News

IRS monitoring bitcoin ATM activity, looking into compliance

iStock photo

November 18, 2019

As bitcoin ATMs proliferate in the U.S. and beyond, so too does concern over their regulatory compliance.

Last week, a top agency official at the U.S. Internal Revenue Service said that criminal investigators at the agency were "very" focused on the potential tax implications raised by cryptocurrency kiosks and ATMs, according to a report in Bloomberg Law. 

IRS Criminal Investigation Chief John Fort said his team is working with law enforcement partners to monitor the activity enabled by the machines.

"We're looking at those, and the ones that may or may not be connected to bank accounts," Fort told Bloomberg Law. "In other words, if you can walk in, put cash in and get bitcoin out, obviously we're interested potentially in the person using the kiosk and what the source of the funds is, but also in the operators of the kiosks."

Two thirds of all of the crypto ATMs in the world are located in the U.S., and many of those are in areas of heavy foot traffic and major U.S. cities. They function by allowing users to pay cash — in some cases with a debit card — in exchange for bitcoin and other cryptocurrencies. But the source of the funds — and whether the kiosk operators are properly checking the identities of people using the kiosks — in many cases, is coming under question. 

By law, bitcoin ATMs are supposed to follow the same know-your-customer rules as banks, but those laws are not always enforced. 

"They're required to abide by the same know-your-customer, anti-money laundering regulations, and we believe some have varying levels of adherence to those regulations," Fort said in the report.

A lack of transparency around the source of funds could lead to illicit activities, like money laundering and tax evasion, and Fort is concerned about the potential for noncompliance. 

The IRS has not filed any public cases yet, he said, but it does have open cases related to crypto in inventory.