyber and Forensic Services (“CFS”) to consolidate its digital asset investigation, cybercrime investigation, digital forensics, and physical forensics support efforts within one office. CFS is tasked with supporting IRS CI at large (and particularly the Eastern and Western CCUs) in its investigations involving digital assets.2
The ACDC will be based in Northern Virginia and will support IRS CI by serving as a repository of investigative tools and expertise on emerging cybercrime issues. With respect to cryptocurrency enforcement, ACDC will assist IRS CI agents with tracing and monitoring, and by performing tax basis calculations. ACDC experts will also assist IRS CI in research, monitoring, and investigations related to the dark web. Chief Lee noted that ACDC’s investigators, analysts, and other experts could assist IRS CI agents specifically with accessing and understanding digital evidence found in the operating systems of smartphones and laptops, including in devices that are obsolete, broken, or encrypted.
Cryptocurrency-related criminal enforcement is an area of increased focus for the IRS. In February 2022, the Department of Justice (“DOJ”) announced the arrest of two individuals, Ilya Lichtenstein and Heather Morgan, for allegedly conspiring to launder cryptocurrency that was stolen during the 2016 Bitfinex hack. IRS CI’s Cyber Crime Unit collaborated with other law enforcement agencies to trace the stolen funds on the bitcoin (“BTC”) blockchain and decrypt an unhosted BTC wallet that contained a majority of the stolen funds. Of the approximately 119,754 BTC that were stolen, IRS CI special agents recovered over 94,000 BTC (valued at over $3.6 billion at the time of seizure)—the largest single financial seizure in U.S. government history. Relatedly, in November 2021, IRS CI and the DOJ traced and seized over 50,676 BTC (then valued at over $3.36 billion) that had been unlawfully obtained from the Silk Road dark web marketplace.3
The launch of the ACDC represents a major step in IRS CI’s enforcement efforts and continues the government’s support-focused, task force approach to leveraging valuable resources from multiple agencies.
1 See Kat Lucero, “IRS Criminal Unit To Open Cyber Data Center, Chief Says,” Law360 Tax Authority, April 17, 2023 https://www.law360.com/tax-authority/articles/1597808/irs-criminal-unit-to-open-cyber-data-center-chief-says.
2 See IRS Criminal Investigation 2022 Annual Report (IRS Publication 3583), https://www.irs.gov/pub/irs-pdf/p3583.pdf.
3 See U.S. Attorney Announces Historic $3.36 Billion Cryptocurrency Seizure And Conviction In Connection With Silk Road Dark Web Fraud, U.S. Department of Justice, November 7, 2022 https://www.justice.gov/usao-sdny/pr/us-attorney-announces-historic-336-billion-cryptocurrency-seizure-and-conviction.