A report in the United States by the Treasury Inspector General for Tax Administration (TIGTA) exposes the negligence of the Internal Revenue Service (IRS). It demonstrates that the agency is failing in its duty to safeguard $8 billion in bitcoin (BTC) and cryptocurrencies seized since 2017.

The findings reveal operational chaos. This is due to agents who misplaced three hardware wallets and accidentally destroyed a recovery phrase, forcing a costly transfer of funds.

The report also reveals that agents failed to complete procedures, such as completing key documents for assets valued at nearly $3 million, preventing their tracking and verification.

On the other hand, the report details that evidence tampering occurs when litecoin is converted to bitcoin without authorization, violating good asset preservation practices. Additionally, the tracking system is shown to be useless, as the inventory software (AFTRAK) presents incorrect data for 43% of the assets, showing false locations and inconsistent amounts.

Procedural errors go beyond simple bureaucracy, creating a tangible risk of loss, theft, or mismanagement of confiscated assets to money laundering networks and cybercriminals. It's clear that each failure undermines the agency's mission and casts doubt on its ability to navigate the new era of finance. The report warns that without strict controls, recovered assets could simply disappear, weakening the fight against organized crime and eroding public trust.

Fiat money bureaucracy versus bitcoin custody

Justin Bechler, an active commentator in the Bitcoin community, harshly criticized the IRS's shortcomings in handling seized Bitcoin and other digital assets. He noted that the agency is a bureaucracy trained in fiat money, and is therefore ill-equipped to handle a cryptographic monetary system like Bitcoin, which requires competent custody and advanced technical skills due to its irreversible and bearer nature.

Bechler argues that the report demonstrates the collapse of traditional compliance infrastructure in the face of digital monetary sovereignty. In his view, the IRS handles billions in volatile assets without the necessary technical capacity, audit transparency, or operational safeguards, increasing the risk of theft, loss, or manipulation of government-held funds.

In response to the disaster, Nancy A. LaManna, TIGTA's Assistant Inspector General for Inspections and Assessments, issued several recommendations for immediate compliance. 

The IRS, under pressure, accepted most of the recommendations and announced an action plan to contain the crisis. The agency pledged to implement quarterly reconciliations to enforce paperwork compliance and launch internal audits to verify data accuracy. The effectiveness of these measures will determine whether the government can regain control or whether assets will continue to leak through the cracks of a broken system.

This IRS debacle also undermines the credibility of the executive order President Donald Trump issued in March. That directive required Treasury Secretary Scott Bessent to evaluate the creation of a strategic reserve and a Digital Asset Depository for the nation within just 60 days. 

However, the auditor's report shatters that ambition, demonstrating that the government is failing in the very basic tasks of custody and tracking that Bessent was supposed to analyze. The questions that remain in the air now are: What happened to that assessment? And how can the Treasury plan a national vault if it can't even find the keys to the one it already has?