The IRS is looking for new ways to spot illicit activity in the digital asset space — and it wants the public’s help. (Request for Comment on Innovative Methods to Detect Illicit Activity Involving Digital Assets, 8/15/2025)
Request for Comment
Following the July enactment of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, the Treasury issued a request for comment on how financial institutions and technology firms can use tools like application program interfaces, artificial intelligence, digital identity solutions, and blockchain monitoring to detect digital asset crimes.
The agency is also interested in feedback on cryptographic protocols, privacy tools, cloud solutions, on-chain compliance, oracles, and smart contract verification.
The GENIUS Act, signed into law July 18, brings payment stablecoin issuers under the Bank Secrecy Act, subjecting them to anti-money laundering and customer identification requirements. While the law does not change the tax treatment of stablecoins, it marks a new era of federal scrutiny for digital asset markets.
New Tools for New Rules
Digital asset compliance is now a top IRS enforcement priority, with the agency using advanced analytics to detect underreporting and fraud.
IRS initiatives like Operation Hidden Treasure use blockchain analysis to uncover tax evasion and money laundering. The Large Business and International division has focused on high-wealth individuals and entities, while Criminal Investigation has brought several high-profile digital asset fraud cases.
Since 2022, Form 1040 has included a digital asset question. In 2024, the IRS finalized rules requiring brokers — including custodial trading platforms, wallet providers, and certain payment processors — to report gross proceeds from digital asset sales on Form 1099-DA, starting with 2025 transactions. Basis reporting will be phased in for 2027.
The IRS is offering transitional relief for brokers making good faith efforts to comply and has temporarily excluded some transaction types, such as staking and lending, from reporting until further guidance is issued.
Congress repealed IRS rules that would have required decentralized finance brokers to report digital asset transactions, citing administrative and privacy concerns. Centralized broker reporting remains in effect. Digital assets are still treated as property for federal tax purposes, and taxpayers must report all related income.
The IRS has also delayed implementation of cash reporting requirements for digital assets under IRC § 6050I, pending further regulations.
Legislative Proposals
Congress continues to debate several bills affecting digital asset taxation and enforcement, including a de minimis exemption for small transactions, deferral of taxation on staking rewards until sale or disposition, and application of the wash sale rule to digital assets. As of August 2025, none of these proposals have been enacted, but they remain active topics of debate.
The IRS’ request for comment highlights the agency’s focus on technology and public input to address compliance challenges in the digital asset space. Stakeholders have until the deadline in the Treasury’s notice to submit comments and help shape the future of digital asset enforcement.
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