Thread by @1914ad

⚠️ SBR Audit ⚠️

A damning report was released on Tuesday that exposes the IRS’s catastrophic failure to safeguard billions in seized digital assets. Missing keys, botched memos, asset tampering, etc.

The incompetence is systemic.

Full breakdown in the thread. 🧵👇🏻

The Treasury Inspector General’s report shows IRS Criminal Investigation drowning in digital asset seizures with no grasp of the tech, custody, or procedures required to handle bearer assets. They’re flying blind with billions in “crypto” under their control.

This is clearly structural incapacity. The institution lacks the competence, precision, and technical control required to manage digital assets at any level.

You’re looking at an institution that has seized over $8 billion in digital assets (almost entirely “crypto”) but lacks the most basic safeguards to ensure those assets aren’t lost, altered, or misrepresented.

If you watch Matt Kratter videos, you’re more capable! 🤦🏻‍♂️

Let’s start with the core failure: seizure memorandums, the primary document for logging and justifying asset custody, were missing or incomplete for dozens of high-value seizures. 👇🏻

Three seized assets worth over $2.8 million had no documentation at all. Another seventy-plus had no time-stamped record of when the seizure was recorded. Some memos listed wrong wallet addresses. Others couldn’t even distinguish between the source and the destination wallets.

This is basic chain-of-custody negligence. If a private custodian handled $2.8 million like this, they’d be shut down, indicted, or both.

More alarming is how the agency botched wallet handling and key management.

In one case, they shredded the recovery seed phrase to a government-controlled wallet. Had the private key also been lost, the funds would’ve been permanently gone.

In another case, agents couldn’t transfer seized Litecoin, so they converted it into Bitcoin, violating best practices by altering the form of the asset. That’s tampering!

Even worse, they failed to monitor wallets they knew were still active.

One wallet linked to dark web activity received additional Bitcoin after seizure. It was supposed to be tracked. It wasn’t. Why? Because the responsible specialist retired, and nobody picked up the chain of custody.

That wallet ended up with $14,060 more in tainted funds, unseized, unaccounted for, and effectively laundered under IRS stewardship.

Then there’s AFTRAK, the IRS’s asset tracking system, which somehow doesn’t track digital assets accurately. It doesn’t even have fields for crypto asset quantity or type.

Almost half the seized assets had incorrect location records. Several were mislabeled as being in hardware wallets when they’d already been transferred or liquidated.

One wallet listed in the system had 1.0764 BTC, but the actual amount was 1.1764 BTC—a discrepancy worth nearly $10,000. The IRS is seizing fractional, high-volatility digital assets but tracking them with systems built for forfeited cars and cash.

The agency claims it’s begun correcting these failures with new staff and updated guidelines.

But this is a fiat-trained bureaucracy wading into an adversarial, real-time, cryptographically-enforced monetary system it doesn’t understand. The report shows that the IRS has tried to force crypto assets into a legacy custodial framework designed for physical goods or database entries that can be reversed or overwritten.

What we’re seeing is the breakdown of legacy enforcement infrastructure when confronted with Bitcoin’s irreversibility, bearer nature.

The state can’t just “possess” Bitcoin the way it does with fiat. It has to prove competent custody, technical proficiency, and immutable recordkeeping.

This report makes it clear it cannot!

The federal government has proven that it can’t be trusted to control money it didn’t issue and doesn’t understand.

Bitcoiners should take note: the apparatus tasked with enforcing the monetary order is crumbling under the weight of digital monetary sovereignty.

The implications are massive.

The IRS is sitting on billions in volatile, easily mismanaged assets, without the technical skill, audit clarity, or operational safeguards required to steward them.

The chance for theft, loss, or manipulation is real.

And any future legal challenges against IRS seizures now have ammunition to claim due process violations and custodial mismanagement.

A damning look at how the IRS handles seized digital assets should obliterate any trust in their ability to audit self-custodied Bitcoin. If they can’t track wallets they control, how will they verify balances they don’t?

The SBR audit is a farce.

David Sacks is almost six months into his role as “Crypto Czar” and he still hasn't told us how much Bitcoin the United States stole.

The Strategic Bitcoin Reserve is being pushed by the same political class whose agencies lose keys, shred seed phrases, tamper with seized assets, and misreport wallet balances.

They don’t understand what they’re trying to control and have no business holding Bitcoin.

The .pdf is here: s3.amazonaws.com/pdfs.taxnotes.…