The Internal Revenue Service (IRS) is auditing companies who registered with the Financial Crimes Enforcement Network (FinCEN) as a Money Service Business (MSB) involved in the Bitcoin space — it’s called a Title 31 Exam. These exams were once typically reserved for Indian Casinos but they're happening in the Bitcoin space now. I’ve seen a few companies get hit with these exams last week and from what I've heard, they've been issued en masse, rather like the SEC subpoenas of early 2018[1]. It's an unpleasant notice to receive. The far-reaching rules of the Bank Secrecy Act (BSA) apply equally to companies with large resources and small-scale bitcoin ATM operators or exchangers.
The notice tells the MSB company that the IRS is coming in person to ensure the MSB complies with the BSA. They are picking a four-month range and examining all transactions that have taken place within the specified dates. This is not an income tax audit, but the notice makes sure to point out that the recipient may be liable for penalties if they have failed to comply with the BSA.
Registration as a Money Service Business
It all feels like an attack on the fungibility of bitcoin, but no matter a company’s views on privacy, the reality of the situation is this: If you exchange or issue cryptocurrency as a business in America, you are required to register as an MSB and comply with the Bank Secrecy Act. These steps require
- Hiring a compliance officer;
- Registering as an MSB with FinCEN;
- Drafting a robust Compliance Program including an AML Policy, OFAC Policy, KYC Policy, Customer Identification Policy, Enhanced Due Diligence Policy, SAR Policy, CTR Policy, Record Retention Policy, Independent Testing Policy, and Staff-Training Policy; and
- Following the policy.
Based on the documents being requested, the IRS
