Sharing information with law enforcement about the beneficial ownership of companies trading cryptocurrencies and related entities is one of several ways the Internal Revenue Service could help combat cyber attackers that use decentralized ledger technology as a cloak for their escape, according to the bureau.

"The IRS generally may not share information it collects with [the Financial Crimes Enforcement Network] or other law enforcement agencies, like the FBI, currently receiving" reports regarding income in excess of $10,000, the bureau said in a recent letter to Sen. Maggie Hassan, D-N.H. "If those agencies can't receive digital asset transaction information, it will significantly degrade the utility of the information they do collect."

The letter explains that despite Congress calling for relevant federal agencies to contribute to a database on who ultimately owns and profits from a company—in the Corporate Transparency Act that became law with the National Defense Authorization Act of 2021—the IRS is not permitted to do so due to confidentiality provisions of the Internal Revenue Code.

The beneficial ownership database, which FinCEN is working to implement, has been a bipartisan effort aimed at countering money laundering and various other purposes for which criminals use shell companies. The IRS is empowered to levy penalties on "illicit money-transmitting businesses engaged in the use of both crypto and fiat currencies," the bureau said, adding "enhancements to these civil and criminal penalties for egregious behavior in the cryptocurrency space could also be applied to promote voluntary compliance."

A spokesperson for the IRS told Nextgov, "our responsive letter does not ask for a change in legislation." Indeed the IRS was not asking, but responding to, questions in a letter Hassan had addressed to Commissioner Charles Rettig, along with Attorney General Merrick Garland, Homeland Security Department Secretary Alejandro Mayorkas, Securities and Exchange Commission Chairman Gary Gensler and FinCEN Acting Director Him Das.