Privacy Coins Won't Save You From the IRS (They'll Make It Worse)

By Clinton Donnelly, CEO, Founder | CryptoTaxAudit

Andrew Tate posted something over the weekend that shocked a lot of people.

 He's warning crypto investors to move their assets into privacy coins like Zcash. For protection. For safety.

High-net-worth holders are listening. Zcash pumped 10x in six weeks because people are panicking into "privacy."

But Tate's solution could destroy you faster than doing nothing.

And I've been warning about this for years.

Key Takeaways

• 75% of U.S. crypto investors don't report their holdings to the IRS
• The IRS already uses Palantir, Chainalysis, and Elliptic to track blockchain activity
• Form 1099-DA (starting tax year 2025) will report wallet addresses tied to your identity
• Privacy coins like Monero and Zcash raise automatic money laundering red flags
• Criminal investigation is the IRS's fastest path to seizing crypto assets
• Moving to privacy coins makes you look guilty, not protected

The IRS Already Knows More Than You Think

Tate claims governments with budget problems are targeting crypto holders using AI and blockchain analysis tools.

He's describing what's already happening.

The IRS is already using Palantir technology to integrate data. They pull from Chainalysis and Elliptic. These tools monitor blockchain transactions.

Starting in 2025, exchanges must file Form 1099-DA. This form reports wallet addresses you transfer coins to and from.

The IRS will know which wallets you control. They'll know the KYC data. The Palantir software will gather this and create a big picture to map data irregularities.

Did the high-frequency trader not report his high-frequency trades? They'll see it.

Did you move coins between wallets without reporting each transaction? They'll see it.

IRC Section 6050I already requires businesses to report crypto transactions over $10,000. The new 1099-DA rules tighten the net even more.

Why Your "Normal" Crypto Behavior Looks Like Money Laundering

Here's the problem most crypto investors don't understand.

Your everyday behavior can look identical to money laundering.

You move coins between wallets. You use DeFi protocols. You swap on DEXs. You send funds to cold storage.

All of this creates patterns that match classic money laundering techniques under FinCEN guidance.

The IRS doesn't need to prove you're laundering money. They just need to prove you didn't report taxable transactions.

And roughly 75% of crypto investors in the U.S. aren't even reporting their crypto to the IRS. That's setting themselves up for potential tax fraud and tax evasion charges.

Every unreported trade is potential tax fraud under IRC Section 7201.

The Privacy Coin Trap Nobody Talks About

Tate suggests moving assets to zero-knowledge proof coins like Zcash.

Zcash pumped 10x in the last six weeks. Why? Because high-net-worth crypto holders are panicking into "safety."

But here's what nobody's saying out loud.

Using privacy coins could make you a bigger target.

Once you start using privacy coins, it's automatically a money laundering red flag. It draws attention to you.

You either have to be 100% in or don't even touch these coins.

I know people who have been for years regularly moving their money into Monero and into Zcash, and other privacy tokens.

Now their difficulty is that when they want to take assets out, they are flagged as red flag transactions. Nobody wants to deal with those coins.

They have a real difficulty maintaining their value.

When they eventually do cash out, they're in a position where it looks like they have a lot of shady source of funds. That may scare away an exchange from wanting to help you cash out.

The moment you move funds into Monero, Zcash, or any privacy protocol, you trigger automatic red flags. Financial institutions flag these transactions as high-risk.

And if you do go all-in on privacy? You're still a U.S. taxpayer. You still owe taxes on gains under IRC Section 61. Not reporting those gains because you used privacy tools doesn't make the tax liability disappear.

It just makes you look guilty while trapping your assets.

Criminal Prosecution Is the Goal (Not the Side Effect)

According to Tate, governments are making an effort to criminally prosecute people. The purpose of this criminal prosecution is to get their Bitcoin from them.

I've been saying this for a long time.

Criminal investigation is the easiest way for the IRS to crack down on crypto investors who are not reporting all their crypto transactions. It's also how they catch people engaged in edgy transactions that might make them run afoul of money laundering laws.

Under civil forfeiture laws, the government can seize your crypto before you're even convicted. They just need probable cause that it's connected to illegal activity.

Unreported crypto gains? That's illegal activity.

There are roughly 10,000 wallets that have more than one Bitcoin in them. That's a very small population of people to go after. Many of them are in the U.S. Many are outside the U.S. but are still U.S. citizens.

The IRS can apply the combined forces of the CIA and the NSA to go after people. They could possibly steal coins from you. But the criminal system is so much easier for them to bring people to bear.

For large holders, the math is simple. The cost of the investigation is worth it when the prize is six or seven figures.

Civil audits take years. Criminal cases move faster and hit harder.

If you're holding more than 1 BTC and haven't been reporting everything, the IRS already considers you a target. 

What Should You Actually Do?

Don't panic into privacy coins.

That's the worst move you can make right now.

Here's what actually protects you:

Get compliant now. File accurate tax returns using Form 8949 for crypto transactions. If you've missed past years, consider a voluntary disclosure before the IRS finds you.

Understand your records matter. Keep transaction records for every trade, transfer, and wallet movement. The IRS won't accept "I forgot" when they have blockchain evidence.

Diversify into reportable assets. Move some wealth into real estate, stocks, or other mainstream assets. These generate cash flow and don't carry the same seizure risk.

Know that privacy ≠ protection. Privacy tools might hide transactions from casual observers. They don't hide you from federal investigators with subpoena power.

Get professional help before it's too late. The window for quiet compliance is closing. Once the IRS sends you a notice, your options get more expensive and more limited.

If you have unreported crypto, if you've used privacy coins, if you're sitting on six or seven figures in unreported gains—stop reading and go to cryptotaxaudit.com right now. We specialize in cleaning up messy situations and building defensible tax positions before the IRS shows up.

Every day you wait is another day the IRS's systems are mapping your transactions.

Frequently Asked Questions

Will the IRS really come after small crypto holders?

Not individually. But they'll use automated systems to flag accounts. If your patterns match their algorithms, you get audited regardless of size. The new 1099-DA reporting makes this automated targeting much easier starting in 2025. If you're worried you're already flagged, visit cryptotaxaudit.com to evaluate your risk.

Can I use privacy coins legally?

Yes, but using them raises suspicion. Financial institutions view privacy coin transactions as high-risk. More importantly, using privacy tools doesn't exempt you from tax reporting requirements. You still owe taxes on gains. If you've already used privacy coins and need to report them correctly, go to cryptotaxaudit.com now—we handle complicated compliance situations every day.

What if I already used privacy coins?

You can still get compliant. Document what you did, calculate your gains correctly, and file amended returns if needed. The earlier you fix it, the better. Don't try to figure this out alone. Go to cryptotaxaudit.com and let us build a defensible position before the IRS contacts you.

How does the IRS track crypto if I use multiple wallets?

Blockchain analysis tools like Chainalysis map connections between wallets. Exchange KYC data ties your identity to specific addresses. The IRS's Palantir integration combines these data sources. They see patterns you don't think are visible. If you've been moving crypto between multiple wallets without reporting, visit cryptotaxaudit.com before the IRS connects the dots.

Should I just not report my crypto and hope for the best?

No. The penalties for tax evasion include up to five years in prison and $250,000 in fines. Civil penalties can exceed the original tax owed. The risk isn't worth it. If you haven't been reporting, go to cryptotaxaudit.com today. We offer consultations to evaluate your specific situation and build a path to compliance.

Can the government actually seize my crypto?

Yes. Under civil forfeiture laws, law enforcement can seize assets suspected of being connected to crimes. They don't need a conviction first. If your crypto is tied to unreported income, that gives them grounds for seizure. Protect your assets by getting compliant now at cryptotaxaudit.com.

What's the safest way to cash out large crypto positions?

Work with a CPA who understands crypto tax law. Plan your cash-out to minimize tax liability legally by using strategies such as tax-loss harvesting or spreading sales across multiple years. Document everything. We build compliant exit strategies for high-value positions every day. 

Clinton Donnelly is a CPA and Enrolled Agent who runs CryptoTaxAudit, a crypto tax preparation firm. This article is for educational purposes only and is not legal or financial advice.